Tribunal holds that mere transfer to an associate within two-year look-back period does not satisfy statutory conditions under Section 165 of Insolvency and Bankruptcy Code, 2016; beneficiary must be creditor, surety, or guarantor and transaction must trigger bankruptcy process.
In a significant ruling dated October 12, 2026, the National Company Law Tribunal (NCLT), Jaipur Bench, adjudicated on an application filed by the Bankruptcy Trustee of Mrs. Kanak Biyani, a personal guarantor declared bankrupt in relation to Saga Automotive India Private Limited. The Trustee sought to declare a transaction involving the handing over of 192.49 grams of jewellery by Mrs. Biyani to her son, Shri Mridul Maheshwari, as a preferential transaction under Section 165 of the Insolvency and Bankruptcy Code, 2016 (IBC), and to vest the said jewellery in the bankruptcy estate.
The application was filed following the rejection of a repayment plan by the Financial Creditor, State Bank of India, which led to the initiation of bankruptcy proceedings against Mrs. Biyani. The Trustee contended that since the jewellery was transferred to the son within two years prior to the bankruptcy application, the transaction fell within the two-year look-back period stipulated under Section 165(2) of the IBC and was thus preferential and voidable.
However, the Tribunal carefully examined the statutory provisions and the facts on record. It was noted that Section 165(8) requires, among other conditions, that the beneficiary of a preferential transaction must be a creditor, surety, or guarantor for a debt of the bankrupt, and the transaction must put such beneficiary in a better position than others in the event of bankruptcy. The Tribunal found no material evidence that Shri Mridul Maheshwari was a creditor, surety, or guarantor for any debt of Mrs. Biyani. Furthermore, the jewellery was not handed over towards satisfaction or security of any antecedent liability.
The Tribunal also highlighted that the mere fact that the transaction was with an associate (in this case, the son) and occurred within the two-year look-back period does not automatically render it preferential. The two-year period only identifies the timeframe for scrutiny but does not expand the statutory definition of a preference. Crucially, the Tribunal found no evidence that the transfer caused the bankruptcy process to be triggered, a mandatory requirement under Section 165(4).
The Respondent (Mrs. Biyani) further contended that the jewellery either did not belong to her beneficially or was held in trust as ancestral or third-party property, partly excluded from the bankruptcy estate under Section 155(2)(b) and Section 79(14)(c) of the IBC. Although the Tribunal did not conclusively decide on these ownership issues in the present proceeding, it observed inconsistencies in the Respondent's assertions-initially describing the jewellery as a gift and later as entrusted property-which prevented acceptance of the trust claim solely on assertion.
Additionally, the Tribunal noted that disclosure of assets belonging to immediate family members in Form E (statement of financial position) does not constitute a conclusive admission of ownership by the bankrupt, but merely serves investigative purposes.
Ultimately, the NCLT Jaipur Bench dismissed the Bankruptcy Trustee's application under Section 165, holding that the mandatory ingredients of a preferential transaction were not established. The ruling clarified that this dismissal does not amount to a final determination of ownership of the jewellery, which remains subject to separate adjudication.
This judgment underscores the rigorous statutory requirements for declaring a transaction preferential under the IBC and the importance of establishing a creditor-debtor or surety relationship between the bankrupt and the beneficiary, beyond temporal proximity and association.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Personal guarantor bankruptcy - Mere transfer of asset to son/associate within two-year look-back period does not by itself amount to a preferential transaction under Section 165 - To attract Section 165, beneficiary must be a creditor, surety or guarantor for debt of bankrupt and transaction must satisfy substantive statutory requirements including causal link with triggering of bankruptcy process - Application by Bankruptcy Trustee seeking declaration that handing over jewellery to son was void, dismissed.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 - Sections 79(14)(c), 79(2), 107(3)(b), 112, 114(1), 121(1)(b), 125, 126, 128, 129(2), 149(a), 154, 155(2)(b), 165(2), 165(3), 165(4), 165(6), 165(7), 165(8)
State Bank of India v. Mrs. Kanak Biyani, (NCLT)(Jaipur Bench) : Law Finder Doc Id # 2996382
