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Judgment
07.05.2025: All these appeals have been filed against the same order dated 22.05.2024 by which order IA No.2020 of 2020 filed by the Resolution Professional under Section 43 and 44 of the I&B Code has been allowed. Appellants aggrieved by the said order has come up in this appeal.
Learned counsel for the Appellant made two submissions. Firstly, he submits that order was passed ex-parte to the Appellant. Secondly, he submits that the payments which were treated to be preferential transactions were being made to the related parties for last 6-7 years and the said payments were made in the ordinary course of business, hence, they were not covered by Section 43.
We have considered the submissions of learned counsel for the Appellant and perused the record.
It is not disputed that Appellants are related party of the Corporate Debtor. The payment which were claimed by the Appellant are payments towards antecedent debt and the said payments were made during the look back period.
The submission of the Appellant the order is ex-parte cannot be accepted since notices were issued on the application and the Appellants have filed their reply, which is captured in Para 3 of the order. Para 3 of the impugned order is as follows:
“3.The Respondents have filed an affidavit in reply dated 15.09.2021 stating that various adjustment entries were passed by the Corporate Debtor in its normal course of business and the same have been completely overlooked by in the Transaction Audit Report dated 31.05.2020. Thereby no reflecting the true status of the books of accounts of the Corporate Debtor.
3.1.It is submitted that the said Report is solely based on bank transactions which do not explain the purpose of the transactions. Further the same are duly reflected in the notes of accounts of the Corporate Debtor for the year ending 31 March 2020. It is pertinent to note that as per the notes of accounts of the Corporate Debtor for the year ending 31st March 2020, the amounts are is in fact due and payable to Respondents which is also confirmed by the Applicant herein. It is submitted that said Transaction have not caused any prejudice to the lender of the Corporate Debtor and were done in the normal course of business of the Corporate Debtor and therefore will not be covered under Section 43 of the Code. It is further submitted that during the period from 1" April, 2014, the Corporate Debtor was under financial crunch and the cycle of recovery from trade receivables was completely disturbed. It is during this time, that the Respondents gave unsecured loans to meet the financial crunch of the Corporate Debtor and the Corporate Debtor returned the said amounts after receiving funds from the debtors, hence the transactions are not covered under section 43 of the Code.”
Now coming to the submission of the Appellant that the payments were made to the related party for last 6-7 years, hence, said payments were in ordinary course of business need to be considered. The payment made to the Appellant for period earlier to the look back period are not subject matter of consideration nor nature of said transaction need to be considered.
During the look back period payments were made to the Appellant from the Corporate Debtor when Corporate Debtor was suffering from financial distress. The Adjudicating Authority after considering the facts and circumstances has made following observations in Para 4.3 and 4.4:
“4.3.In the present cases, the Corporate Debtor has paid the amount towards the antecedent debt during the look back period to the named Respondents and the said payments have put the Respondents in favourable position than what they would have been in case of distribution of assets in terms of section 53 of the Code. Accordingly, these transactions squarely falls within the deeming fiction provided in section 43(2) of the Code. The Section 43(3) of the Code, inter-alia, provides that the transactions undertaken in ordinary course of business shall remain out of the scope of section 43 of the Code. Further, the transaction should be in ordinary course of business of both the parties i.e. the Corporate Debtor as well as recipient of the preference. In the present case, it cannot be said that it is in ordinary course of business of the recipient of the preference to realise their debts, particularly when the Corporate Debtor, a related party, is under financial stress. Hence, we do not find the explanation of the Respondent acceptable in the present case. However, we are of considered view that the net amounts received during the look back period shall only be said to be resulting into preference. Further, in relation to Karan J Kikavat Respondent in IA 1402/2020, the Applicant has explained that the amount withdrawn by this person was adjusted against the various Earnest Money Deposit (EMD) and tender fees paid by him on behalf of Corporate Debtor and all the EMD's are still outstanding in the books of accounts of Corporate Debtor, hence, this appropriation was in nature of reimbursements, and do not result into preference having been given to this person.
4.4.In view of the foregoing, the following transactions are held to be preferential in nature, and we consider to direct these parties to refund the money received in preference to the Corporate Debtor within 30 days.
| S. No. | IA No. | Name of Respondent | Amount |
| 1. | 1402/2020 | Beena Kikavat | 41,502/- |
| 2. | 1402/2020 | Akshita Kikavat | 1,70,000/- |
| 3. | 1402/2020 | Vasantlal Kikavat | 8,60,200/- |
| 5. | 1402/2020 | Pawan Kikavat | 27,25,857/- |
| 6. | 1443/2020 | Mahavir Link Associates | 1,31,01,406/- |
| 7. | 1443/2020 | P. K. Traders | 86,51,068/- |
| 8. | 1443/2020 | Mahavir Stone Supplying Company | 3,20,63,845/- |
| 9. | 2020/2020 | Jitendra Kikavat | 1,39,14,085/- |
| 10. | 2020/2020 | Pankaj Kikavat | 24,366,667/- |
The Adjudicating Authority has categorically held in Para 4.3 the transactions were not made in ordinary course of business. It is relevant to notice that with regard to one transaction where there was explanation, in Para 3.3, it was held to be not covered under Section 43. The Appellant being related party and payments were made from the Corporate Debtor’s account to the Appellant during the look back period, we do not find an error in the finding of the Adjudicating Authority that payments were not in the ordinary course of business. There is no merit in the Appeals. Appeals are dismissed.