Repayment Of Related-Party Debts During Two-Year Look-Back Period Can Be Preferential Transactions: NCLT Kochi

The National Company Law Tribunal (NCLT), Kochi Bench, has held that repayment of antecedent debts to related parties during the two-year look-back period under the Insolvency and Bankruptcy Code, 2016 (IBC), can constitute preferential transactions.

Such payments can attract Section 43 (preferential transaction) if they are made towards antecedent liabilities and place the recipients in a more beneficial position than they would have been in under the distribution of assets prescribed by Section 53 (waterfall mechanism).

A bench of Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy observed that the payment of an antecedent liability to a related party had placed one of the recipients in a more beneficial position.

“By receiving such payment during the relevant period, Respondent No.1 was placed in a more beneficial position than he would have been in the event of distribution of the assets of the Corporate Debtor under Section 53 of the Code. Thus, the requirement under Section 43(2)(b) of the Code stands satisfied,” the bench observed.

The case arose during the corporate insolvency resolution process (CIRP) of Jomer Properties and Investments Private Limited, which commenced on February 16, 2024. A forensic audit conducted during the process identified payments to two related parties.

The resolution professional sought recovery of ₹13.09 lakh paid to former director M.M. Jose and ₹2.03 lakh paid to Renju Jose, who later became the company's Managing Director.

The tribunal found that M.M. Jose had an outstanding unsecured loan. The respondents neither appeared before it nor produced documents justifying the payments. In Renju Jose's case, the company had paid him ₹28.10 lakh, against ₹26.07 lakh transferred by him, leaving an excess payment of ₹2.03 lakh.

Relying on an NCLAT ruling, the tribunal directed both to refund the amounts within 30 days, along with the prescribed interest.