Authority: National Company Law Tribunal Principal Bench, New Delhi

Order Date: 11.06.2026

Case Overview

This application was filed by Mr. Narender Kumar Sharma, the Liquidator of M/S Vallabh Steel West Pvt. Ltd. (Corporate Debtor), against M/S Vallabh Steels Limited (Respondent), seeking declaration of certain transactions as preferential under Section 43 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor commenced on 03.07.2019, and liquidation was ordered on 16.09.2020 after no viable resolution plan emerged.

The liquidator engaged M/S Kansal Singla & Associates to conduct a forensic/transaction audit, which identified transactions between the Corporate Debtor and Vallabh Steels Limited (VSL), a related party. Mr. Kapil Kumar Jain, director of VSL, is the father of Mr. Rahul Jain, an erstwhile director of the Corporate Debtor. The forensic audit report dated 08.10.2020 revealed that during the relevant lookback period of two years preceding CIRP commencement (31.07.2017 to 03.07.2019), the Corporate Debtor made preferential payments totaling ₹52,84,000 to VSL by repaying unsecured loans, while bypassing secured financial creditors.

The Respondent argued that the transactions were in the ordinary course of business, that the Corporate Debtor needed running capital, and that an earlier forensic audit report obtained by the erstwhile resolution professional had concluded no action was needed under Sections 43, 45, 47, and 49 of IBC. The Respondent also questioned the liquidator's professional conduct in appointing a new forensic auditor.

Findings and Analysis

The Tribunal examined the forensic audit report which showed that during the lookback period, there were total credits of ₹1,94,77,000 and debits of ₹2,47,61,000 in the account between the Corporate Debtor and VSL, resulting in a net preferential payment of ₹52,84,000 to VSL. The Corporate Debtor had minimal business operations during this period, with turnover of only ₹53,710,275 in FY 2017-18 and ₹234,680 in FY 2018-19, having ceased operations in November 2017.

The Bench applied the deeming fiction under Section 43(2) of IBC, noting that no fraudulent intent needs to be proven for a transaction to be considered preferential. The payment to the related party VSL put them in a beneficial position over secured creditors, violating the distribution ranking prescribed under Section 53 of IBC. The Tribunal cited the NCLAT judgment in GVR Consulting Services Pvt. Ltd. v. Pooja Bahry, which held that financial assistance from related parties cannot be considered part of ordinary course of business.

Final Outcome

The Tribunal allowed the application (IA-563/2022) and directed Vallabh Steels Limited to repay ₹52,84,000 along with interest at 10% per annum from the date of preferential payment till actual realization, to the liquidation estate of the Corporate Debtor.

Topics: Insolvency Proceedings, Preferential Transactions, Related Party Transactions