Transactions Beyond the Look-Back Period Under Section 43 of IBC Ineligible for Avoidance, but Alternative Remedies under Section 66 Remain Available
- REEDLAW
- Oct 15, 2024
- 2 min read
NCLAT held that transactions beyond the look-back period under Section 43 of the IBC are ineligible for avoidance; however, alternative remedies under Section 66 remain available.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Branch led by Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) reviewed an appeal and observed that for a transaction to qualify as a preferential one under Section 43 of the IBC, it must occur within the specified look-back period; since the transactions with the related party predated the CIRP commencement by more than two years, the relief under Section 43 was not available, though alternative remedies under Section 66 remained open.
The NCLAT judgment addressed an appeal challenging an order dated 09.11.2023 passed by the NCLT, which had allowed an application under Section 43 of the Insolvency and Bankruptcy Code, 2016 (IBC). The dispute involved M/s Sysco Industries Ltd, which had entered Corporate Insolvency Resolution Process (CIRP) on 08.09.2021, triggering the look-back period under Section 43(4). The Corporate Debtor had supplied goods to M/s Pratap Associates, an HUF related to the appellant, with an outstanding debt of Rs. 7.78 crores as of 23.05.2018.
The application filed under Section 43 sought to recover this amount, arguing that the transactions with Pratap Associates amounted to a preferential transaction within the meaning of Section 43. The NCLT upheld the claim, finding that the related party relationship between the debtor and Pratap Associates satisfied the requirements for preference. It directed the respondents to deposit the outstanding amount with the Corporate Debtor for distribution to the creditors.
The appellant challenged the NCLT order, arguing that the preference was not given within the relevant look-back period of two years as prescribed by Section 43(4). The NCLAT referred to the Supreme Court’s decision in Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited and Others, REEDLAW 2020 SC 02502, which held that preferences under Section 43 must occur within the relevant period to qualify as avoidable transactions. Since the disputed transactions predated the CIRP commencement by more than two years, the NCLAT held that the transactions were not avoidable under Section 43.
Accordingly, the NCLAT set aside the impugned order of the NCLT. It clarified that although relief under Section 43 was unavailable, the respondent retained the liberty to explore other remedies under the law, including those under Section 66 of the IBC. With these observations, the appeal was allowed, and all pending applications were disposed of.
Mr. Keith Varghese, Advocate represented the Appellant.
Mr. Harshit Khare and Mr. Prafful Saini, Advocates appeared for Respondent No. 1.
Mr. Nishant Chothani, Mr. Pranjit Bhattacharya and Mr. Niyati Shah, Advocates represented Respondent No. 2.
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