Look-Back Period Can't Be Extended Beyond 2-Yr Limit U/S 43(4) Of IBC For Related-Party Transactions: NCLAT
The National Company Law Appellate Tribunal, Principal Bench, New Delhi comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) has held that section 43 of the Insolvency and Bankruptcy Code (IBC) does not allow the extension of the look-back period beyond 2 years for related-party transactions. Brief Facts:M/s Sysco Industries Ltd....
The National Company Law Appellate Tribunal, Principal Bench, New Delhi comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) has held that section 43 of the Insolvency and Bankruptcy Code (IBC) does not allow the extension of the look-back period beyond 2 years for related-party transactions.
Brief Facts:
M/s Sysco Industries Ltd. (Corporate Debtor) had supplied certain goods to M/s Pratap Associates, a HUF firm of the erstwhile shareholder and Director (Appellant No.3), a related party. Such goods were supplied before 23.05.2018 and the outstanding amount against Pratap Associates as of that date was Rs.7.78 crores.
The Corporate Debtor went into the Corporate Insolvency Resolution Process on 08.09.2021. The look-back period under section 43 of IBC commenced w.e.f. 08.09.2019.
The Resolution Professional filed an application under section 43 to extend the look back period from 2 to 5 years. The NCLT extended the period specified in section 46 by 5 years through the impugned order dated 09.11.202 since financial data was only available until March 2019. It directed the respondents to deposit the outstanding amount within 15 days.
The appellant filed the appeal against the impugned order.
Issue:
Whether there can be an extension of look back period beyond two years as is envisaged in sub-section (4) of section 43 of IBC.
Observations:
The Tribunal referred to Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd v. Axis Bank Ltd and Others, where it was held:
"For a preference to become an offending one for the purpose of Section 43 of the Code, another essential and rather prime requirement is to be satisfied that such event, of giving preference, ought to have happened within and during the specified time, referred to as “relevant time”.”
It was further observed that:
"For a preference to become avoidable, it ought to have been given within the period specified in sub-section (4) of Section 43.”
The Tribunal held that since the outstanding amount dated back more than 2 years prior to the CIRP commencement date, the relief under section 43 would not be available.
The tribunal set aside the impugned order. It allowed the appeal with liberty to the respondents to pursue alternative actions (inclusive of section 66 of IBC).
Case Title: Sidharth Bharatbhushan Jain & Ors. vs. State Bank of India & Ors.
Case Number: COMPANY APPEAL (AT)(INS) NO. 242 OF 2024
Counsel for Appellant: Mr Keith Varghese, Advocate.
Counsel for Respondents: Mr. Harshit Khare, Mr Prafful Saini, Advocates for R1. Mr Nishant Chothani, Mr. Pranjit Bhattacharya, Mr Niyati Shah, Advocates for R2.
Date of Judgment: 14.10.2024