Avoidance Relief u/s 43 Unsustainable without Proof that Corporate Debtor Granted Preference: NCLT Rejects ₹26.79 Crore Claim against Sintex Industries [Read Order]

The Ahmedabad Bench of the National Company Law Tribunal (NCLT) has dismissed an avoidance application seeking reversal of an alleged preferential transaction worth ₹26.79 crore, holding that relief under Section 43 of the Insolvency and Bankruptcy Code (IBC) cannot be granted unless it is established that the Corporate Debtor itself granted the alleged preference.

The application arose after the Resolution Professional alleged that IDBI Bank had transferred ₹19.35 crore from the Corporate Debtor’s bank account to the account of Sintex Industries Limited and further adjusted ₹7.44 crore towards creation of a fixed deposit against a bank guarantee, aggregating to ₹26.79 crore.

According to the applicant, the transfers were made on the strength of a forensic audit report alleging diversion of funds between the group companies. It was contended that the bank acted without any judicial direction and despite interim orders of the Delhi High Court concerning the forensic audit report. The applicant further alleged collusion among IDBI Bank, Sintex Industries and the suspended management to deplete the Corporate Debtor’s assets immediately before commencement of the Corporate Insolvency Resolution Process (CIRP).

The applicant argued that the transfer conferred an undue preference upon a related party during the statutory look-back period and therefore qualified as a preferential transaction liable to be reversed under Section 43 of the IBC.

Sintex Industries, however, denied issuing any instructions or authorising the transfer, maintaining that the transaction was undertaken solely at the discretion of IDBI Bank. The bank also challenged the maintainability of the application, contending that Section 43 applies only where the Corporate Debtor itself grants a preference and not where a bank independently appropriates funds.

The suspended directors similarly denied any involvement or collusion, asserting that no instructions had been issued by them for the impugned transaction.

The Tribunal observed that although the transfer of funds was undisputed, the common thread running through the pleadings was that the Corporate Debtor neither initiated nor authorised the transaction. Instead, the transfer was an independent action taken by IDBI Bank based on a forensic audit report.

The Tribunal held that the essential ingredients of a preferential transaction under Section 43 of the IBC were not satisfied since the impugned transfer was admittedly carried out unilaterally by IDBI Bank and not by the Corporate Debtor. Consequently, the application under Sections 43 and 44 of the Code was dismissed

The Bench comprising Shammi Khan (Judicial Member) and Sanjeev Sharma (Technical Member) held that the applicant failed to establish that the transfer was made towards an antecedent debt owed by the Corporate Debtor or that Sintex Industries received the amount as a creditor in terms of Section 43. The Tribunal also found no documentary evidence demonstrating collusion, authorisation or participation by Sintex Industries or the suspended directors, observing that mere suspicion cannot substitute proof.

Accordingly, the Bench dismissed the avoidance application and declined to grant any consequential relief under Section 44 of the IBC.

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