Promoter Asset Transfers Can Constitute Preferential Transactions Under IBC: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai, on 16 October held that transferring company assets to a promoter and adjusting their value against the promoter's loan liability can constitute a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code (IBC), 2016, unless the transaction satisfies the statutory exceptions.

A Bench of Judicial Member Vinay Goel and Technical Member Charanjeet Singh Gulati partly allowed an application filed by the Resolution Professional of Nirmangold Alloys Private Limited, seeking reversal of transactions alleged to be preferential. It observed:

“In terms of Section 43(2) of the Code a transaction is deemed to be preferential transaction and for the exception provisions of 43(3) to operate it needs to be demonstrated that the transaction/transfer has taken place in ordinary course of business and such fact specifically needs to be established and it just cannot be assumed.”

The Resolution Professional contended that payments to related parties, adjustments against the promoter's loan account and transfers of company assets had benefited the respondents at the expense of the corporate debtor. The respondents argued that payments to Anita Bhushan Patil were made towards business dues.

The Tribunal noted that adjustments against promoter Bhushan Pundlikrao Patil's unsecured loan account reduced the amount owed by the corporate debtor from Rs. 4.36 crore to Rs. 2.38 crore. It found that the adjustments related to a proposed steel purchase that had subsequently been cancelled.

Further, the Bench noted that company assets, including a Skoda Rapid car and a Hero Honda motorcycle, had been transferred, with their value adjusted against the promoter's loan liability. It also found that the respondents had failed to substantiate payments of Rs. 87.25 lakh to Anita Bhushan Patil through supporting business records. The transaction therefore did not qualify for the ordinary-course-of-business exception under Section 43(3) of the IBC.

Regarding the payment of Rs. 40 lakh to Tuljai Industries Products Private Limited, it held that the transaction fell outside the applicable look-back period.

Accordingly, the NCLT partly allowed the application and directed Bhushan Pundlikrao Patil and Anita Bhushan Patil to refund a total of Rs. 2,85,43,809 (approximately Rs. 2.85 crore).