Jasvinder Singh Makan vs Anish Kumar Sanghi

INDEVAR PANDEY, MEMBER (T)

These appeals have been filed by the Appellant, Mr. Jasvinder Singh Makan, under Section 61 of the Insolvency & bankruptcy Code, 2016 (hereinafter the ‘Code’) and arise from the proceedings in C.P. (IB) No. 550/ND/2020 whereby the Corporate Insolvency Resolution Process (CIRP) was initiated against M/s M.K. Printech Pvt. Ltd, (Corporate Debtor). Mr. Anish Kumar Sanghi, the Resolution Professional and subsequently Liquidator of the Corporate Debtor, is the sole Respondent in both appeals. The first appeal has been preferred against the order dated 28.08.2024 passed by the Learned National Company Law Tribunal (Adjudicating Authority), New Delhi Bench (Court-II), in I.A. No. 937/2023, whereby the Adjudicating Authority allowed an application filed by the Respondent under Section 43 of the Insolvency and Bankruptcy Code, 2016 and directed the Appellant to contribute a sum of Rs. 19,66,689.77 to the assets of the Corporate Debtor, after proceeding against the Appellant ex-parte and without granting him an effective opportunity of hearing.

Subsequent thereto, the Appellant, filed I.A. No. 4681/2024 before the Adjudicating Authority seeking to set aside order dated 04.06.2024 vide which appellant was proceeded as ex-parte and recall of the consequential order dated 28.08.2024 in I.A. No. 937/2023. The aforesaid recall application came to be dismissed by a speaking order dated 01.04.2025, leading the Appellant to file the connected appeal assailing the said dismissal.

Both appeals, though directed against separate orders dated 28.08.2024 and 01.04.2025 respectively, involve identical parties and are founded on the same factual matrix. While the first appeal challenges the ex-parte adjudication on merits under Section 43 of the Code, the connected appeal challenges the refusal of the Adjudicating Authority to recall and correct the procedural illegality arising from denial of hearing. The two appeals, therefore, are connected and warrant consideration together.

The brief facts of the case are as given below:

The Corporate Debtor, M/s M.K. Printech Pvt. Ltd., was engaged in the business of manufacturing paper and paper products, including publishing and printing activities, and was operating its business prior to the initiation of insolvency proceedings.

A petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, being C.P. (IB) No. 550/ND/2020, was filed by Mr. Dalip Narendra Gupta, Sole Proprietor of M/s Gem International, seeking initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor. The Adjudicating Authority, by an order passed on 20.09.2022, admitted the application, commenced the CIRP of the Corporate Debtor, and appointed the Respondent herein as the Interim Resolution Professional.

In the first meeting of the Committee of Creditors held on 19.10.2022, the Respondent was confirmed as the Resolution Professional, and during this period, the Appellant was functioning as a member of the suspended Board of Directors of the Corporate Debtor.

After the lapse of nearly five months from the commencement of the CIRP, the Respondent, in his capacity as Resolution Professional, filed an application bearing I.A. No. 937/2023 under Section 43 of the Code on 06.02.2023, alleging preferential transactions against the Appellant and his father, arrayed as non-applicants therein.

In the meantime, the RP filed an application for liquidation of Corporate Debtor which was allowed by the Adjudicating Authority on 06.06.2023 and the Respondent/RP was appointed as Liquidator of the CD.

The I.A. No. 937/2023 was listed for the first time before the Adjudicating Authority on 31.05.2023, on which date the Appellant appeared on advance service and formally accepted notice issued by the Tribunal.

Even prior to the first listing of the application, the Appellant had already filed his detailed reply on 30.05.2023, contesting the allegations raised in I.A. No. 937/2023, and the filing details of the reply were duly reflected on the DMS portal.

After completion of pleadings, the application remained pending and was repeatedly listed on several dates including 25.07.2023, 31.08.2023, 10.10.2023, 07.11.2023, 19.12.2023, 05.02.2024, 20.03.2024 and 02.05.2024, during which period the Appellant consistently appeared before the Adjudicating Authority, though the matter could not be taken up on merits due to paucity of time.

When the matter was taken up on 04.06.2024, the main counsel representing the Appellant was engaged before the Hon’ble National Consumer Disputes Redressal Commission, and accordingly, a junior counsel appeared before the Adjudicating Authority and requested a pass over, which request was declined. Despite the presence of counsel for the Appellant being recorded, the Adjudicating Authority proceeded to treat the Appellant as ex-parte on the same date, recording that there was no representation on his behalf, and further directed the Respondent to file his reply within one week.

The appellant submits that junior counsel appearing on behalf of the Appellant noted that the next date of hearing was 28.09.2024, and the Appellant acted on the said understanding regarding the next listing of the matter.

Subsequently, while checking the case status on the NCLT website on 05.09.2024, the Appellant discovered, to his surprise, that the application had actually been listed and decided on 28.08.2024, and that the Adjudicating Authority had allowed I.A. No. 937/2023 in his absence.

By the impugned order dated 28.08.2024, the Adjudicating Authority allowed the application under Section 43 of the Code and directed the Appellant to contribute an amount of Rs. 19,66,689.77 to the assets of the Corporate Debtor.

The Appellant asserts that the impugned order was passed without affording him an opportunity of hearing, after wrongly proceeding him ex-parte, and on the basis of alleged incorrect submissions and misrepresentation of material facts by the Respondent. Aggrieved by the manner in which the proceedings were conducted and by the adverse directions issued against him, the Appellant has preferred the present appeals.

In his opening remarks, Ld. Counsel submits that the Application filed by the Respondent proceeds on an incorrect factual premise, misreading of bank transactions, and a fabricated ledger, and fails to satisfy the statutory ingredients required to invoke Section 43 of the IBC. Each of his subsequent submissions independently and collectively establishes that the impugned transactions do not constitute preferential transactions and that the Application deserves dismissal.

Ld. Counsel submitted that the amounts credited into the common loan account were infused by the Appellant from his own financial resources, routed through G.K. Sales, which is a proprietorship concern of Mrs. Gurmeet Kaur, the mother of the Appellant. The ledger and bank statements clearly demonstrate that the deposits were made prior to the automatic deduction of EMIs by Canara Bank, thereby establishing that the source of funds was entirely independent of the Corporate Debtor.

It is further submitted that Canara Bank, acting in its capacity as the Financial Creditor and in accordance with standard banking procedures, automatically deducted EMIs from the common loan account towards servicing the Appellant’s loan. The deductions were system-driven and not at the instance of the Corporate Debtor, thereby negating any allegation of a transfer initiated by the Corporate Debtor.

It is his submission that merely because the Appellant’s own funds were routed through a common loan account does not convert such routing into a transfer of assets by the Corporate Debtor. At no point did the Corporate Debtor part with its funds, nor did it confer any benefit upon the Appellant through its own assets.

He submitted that the foundational requirement under Section 43 of the IBC, namely, a transfer of property of the Corporate Debtor, is wholly absent in the present case. Since the EMIs were discharged entirely from the Appellant’s own funds, the question of a preferential transaction does not arise.

Ld. Counsel submits that during the period alleged by the Respondent as the relevant look-back period, deposits exceeding Rs.72,00,000/- were infused into the common loan account through G.K. Sales. These deposits are clearly reflected in the ledger and bank statements and were subsequently appropriated by Canara Bank towards automatic EMI deductions.

It is submitted that the ledger entries unmistakably establish that these funds originated from the Appellant’s own resources, channelled through his family business, and were not amounts transferred or paid by the Corporate Debtor. Consequently, the utilisation of these funds by the Financial Creditor for loan repayment cannot, by any stretch, be characterised as a preferential transfer under Section 43 of the IBC.

Ld. Counsel further submitted that all transactions reflected in the common loan account were conducted strictly in the ordinary course of business and in consonance with standard banking practices. The automatic deduction of EMIs by Canara Bank was a routine loan-servicing mechanism and formed part of the sanctioned loan terms.

It is his submission that the inflow of funds into the account, including deposits made by G.K. Sales, was entirely consistent with normal commercial conduct. There was no extraordinary arrangement, special instruction, or preferential structuring intended to benefit the Appellant at the cost of the Corporate Debtor or its creditors.

Ld. Counsel submitted that the entire Application under Section 43 is founded on a ledger prepared by the Respondent after the initiation of the Corporate Insolvency Resolution Process. The ledger bears the date 30.09.2022, whereas the CIRP commenced on 20.09.2022, which clearly establishes that the ledger is a post-facto document and not a contemporaneous business record.

It is submitted that the ledger falsely alleges that cash amounting to INR 9,00,000 was paid by the Corporate Debtor to the Appellant. The Appellant categorically denies receipt of any such cash amount, and there is no documentary evidence, bank record, or corroborative material to support this allegation.

It is his submission that the ledger relied upon by the Respondent is fabricated, unreliable, and devoid of evidentiary value. Any claim premised on such a document is factually unsustainable and legally incapable of forming the basis of proceedings under Section 43 of the IBC.

Ld. Counsel submits without prejudice, that if the Respondent’s contentions are accepted, then every third-party payment reflected in any ledger could be misconstrued as a preferential transaction. Such an interpretation would lead to indiscriminate invocation of Section 43 for routine commercial transactions. It is his submission that in the present case, the alleged payments were nothing but automatic EMI deductions from a common account funded by the Appellant’s own resources. Treating such transactions as preferential would penalise standard banking operations and defeat the legislative intent underlying Section 43 of the IBC.

Ld. Counsel submitted that the automatic EMI deduction mechanism adopted by Canara Bank was the only practical and feasible method available for repayment of the loan availed by the Appellant. This mechanism ensured regular servicing of the loan in accordance with the sanctioned terms and further the Appellant had no alternative repayment arrangement. Therefore, the use of the common loan account, funded by his own resources including deposits through G.K. Sales, was both necessary and unavoidable for timely repayment.

Ld. Counsel submitted that none of the transactions undertaken satisfy the statutory requirements of Section 43 of the IBC. The allegation that payments aggregating to INR 19,66,698.77 were made to the Appellant within two years is factually incorrect and misrepresents the true nature of the transactions.

It is submitted that Canara Bank was the sole Financial Creditor for both the Corporate Debtor and its Directors, including the Appellant. Loans were sanctioned through a common loan account, and EMIs corresponding to the Appellant’s loan were automatically deducted by the bank itself. These deductions were appropriations by the Financial Creditor and not transfers by the Corporate Debtor in favour of the Appellant. No creditor was preferred, nor was any undue benefit conferred upon the Appellant, thereby placing the transactions outside the scope of Section 43 of the IBC.

Ld. Counsel submitted that the Application under Section 43 is devoid of merit, based on incorrect facts and fabricated documents, and seeks to treat routine banking transactions as preferential transfers.

In his final submission Ld. Counsel strongly argued that the ledger relied upon by the Respondent is not sacrosanct, having been prepared after the commencement of CIRP, and there exists no independent evidence to substantiate the alleged cash payments. The Application is thus liable to be dismissed in entirety.

Ld. Counsel submits that his submissions are intended to assist this Hon’ble Tribunal by placing on record the complete factual background, procedural history, and the legal basis supporting the impugned order, which has been rightly passed by the Ld. Adjudicating Authority after due consideration of the pleadings and material on record.

It is submitted that the present appeal is wholly misconceived, devoid of merit, and liable to be dismissed at the threshold. The Respondent, upon examination of the books of accounts furnished by the Appellant himself, noticed that the Corporate Debtor had availed unsecured loans from the Appellant, who was a director and therefore a related party. The ledger maintained in the books of the Corporate Debtor clearly reflects that as on 21.09.2020, an outstanding amount of Rs. 1,55,51,434/- was due to the Appellant.

Ld. Counsel submits that in the books of account of CD, there existed substantial secured financial debt owed to Canara Bank, whose admitted claim stands at Rs. 11,96,64,262.95. In spite of existence of such a large debt from Financial Creditor, the Corporate Debtor repaid an aggregate amount of Rs. 19,66,698.77 to the Appellant within the look-back period, thereby conferring undue preference upon a related party. These repayments were neither in the ordinary course of business nor commercially justified, and directly resulted in placing the Appellant in a more beneficial position vis-à-vis other creditors, particularly the secured financial creditor.

Ld. Counsel submitted that such transactions squarely fall within the ambit of Section 43 of the Code. Section 43(4)(a) explicitly deems a transaction to be preferential, if it is made in favour of a related party within two years preceding the insolvency commencement date. The impugned transactions satisfy every statutory ingredient of a preferential transaction.

Ld. Counsel further submitted that the Appellant’s contention that the application under Section 43 was barred by limitation on account of alleged non-compliance with Regulation 35A of the CIRP Regulations is legally untenable. The Ld. Adjudicating Authority correctly held that Regulation 35A is directory in nature.

He further submitted that the Code itself, under Section 35(1)(l) and Section 43(1), empowers both the Resolution Professional as well as the Liquidator to identify and seek avoidance of preferential transactions. The statutory scheme clearly contemplates that such applications may be filed even after commencement of liquidation. This legal position stands conclusively settled by the judgment of this Hon’ble Appellate Tribunal in ‘Aditya Kumar Tibrewal, RP v. Om Prakash Pandey & Ors.’ [Company Appeal (AT) (Ins.) No. 583/2021], following the law laid down by the Hon’ble Supreme Court in ‘Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Ltd.’ [(2017) 16SCC143], wherein timelines prescribed under procedural regulations were held to be directory and not mandatory.

Ld. Counsel submits that the other plea raised by the Appellant that Canara Bank itself deducted EMIs from the Corporate Debtor’s account qua the loan sanctioned to the appellant from the bank account maintained by the Corporate Debtor and since the amount was realised by the Financial Creditor itself and therefore the transactions cannot be termed preferential, is wholly misconceived. It is also the case of the appellant that the Corporate Debtor has paid more than Rs. 2.5 crores between 2020-22 to Canara Bank and as such it is not a case that the Financial Creditor was not paid any amount. Ld. Counsel submits that the plea of the appellant was duly considered by the Ld. Adjudicating Authority which rightly held that under Section 43 (4) of the Code, a preference shall be deemed to be given at a relevant time if it is given to a related party within two years preceding insolvency commencement date. The source or mode of repayment is immaterial once it is established that the repayment resulted in conferring preference upon a related party within the look-back period.

The fact that the Corporate Debtor may have paid amounts to Canara Bank during the relevant period does not negate the preferential nature of the impugned transactions. Section 43 does not require total exclusion of payments to other creditors; it only requires that the impugned transaction places the related party in a more advantageous position than it would otherwise have occupied in liquidation, which is clearly the case herein.

Ld. Counsel submits that after the impugned order was passed, the Appellant sought recall of both the ex-parte order and the final order by filing I.A. No. 4681/2024. The said application was filed belatedly, without any plausible or sufficient explanation for repeated non-appearance, and without seeking condonation of delay.

Ld. Counsel further submits that the submission of appellant regarding miscommunication on behalf of a junior counsel who wrongly noted the next date of hearing in I.A. No. 937/2023 as 28.09.2024, which incidentally was a Saturday is neither legally acceptable nor factually convincing. On Saturday, the Tribunal does not function, and a diligent litigant or counsel could not have reasonably made such an error.

It is his submission that Rule 49(2) of the NCLT Rules mandates demonstration of sufficient cause for non-appearance. Prior professional engagement before another forum does not constitute an unavoidable circumstance. Accepting such excuses would render judicial discipline nugatory.

In this regard, Ld. Counsel places reliance upon the judgment of this Hon’ble Appellate Tribunal in ‘Srigopal Chaudhary v. SREI Equipment Finance Ltd.’ [Comp. App. (AT) (Ins.) No. 1690 of 2023], wherein it was categorically held that mistaken noting of dates or absence of counsel does not automatically constitute sufficient cause, and that discretionary orders refusing recall do not warrant appellate interference. The relevant paras 15, 16, 18 and 20 of the Judgment are extracted below:

Ld. Counsel further submitted that the grievance of the Appellant that the application under Section 43 was decided without hearing is factually incorrect. The Ld. Adjudicating Authority explicitly considered the common reply filed by the Respondents and decided the application on merits. The order dated 01.04.2025 clearly records that the impugned order dated 28.08.2024 was passed after considering the pleadings of all parties.

Regarding the recall application, the counsel for respondents submits that the Ld. Adjudicating Authority in their order dated 01.04.2025 recorded that impugned order dated 28.08.2024 passed in I.A. No. 937 of 2023 was passed on merit after taking into account the common reply filed by the respondents. Therefore, the grievance of the appellant that the said application was decided without hearing them does not hold good.

Ld. Counsel submits that it can be seen from the last para of the order that recall application was also rightly dismissed as being in the nature of a review, which is impermissible under the NCLT Rules. There exists no provision empowering the Tribunal to review its own orders.

Summing up his arguments, Ld. Counsel states that in view of the foregoing facts, statutory provisions, and binding precedents, it is submitted that the impugned order dated 28.08.2024 suffers from no illegality, perversity, or jurisdictional error. The present appeal is nothing but an attempt to delay the liquidation process and defeat the object of the Insolvency and Bankruptcy Code. He prays for dismissal of the present appeal and award cost in favour of respondent.

We have heard both the parties in detail, gone through the records of the case and written submissions of the parties. After considering the facts of the case and submissions of the parties we frame the following two issues for determination:

Issue No. (i) relating to nature of the transaction i.e. whether it is a preferential transaction or a transaction in the natural course of the business is the core issue. In the impugned order Ld. Adjudicating Authority has decided that the transaction of Rs. 19.66 lakhs is a preferential transaction and falls within the scope of Section 43 of the Code. If the payments made in favour of the Appellant during the relevant period satisfy the requirements of Section 43, the direction issued by the Adjudicating Authority for contribution to the assets of the Corporate Debtor would be legally justified. It is therefore necessary to first examine the nature and effect of the impugned transactions in the light of the statutory scheme and the facts on record.

The case of the Appellant is that the payments relied upon by the Respondent do not amount to preferential transactions. According to the Appellant, no funds of the Corporate Debtor were used for making the alleged repayments. It is contended that the amounts were deposited by a third party, namely G.K. Sales, into a common loan account, from which Canara Bank automatically deducted EMIs. The Appellant submits that these deductions were part of normal banking practice, were made in the ordinary course of business, and did not place the Appellant in any better position than other creditors. On this basis, it is argued that the essential requirement of “transfer of property of the Corporate Debtor” under Section 43 is not satisfied.

Per-contra, the Respondent submits that the Appellant is an admitted related party of the Corporate Debtor, being a director who had advanced unsecured loans to the Corporate Debtor. It is stated that during the two-year look-back period preceding the insolvency commencement date, payments totaling Rs. 19,66,698.77 were made towards repayment of these unsecured loans. According to the Respondent, these payments were reflected in the books and bank accounts of the Corporate Debtor and had the effect of giving preference to the Appellant over other creditors, particularly the secured financial creditor. It is further contended that such repayments to a related party were not made in the ordinary course of business and squarely fall within the ambit of Section 43 of the Code.

We now have a look at Section 43 of the Code, which is extracted below:

We note that at the time of initiation of CIRP there was substantial secured financial debt in the books of the Corporate Debtor. The claim of secured Financial Creditor Canara Bank was for an amount of Rs. 11.96 Cr. It is also on record that the appellant, who was a Director of the Corporate Debtor had also extended unsecured loan to the Corporate Debtor and the balance amount of said loan as on 21.09.2020 was Rs. 1.55 Cr. It is also undisputed that the insolvency commencement date is 20.09.2022 and that the payments of Rs. 19.66 lakhs, which are treated as preferential transaction, were made to the appellant within two years prior to this date i.e. in the period between 21.09.2020 and 20.09.2022. It is also an admitted fact the appellant is a related party.

The main defence of the appellant is that the transaction of Rs. 19.66 lakhs is a transaction under the Section 43 (3) (a) of the Code, which relates to transactions which are made in ordinary course of business. Such transactions cannot be treated as preferential transactions under Section 43 (2) in view of exemptions given by Section 43 (3) (a) of the Code. The respondent on the other hand has argued that the aforesaid transactions are covered by Section 43 (4) (a) of the code which provides that a preference shall be deemed to be given at a relevant time to a party, if it is a related party (other than by reason only of being an employee), during the period of two years preceding the insolvency commencement date.

It is the submission of the appellant that the funds for such payments were obtained from a family company GK Sales, which had deposited nearly Rs. 77 lakhs during the look back period. He further submits that during this period the Corporate Debtor has also paid Rs. 2.5 Cr. to the secured Financial Creditor Canara Bank. These payments from GK Sales to Corporate Debtor, repayment to secured Financial Creditor Canara Bank and repayment of loan of appellant which is done by direct debit from the CD’s account are transactions in the nature of business transactions which are covered by exemption under Section 43 (3) (a) of the Code. As the appellant was a partner in GK Sales, his funds therein were transferred to the Corporate Debtor’s account in Canara Bank and the EMI of appellant was directly debited by Canara Bank from that account. The appellant did not have access to any other suitable mechanism for such funds transfer.

We are unable to accept this contention of appellant. Firstly, he could have directly transferred such funds from the account of GK Sales to Canara Bank by opening a suitable loan account there or he could have got the funds transferred to his individual account from G.K Sales account and thereafter based on standing instructions the EMI could have been deducted by the bank. The appellant has also not been able to present any document which shows that these transactions were in the nature of ordinary business transactions, which would have required the nature of underlined business and documents showing invoices/ bills for products/services. Repayment of unsecured loans to a director at a time, when the Corporate Debtor was facing financial difficulty, and when a secured financial creditor had substantial outstanding dues, cannot be regarded as a routine business transaction. By receiving these payments, the Appellant clearly obtained a benefit which he would not have received in the same manner in the event of liquidation under Section 53 of the Code. We therefore are of the view that such transactions cannot be classified as ordinary business transaction.

Secondly, we note from the records that the amounts were debited from the accounts of the Corporate Debtor towards repayment of the Appellant’s loan. Once the amounts are credited to and routed through the accounts of the Corporate Debtor and used to discharge its liability towards a related party, the transaction cannot be taken outside the scope of Section 43(4) merely by pointing to the alleged source of those funds. What is relevant is the effect of the transaction, namely that the Corporate Debtor’s liability towards the Appellant stood reduced by that amount which is contrary to the provisions of Section 43 (2) which has been extracted above.

In these circumstances, we are of the view that the Adjudicating Authority was correct in holding that the payments amounting to Rs. 19,66,698.77 satisfy the requirements of a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016. Issue No. (i) is accordingly decided against the Appellant and in favour of the Respondent.

Issue No. (ii) concerns the procedural validity of the proceedings leading to the impugned order dated 28.08.2024. While the substantive legality of the transactions has already been examined under Issue No. (i), this issue requires us to consider whether the impugned order is vitiated on account of any procedural illegality, denial of reasonable opportunity, or lack of jurisdiction, so as to justify interference in appeal. We will take up the issues raised by the appellant one by one.

In his oral submissions before this Tribunal, the initial submission made by the appellant was that the appellant is neither a creditor, guarantor or surety of the Corporate Debtor and there is no Financial Debt, on the basis of which proceedings have been initiated against him. The basis for application is a ledger which has been fraudulently created by the respondent.

The respondent in this regard had invited our attention to the claim filed by Canara Bank in Form-C which has been placed at Page no. 82 of the appeal paper book. The banks claimed against CD as on 20.09.2022 amounted to Rs. 10.87 Cr. (Approx.). It is further seen from the same Form-C on Page no. 84 of appeal paper book that the appellant was the guarantor of the secured loan of Canara Bank to the CD to the extent of Rs. 6.85 crores and for this he had signed a guarantee agreement dated 21.07.2014. It is an admitted position of the appellant that he was an unsecured creditor of the Corporate Debtor to the tune of Rs. 1.55 Cr. After going through the documents, we note that the contention of appellant is not based on facts.

Another major contention of the Appellant is that the ledger relied upon by the respondent is false, fabricated and the same cannot form the basis on any allegation under Section 43 of the Code. The respondent has prepared the list of transactions based on ledger created fraudulently created by the respondent and it has no legal sanctity. The ledger in question bears the date 30.09.2022, whereas the CIRP of the Corporate Debtor was initiated on 20.09.2022. This clearly reflects that the ledger was not contemporary with the alleged transactions and was created post facto by the respondent, thereby casting serious doubt about its authenticity. The entry of Rs. 9 lakhs, which was allegedly given to the appellant by the Corporate Debtor in two tranches, Rs. 4 lakhs on 15.05.2022 and Rs. 5 lakhs on 10.06.2022 is wholly incorrect and misrepresented and no such amount was received by the appellant.

The respondent on the contrary submits that the said ledger was prepared by Tally data system and it was shared by the appellant himself on 28.11.2022. In this regard, he has invited our attention to his contention in I.A. No. 937 of 2023 para 6 which is extracted below:

We have gone through the reply of the appellant to the said I.A. and this contention of the respondent has not been disputed by the appellant in his reply to the said I.A. It is therefore clear from the above that the ledger prepared to reflect the transactions between 21.09.2020 to 20.09.2022 has been prepared by using the Tally accounting system, based on the data inputs during the time the appellant was in control of the CD. Such documents are created based on the historical data available in the system and a ledger for any specified period can be prepared using Tally. There is no illegality, if the aforesaid ledger for the look back period was prepared on 30.09.2022 through Tally. Since the reports from Tally are prepared based on historical data available in the system, irrespective of date of printing, such ledger for CD would always show the same result. Similarly, the claim about entry of Rs. 9 lakh payment in cash to the appellant is also based on historical data input in Tally system, which would have been done in the period when appellant was in control and such entry could not have been created post facto in Tally. We further note that no concrete evidence in this regard has been furnished by the appellant. Accordingly, we are of the view that the claim of the appellant about the aforesaid ledger showing payments to appellant is fraudulent and has been falsely created has no merit in view of admitted position that the books of accounts in Tally were shared by the appellant on a later date i.e. 28.11.2022.

The Appellant has also contended that the impugned order was passed in violation of principles of natural justice, as he was proceeded ex parte and was allegedly unaware of the date on which the matter was finally heard. It is also contended that the application under Section 43 was not maintainable due to non-compliance with the timelines prescribed under Regulation 35A of the CIRP Regulations. The Respondent, on the other hand, submits that the Appellant had already filed a detailed reply which was considered on merits, that the absence of counsel on the date of hearing was due to internal reasons attributable to the Appellant, and that Regulation 35A is directory in nature.

Ld. Adjudicating Authority vide order dated 04.06.2024 had set the respondent No.2 (appellant herein) ex-parte on account of non-appearance of the counsel. It is the submission of the appellant that thereafter the Junior Counsel who was present in the court noted the date of next hearing as 28.09.2024 instead of 28.08.2024 and the appellant acted based on this information by his counsel.

The fact that appellant was set ex-parte on 04.06.2024 and this was in the knowledge of counsel for the appellant as his proxy counsel was present in the court. The right course of action should have been to file an application for setting aside the said ex-parte order. However, no such action was taken by the appellant and its only after the impugned order was passed on 28.08.2024 that the appellant filed I.A. No. 4681 of 2024 for setting aside of ex-parte order dated 04.06.2024 and further recall order dated 28.08.2024 in I.A. No. 937 of 2023 on 09.09.2024. The need for filing an I.A in a disposed of matter would not have arisen if the appellant has filed the application immediately after the order dated 04.06.2024.

It is an admitted position that the Appellant had filed a reply to the application under Section 43, setting out all his factual and legal objections. The impugned order shows that the Adjudicating Authority has taken note of these submissions and has decided the matter on merits. Therefore, this is not a case where the Appellant was condemned unheard or denied a reasonable opportunity of being heard.

The Adjudicating Authority has, while dismissing the subsequent recall application, clearly recorded that the order dated 28.08.2024 was passed after considering the replies filed by the Appellant. The explanation of incorrect noting of dates or internal miscommunication within the office of counsel cannot, by itself, invalidate a reasoned order passed on merits, particularly when no specific prejudice is demonstrated. The relevant extract of order dated 01.04.2025 in recall application filed vide I.A. No. 4681 of 2024 are extracted below:

Ld. AA has also clearly recorded in the said order that the application filed vide I.A. No. 4681 of 2024 is in the nature of a review application and NCLT Rules has no provision for review of its orders.

In this regard we take note of Judgment of this Appellate Tribunal in ‘Srigopal Chaudhary vs. SREI Equipment Finance Ltd.’, [Company Appeal (AT) (Ins) No. 1690 of 2023], wherein it considered a challenge to an order passed ex parte on the ground that the appellant’s counsel had wrongly noted the next date of hearing. The Tribunal took note of the fact that the party was present before the Adjudicating Authority when the next date was fixed and held that, in such circumstances, it must be presumed that the party was aware of the proceedings. The Tribunal observed that an internal mistake, miscommunication, or incorrect noting of dates by counsel cannot be treated as a sufficient cause for non-appearance. It was further held that the decision of the Adjudicating Authority refusing to recall an ex parte order, when taken on the basis of the material on record, does not call for interference by the Appellate Tribunal. The appeal in that case was accordingly dismissed. In the present case as well, the Appellant had participated in the proceedings and had filed a reply on merits, and the explanation offered for non-appearance is based on alleged miscommunication or incorrect noting of dates. In light of the above judgment, such a plea cannot invalidate the impugned order on the ground of violation of natural justice.

The objection of the appellant regarding the violation of mandatory timelines for determining a preferential transaction and for filing an application before the Adjudicating Authority in accordance with Regulation 35A of the CIRP Regulations is equally untenable. It is settled law that the timelines prescribed under Regulation 35A are directory and not mandatory. We further note that under Section 35(1) (l) of the Code, the Liquidator is expressly empowered to investigate the financial affairs of the Corporate Debtor to determine undervalued or preferential transactions during liquidation, which was initiated by the Adjudicating Authority on 06.06.2023. The Adjudicating Authority, therefore, acted well within its jurisdiction in entertaining and deciding the application under Section 43.

This Appellate Tribunal in ‘Aditya Kumar Tibrewal, Resolution Professional vs. Om Prakash Pandey, Suspended Director & Ors.’, [Company Appeal (AT) (Ins) No. 583 of 2021], examined the effect of the timelines prescribed under Regulation 35A of the CIRP Regulations for forming an opinion and filing an application relating to preferential transactions. While doing so, the Tribunal followed the law laid down by the Hon’ble Supreme Court in ‘Surendra Trading Company vs. Juggilal Kamlapat Jute Mills Company Ltd. & Ors.’, [(2017) 16 SCC 143], wherein it was held that procedural timelines are generally directory in nature unless the statute expressly provides otherwise. This Appellate Tribunal observed that Regulation 35A only prescribes a time schedule to guide the Resolution Professional and does not take away the substantive power to pursue avoidance transactions under the Code. It was further noted that avoidance proceedings are meant to protect the interests of the creditors and the asset pool of the Corporate Debtor and therefore cannot be defeated on technical or procedural grounds. In view of this legal position, the Tribunal held that an application under Section 43 of the Code is not rendered non-maintainable, merely because the opinion was not formed or the application was filed within the indicative timelines mentioned in Regulation 35A. Applying this principle to the present case, the Appellant’s objection that the application under Section 43 was time-barred cannot be accepted, and the Adjudicating Authority was justified in entertaining and deciding the application, which clearly supports the case of the Respondent.

In view of the above findings, we find no illegality or infirmity in the impugned order dated 28.08.2024 & 01.04.2025 passed by Ld. Adjudicating Authority in C.P. (IB) No. 550/ND/2020. Both the appeals are dismissed. Pending I.As, if any, are closed. There shall be no order as to costs.