Tribunal holds redemption of preference shares and payments to related and unrelated parties during look-back period as preferential under IBC, directs repayment within 30 days with 12% interest penalty for delay
In a significant ruling impacting insolvency proceedings, the National Company Law Tribunal (NCLT), Mumbai Bench-I, has partly allowed an application filed by the Resolution Professional (RP) of Sunshine Housing and Infrastructure Pvt. Ltd. to set aside preferential transactions amounting to Rs. 58.58 crore under Section 43 of the Insolvency and Bankruptcy Code, 2016 (IBC). The judgment, pronounced on September 3, 2026, addresses payments made by the Corporate Debtor to both related and unrelated parties during the statutory look-back period prior to the commencement of the Corporate Insolvency Resolution Process (CIRP).
The case arose after the Corporate Debtor, Sunshine Housing and Infrastructure Pvt. Ltd., was admitted to CIRP following a petition filed by a financial creditor. During the insolvency process, the erstwhile RP engaged transaction auditors to identify transactions that could be avoided on grounds of preference, undervaluation, or fraud. The auditors' report revealed several transactions involving conversion of unsecured debentures into preference shares and their immediate redemption, as well as payments to related and unrelated parties amounting to Rs. 58.58 crore in total.
The Tribunal found that these transactions fell squarely within the ambit of Section 43 of the IBC, which deems payments made in preference to certain creditors during the look-back period as preferential transactions liable to be restored for the benefit of all creditors. Crucially, the Tribunal rejected the argument advanced by the Corporate Debtor's management that these payments were made in the ordinary course of business or financial affairs. The instant redemption of preference shares immediately upon conversion of debentures was held to be irregular and outside the ordinary course, especially since the preference shares were redeemable only after five years as per company filings.
Furthermore, the Tribunal noted that substantial dues to secured creditors exceeded Rs. 100 crore and that the payments made to related and unrelated parties undermined the interests of these secured creditors, who have priority in liquidation proceeds under Section 53 of the IBC. The Tribunal also dismissed the contention that the payments were merely replacement of unsecured loans or made to reduce interest burden, emphasizing that diversion of funds away from secured creditors during the look-back period cannot be permitted.
In addition to the main application (IA 893 of 2020), the RP filed another application (IA 4677 of 2025) seeking to impugn additional transactions identified in a subsequent audit. However, the Tribunal declined to entertain this second application, holding that the rerun of the CIRP process after failure of the approved resolution plan does not permit the successor RP to revisit avoidance determinations already concluded by the erstwhile RP. The successor RP is only allowed to present additional evidence supporting the original findings.
The Tribunal ordered that the amounts received by the parties involved in these preferential transactions be restored to the Corporate Debtor within 30 days. Failure to comply will attract interest at the rate of 12% per annum on the outstanding amounts, which will be adjusted against any subsequent payments.
This ruling underscores the stringent scrutiny applied to transactions during the insolvency look-back period and reiterates the protective framework under the IBC designed to prevent depletion of Corporate Debtor assets to the detriment of secured and other financial creditors.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Preferential transactions under Section 43 - Transactions made to related and unrelated parties within the look-back period deemed preferential - Payments prioritized over secured creditors in violation of Section 53 - Such transactions must be restored to the corporate debtor.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 - Sections 3, 5(24), 43, 45, 49, 53, 66, and Section 7
Rajendra M. Ganatra v. Atul Shamji Bharani, (NCLT)(Mumbai Bench-I) : Law Finder Doc Id # 2972818
