If Directors of Corporate Debtor have given preference to some of the creditors over other creditors, this constitutes preferential transaction as envisaged in section 43 of the Insolvency and Bankruptcy Code, 2016 – Ms. Reshma Mittal RP HIM Steels Pvt. Ltd. Vs. Mr. Ashok Raja Director, Suspended Board of the CD – NCLT New Delhi Bench Court-VI
NCLT New Delhi Bench Court-VI held that:
(i) For a preferential transaction under section 43 of the Code the lookback period is 2 years, in case of related parties and one year in case of any other party from the insolvency commencement date. However, unlike other Avoidance Transactions there is no lookback period as far as fraudulent transaction under section 66 of the Code is concerned.
(ii) In order to bring the transaction within the scope of Section 66 of the Code, 2016, it is necessary to demonstrate that the business of Corporate Debtor has been carried on with the “intent to defraud” its creditor or for “any fraudulent purpose”. Further, Section 66(2) of the Code inter-alia mandates that the directors of the corporate debtor ought to have known that there was no reasonable prospect of avoiding the initiation of the CIRP and the directors did not exercise due diligence in minimizing the loss.
