Court established criteria for identifying preferential transactions under section 43 which must satisfy specific requirements including the discharge of antecedent debt and impact on creditor positions.

ORDER

Per: Prabhat Kumar, Member (Technical)

1. The present Application IA-1074/2023 is filed on 17.03.2023 by the Applicant/Resolution Professional (RP), Mr. Bhrugesh Amin, under Section 43 of the Insolvency and Bankruptcy Code, 2016 ("Code") seeking following reliefs:

a) “Consider the present application IA-1074/2023 under Section 43 of IBC, 2016;

b) Direct the Respondents to make such contributions to the Corporate Debtor aggregating to sum of Rs.3,21,70,651/- each such Respondents jointly and equally, as stated in this Application with regard to the financial benefit extended by way of preferential treatment to related parties creditors and other creditors which falls within the look back period in terms of section 43 of the Code;

c) Pass appropriate directions/orders in terms of Section 44 , of the Code including for recovery/restoration of legitimate amount due to the Corporate Debtor;

d) Issue orders that recovery, if any, made pursuant to this Application, shall form part of the liquidation estate as per section 36 of the Code and shall be exclusive right of the CoC/stakeholders of the Corporate Debtor.

e) Impose such fine under Section 71, 72 and 73 of the Code upon the Respondents as this Hon’ble Tribunal may deem fit;

f) And for such other/further order(s) and/or direction (s) as the facts and circumstances of the case may warrant.

2. The Applicant submits that the application for the Corporate Insolvency Resolution Process (CIRP) was filed by Beacon Trusteeship Limited in the matter of Corporate Debtor i.e. Modella Textile Industries Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, was admitted by the Hon’ble National Company Law Tribunal, Mumbai Bench vide order dated 04 May 2022 and Bhrugesh Amin was appointed as the Interim Resolution Professional ("IRP”).

3. Pursuant to receipt of claims, the IRP constituted a Committee of Creditors (“COC”) comprising of all the financial creditors in accordance with Section 21(1) of the Code in compliance with Regulation 17 and 13(1)(d) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016.

4. The Applicant submits that during the course of CIRP, transaction auditor viz. Nangia & Co LLP was appointed to undertake the transaction audit of the books of the Corporate Debtor for the period from 05 May 2020 to 04 May 2022 (insolvency commencement date).

5. Subsequently, the Transaction auditors have filed their Transaction Audit Report dated 10 March 2023 which provides sufficient reasons to believe that the Respondents has undertaken certain preferential transactions with an intent to defraud the creditors which are covered under the provisions of Section 43 of the Code.

TRANSACTIONS UNDERTAKEN BY THE RESPONDENTS THROUGH THE CORPORATE DEBTOR WHICH ARE CLASSIFIED WITHIN THE MEANING OF SECTION 43 OF THE CODE - PREFERENTIAL TRANSACTIONS:

6. The Applicant submits it is relevant to note the provisions of section 43 of the Code which is reproduced hereunder:

“ Section 43 . Preferential transactions and relevant time

(1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub- section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section 44.

(2) A corporate debtor shall be deemed to h