Dharamveer Singh Magan Singh Shekhawat ... vs Dharmendra Dhelariya & Ors. & Ors

(Arising out of judgment and order dated 01.08.2025 passed by the National Company Law Tribunal, Mumbai Bench at Mumbai in I.A. No. 4648 of 2023 filed in C.P. (IB) No 748/MB/2022)

In the matter of:

1. Dharamveer Singh Magan Singh Shekhawat Suspended Member of Board of Directors Resident of: - 201, Shajanand Complex, Shahibaug, Ahmedabad, Gujarat - 380004 ...Appellant No. 1

2. Harsh Upadhyay Suspended Member of Board of Directors Resident of: - 2-K-29, Chpsani Housing Board, Nandanwan, Jodhpur, Rajasthan - 342008 ...Appellant No. 2

3. Sandip Joshi Suspended Member of Board of Directors Resident of: - 20, Kondeshwar Colony, Sai Nagar, Amravati, Maharashtra - 444607 ...Appellant No. 3

Vs.

1. Mr. Dharmendra Dhelariya, Resolution Professional for M/S. KSS LTD Having Registered Office at: Unit 101 A,

Cont'd..../ -2-

1st Floor, Plot No. B-17, Maurya Landmark II Andheri (West), Mumbai ...Respondent No.1

2. Jayashree Vilas Gangurde Suspended Member of Board of Directors Resident of: - 7/16, S.V. Road, Pirmal Nagar, Goregaon West, Mumbai, Maharashtra - 400104 ...Respondent No. 2

3. Monika Meena Suspended Member of Board of Directors Resident OF: - 10-H-25, Parijat Yojana, Mahaveer Nagar 3, Keshopura, Kota, Rajasthan - 324005. ...Respondent No. 3

4. Bhargav Vishalbhai Ahir Suspended Member of Board of Directors Resident of: - 18, Vrundavan Bunglows-1, Opp. Shridhar Farm, Shilaj Road, Thaltej, Ahmedabad, Gujarat - 380059. ...Respondent No. 4

Present: For Appellant: Mr. Mohak Sharma and Ms. Pooja Singh, Advocates.

For Respondents: Ms. Honey Satpal, Mr. Akash Agarwala, Ms. Pooja Singh, Mr. Aman, Advocates for R-1.

Mr. Akash Chatterjee, Advocate for R3.

Company Appeal (AT) (Ins.) No. 1522 of 2025 -3-

JUDGMENT

(11th May, 2026)

INDEVAR PANDEY, MEMBER (T)

This appeal has been filed under Section 61 (1) of the Insolvency &

Bankruptcy Code, 2016 (hereinafter referred to as 'Code') by Dharamveer

Singh Magan Singh Shekhawat; Harsh Upadhyay; and Sandip Joshi,

who are the suspended members of Board of Directors of the Corporate

Debtor M/s KSS Ltd. and are hereinafter referred to as Appellants. The

Appellants are aggrieved by the order dated 01.08.2025 passed by the Ld.

National Company Law Tribunal, Mumbai Bench (Adjudicating Authority),

in I.A. No. 4648 of 2023 filed in C.P. (IB) No 748/MB/2022. The

Adjudicating Authority vide the impugned order allowed the Application

filed by Respondent No. 1/Resolution Professional, preferred u/s 43 of

the Insolvency and Bankruptcy Code 2016 ("Code") relating to the transfer

of Rs.47,92,646/- to two sister concerns of Corporate Debtor viz. M/s. K

Sera Sera Miniplex Ltd. & M/s. K Sera Sera Digital Cinema Limited. The

impugned order directed the Appellants as well as Jayashree Vilas

Gangurd/ Respondent No.2; Monika Meena, Respondent No.3; and

Bhargav Vishalbhai Ahir, Respondent No.4, who were also suspended

members of Board of Directors of CD to repay/refund Rs.47,92,646/- to

the Corporate Debtor, making them jointly and severally liable for the

same.

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2. The Appellants assert that The Respondent No.1/Resolution

Professional failed in his duties by alleging these transactions as avoidable

without placing them to the test as provided under the provisions of

Section 43 of the Code and follow the steps laid down by the Hon'ble

Supreme Court in the matter of 'Jaypee Infratech Ltd. Interim Resolution

Professional vs. Axis Bank Ltd. & Ors.' [(2020) 8 SCC 401] commonly

referred to as Anuj Jain Judgment. That neither the Respondent

Resolution Professional's application nor the Impugned Order have tested

the alleged preferential transactions on the ingredients and thus the

Impugned Order is bad in the eyes of law.

Brief facts of the case

3. The brief facts of the case are as given below:

i. The Appellants herein are Suspended Board of Directors of M/s. KSS

Limited (CD) which was admitted into CIRP vide order dated

24.01.2023 passed by the Ld. Adjudicating Authority in CP (IB) No.

748/MB/2022 filed by M/s. Micro Capitals Pvt. Ltd.. Mr.

Dharmendra Dhelariya /Respondent No. 1, was appointed as the

Resolution Professional for the Corporate Debtor.

ii. The Respondent No. 1, appointed M/s. Arihant A. Jain & Associates

as Transaction Auditor for conducting the Transaction Audit of the

Corporate Debtor, with review period being 24.01.2020 to 23.01.2023

for the purpose of identifying transactions u/s 43, 45, 49, 50 & 66 of

the Code and forming of opinion by Respondent No. 1 as per Section

Company Appeal (AT) (Ins.) No. 1522 of 2025 -5-

25(2)(j) of the Code. On 03.08.2023, the Transaction Auditor

submitted its Final Transaction Audit Report of the Corporate

Debtor.

iii. Based on the aforementioned Transaction Audit report, Respondent

No. 1 filed I.A. No. 4648 of 2023 on 10.10.2023 in CP (IB) No.

748/MB/2022 u/s 43 of the Code against the Appellants and the

Respondent Nos. 2 to 4 herein, alleging that the following amounts

transferred by Corporate Debtor in January 2022 as being

preferential u/s 43 of the Code -

a) M/s. K Sera Sera Miniplex Ltd. (sister concern of Corporate

Debtor) - Rs. 39,00,000/-

b) M/s. K Sera Sera Digital Cinema Ltd. (sister concern of

Corporate Debtor) - Rs. 8,93,646/-

this amounted to a total of Rs. 47,92,646/-.

iv. Ld. Adjudicating Authority vide the Impugned Order dated

01.08.2025 allowed the subject I.A. and directed the Appellants to

repay/refund the aforementioned total amount of Rs. 47,92,646/- to

the Corporate Debtor. It also made the Appellants & Respondent Nos.

2 to 4 jointly and severally liable for payment of the same.

Submissions of the Appellant

4. The submission of Ld. Counsel for the appellant are as follows:

Company Appeal (AT) (Ins.) No. 1522 of 2025 -6-

i. That the Impugned Order is passed without appreciating proper

facts and the same is arbitrary and is liable to be set aside. It is

submitted that the Application was bad in law due to non-joinder of

parties. It is submitted that two sister concern companies of the

Corporate Debtor were not even made parties/Respondents in the

subject I.A. despite the same being necessary parties for the

adjudication of the subject I.A., which in itself renders the subject

I.A. as being bad in law for non-joinder of necessary parties.

ii. Ld. Counsel submits that Section 44 of the Code, 2016 stipulates the

orders, which can be passed by the Adjudicating Authority in case of

preferential transactions. Therefore, any order in terms of Section 44

of the Code, 2016 in an Application under Section 43 of the Code,

2016 could have been passed, only if the sister concerns were made

parties to the Application under Section 43 of the Code, 2016.

iii. Ld. Counsel submitted that the Hon'ble Supreme Court of India in

'Aliji Momonji & Co. v. Lalji Mavji & Ors.' [(1996) 5 SCC 379] has laid

down the test that whether a party is necessary or not which is two-

fold i.e. (1) Where presence of a party is necessary for complete and

effectual adjudication of the disputes (2) If in the absence of the said

party no effective and complete adjudication of the dispute could be

made and no relief could be granted then the said party is a

necessary party.

iv. It is submitted that any order by the Adjudicating Authority under

Section 44 of the Code, 2016 could not have been passed in the

Company Appeal (AT) (Ins.) No. 1522 of 2025 -7-

absence of the sister concerns of the Corporate Debtor with whom

the alleged preferential transactions were carried out.

v. Ld. Counsel further submits that the Application filed before the Ld.

Adjudicating Authority as well as the Transaction Audit Report have

not stated/pleaded the following anywhere despite the same being

specific conditions required to be fulfilled for any transactions to be

declared as preferential u/s 43 of the Code-

a) That the aforementioned two companies were creditors of the

Corporate Debtor.

b) That the aforementioned amounts were transferred to the

aforementioned two companies on account of antecedent debt or

liabilities which was owed by the Corporate Debtor to them. It is

pertinent to mention that w.r.t transaction made towards M/s. K

Sera Sera Digital Cinema Ltd., the Respondent No. 1 as well as the

Transaction Auditor have both categorically stated that the said

amount is not transferred to it against any outstanding debt owed

by the Corporate Debtor to it.

c) With regard to the transaction with K Sera Sera Digital Cinema

Limited, it is Resolution Professional's own case that he could not

find any outstanding debt against which a payment of Rs.

8,92,646/- were made.

d) That the transfer of aforementioned amounts to the

aforementioned two companies have put the them in a beneficial

position as creditors of the Corporate Debtor than it would have

Company Appeal (AT) (Ins.) No. 1522 of 2025 -8-

been in the event of distribution of assets of Corporate Debtor u/s

53 of the Code.

vi. Ld. Counsel submits that the Impugned Order dated 01.08.2025 was

passed by the Ld. Adjudicating Authority without proper application

of mind, without proper appreciation of facts of the case, without

appreciation of position of law laid down by Hon'ble Supreme Court

of India w.r.t preferential transactions in Jaypee Infratech Ltd.

(supra) referred to as "Anuj Jain case", thereby erroneously allowing

the Application and directing the Appellants and Respondents No. 2

to 4 to repay/refund the aforementioned total amount of Rs.

47,92,646/- to the Corporate Debtor, while making the Appellants

and Respondent No. 2 to 4 jointly and several liable for the same.

vii. Ld. Counsel further submits that the Hon'ble Supreme Court of India

whilst analysing Section 43 of the Code has laid down 5 questions

which have to be answered in order to arrive at the conclusion

whether the transaction musters the test of Section 43 of the Code or

not. That it is submitted that 5 questions need to be answered in the

facts of the present case in order to rule the aforementioned transfer

of amounts as being preferential in nature u/s 43 of the Code which

are reproduced hereinunder:

a) whether such transfer is for the benefit of a creditor or a surety or a

guarantor - It is nowhere stated or pleaded in the subject I.A. or in

the Transaction Audit Report annexed therein that the

aforementioned two companies were creditors or surety of

Company Appeal (AT) (Ins.) No. 1522 of 2025 -9-

guarantor of the Corporate Debtor. Therefore, in the facts of the

present case, this question is answered in the negative.

b) whether such transfer is for or on account of an antecedent

financial debt or operational debt or other liabilities owed by the

corporate debtor - It is nowhere stated or pleaded in the subject

I.A. or in the Transaction Audit Report annexed therein that the

aforementioned amounts were transferred to the aforementioned

two companies on account of an antecedent debt owed by the

Corporate Debtor to them. To the contrary, it is categorically

submitted/pleaded in the subject I.A. as well as in the

Transaction Audit Report that the amount transferred to one of

the aforementioned companies, i.e. M/s. K Sera Sera Digital

Cinema Ltd., was NOT transferred to it on account of any

outstanding debt. Therefore, in the facts of the present case, this

question is also answered in the negative.

c) whether such transfer has the effect of putting such creditor surety

or guarantor in a beneficial position than it would have been in the

event of distribution of assets being made in accordance with

section 53 - Considering the fact that the aforementioned two

companies have not been stated to be creditors of the Corporate

Debtor, the question of putting them in any beneficial position in

terms of Section 53 of the Code does not arise.

d) if such transfer had been for the benefit of a related party (other

than an employee), whether the same was made during the period

of two years preceding the insolvency commencement date; and if

Company Appeal (AT) (Ins.) No. 1522 of 2025 -10-

such transfer had been for the benefit of an unrelated party, as to

whether the same was made during the period of one year

preceding the insolvency commencement date - Admittedly, the

aforementioned two companies are sister concerns of the

Corporate Debtor and are therefore, related parties to the

Corporate Debtor. The alleged transactions have taken place in

January 2022 and accordingly, the same is within 2 years.

Therefore, this question that is being answered in positive.

e) whether such transfer is not an excluded transaction in terms of

sub-section (3) of section 43 - It is submitted that in terms of

Section 43(3) as has been interpreted by the Hon'ble Supreme

Court in Anuj Jain (supra) case, a transaction is excluded from

being ruled as preferential if the same is being carried out in the

ordinary course of business of the Corporate Debtor as well as

that of the transferee companies. It is submitted that on a perusal

of the Transaction Audit Report annexed with the subject I.A., it is

evident that the said transactions are actually made in the

ordinary course of business of the Corporate Debtor as well as of

the aforementioned two transferee companies.

viii. Ld. Counsel cited certain details from the Transaction Audit Report

which are reproduced below:

a) In regard to alleged transactions totaling to Rs. 39,00,000/- made

towards M/s. K Sera Sera Miniplex Ltd., the Suspended

Management, had stated that the same was paid for its working

capital requirements. Ld. Counsel referred to query by the

Company Appeal (AT) (Ins.) No. 1522 of 2025 -11-

transaction Auditor regarding the transfer of Rs. 3.74 crores of

Long-Term Unsecured Loan-good transferred to M/s. K Sera

SeraMiniplex Ltd. during F.Y. 2021-22 and the Suspended

Management had provided the ledgers w.r.t same stating that the

said amount was assigned to M/s. K Sera SeraMiniplex Ltd. and is

to be recovered from it subsequently. The same was accepted by

the Auditor who had thereafter reiterated the list of sundry debtors

therein. This establishes that such transactions were carried out in

the ordinary course of business of the Corporate Debtor and of

M/s. K Sera SeraMiniplex Ltd.

b) In regard to alleged transaction of Rs. 8,92,646/- qua M/s. K Sera

Sera Digital Cinema Ltd. Ld. Counsel cited that the Transaction

Auditor has listed in a tabular form, the debit as well as credit

transactions ranging between 03.01.2022 to 31.03.2022, thereby

resulting in a debit amount which is alleged in the Subject I.A., i.e.

Rs. 8,92,646. The said table illustrated demonstrates that it was

done in ordinary course of business of the Corporate Debtor as

well as that of M/s. K Sera Sera Digital Cinema Ltd. He also made

a reference to a transaction wherein, Rs. 6.01 crores of Tirupati

Infra Projects Pvt. Ltd. was transferred to M/s. K Sera Sera Digital

Cinema Ltd. during F.Y. 2021-22 and the reply provided by the

Suspended Management w.r.t the same was accepted as correct by

the Respondent No. 1. Therefore, it is evident that such

transactions were carried out in the ordinary course of business of

the Corporate Debtor and of M/s. K Sera Sera Digital Cinema Ltd.

Company Appeal (AT) (Ins.) No. 1522 of 2025 -12-

c) He further made a reference to query by the Transaction Auditor

regarding transfer of outstanding balance in Loans & Advances

granted to M/s. Paradise Tradewings Pvt. Ltd. amounting to a total

of Rs. 1,32,20,000/-, was transferred to M/s. K Sera Sera Box

Office Pvt. Ltd. (Rs. 1 Crore) and M/s. Birla gold & Precious Metals

Ltd. (Rs. 32.20 lakhs). The Suspended Management had stated in

its reply that the aforementioned amount was recovered by said

two companies which are the Corporate Debtor's subsidiary

companies, and the Transaction Auditor has further stated that

Rs. 1 crore of the said amount received by M/s. K Sera Sera Box

Office Pvt. Ltd. was further transferred and adjusted against

payable of M/s. K Sera Sera Digital Cinema Ltd. in the books of

Corporate Debtor and that Rs. 32.20 Lakhs received by M/s. Birla

Gold & Precious Metals Ltd. was still outstanding. This very chain

of events between the corporate debtor and its subsidiary

companies further corroborates the fact that such transactions,

included the transactions alleged in the subject I.A., were carried

out in the ordinary course of business of the Corporate Debtor as

well as its subsidiary companies, including the aforementioned two

companies concerned in the subject I.A.

ix. Ld. Counsel states that in the light of abovementioned facts which

are evident from the perusal of the Transaction Audit Report, it is

established that the alleged transactions are excluded in terms of

Section 43(3) of the Code as being transactions carried out in the

Company Appeal (AT) (Ins.) No. 1522 of 2025 -13-

course of ordinary business of the Corporate Debtor and of the

abovementioned two transferee companies.

x. It is the submission of Ld. Counsel that this Hon'ble Appellate

Tribunal in its decision in 'Md Sadique Islam & Ors. v. Niraj Kumar

Agarwal & Ors.', [Company Appeal (AT) (Ins.) No. 1081 of 2022] whilst

allowing the Appeal and reviving the Application before the

Adjudicating Authority, held that there has to be application of mind

to the ingredients of each transaction to come to conclusion that

ingredients are satisfied and transaction falls in the said category.

xi. Ld. Counsel submits that in terms of Section 43(3) as has been

interpreted by the Hon'ble Supreme Cour in Anuj Jain case, a

transaction is excluded from being ruled as preferential if the same

is being carried out in the ordinary course of business of the

Corporate Debtor as well as that of the transferee companies. It is

submitted that on a perusal of the Transaction Audit Report annexed

with the subject I.A., it is evident that the said transactions are

actually made in the ordinary course of business of the Corporate

Debtor as well as of the aforementioned two transferee companies as

similar transaction have been carried out by the Corporate Debtor

against which the explanation of the ex-management has been

accepted and the said transaction have been found to be in ordinary

course.

xii. It is submitted by the counsel that according to the Black's Law

Dictionary meaning of ordinary course of business is the normal

Company Appeal (AT) (Ins.) No. 1522 of 2025 -14-

routine in managing a trade or business. It is further relevant to

refer to the Guidance Note of related party transaction issued by

Institute of Company Secretaries, which is also referred to by this

Hon'ble Appellate Tribunal in the Judgment of 'Sahyog Infrastructure

Private Limited and Ors. v. Anju Agarwal' wherein, this Hon'ble

Appellate Tribunal has held that guidance note has persuasive value

though it cannot be read in place of statutory provisions. However,

the guidance note is being referred in order for better adjudication of

the present Appeal which is reproduced hereinunder:

"Guidance Note of related party transaction issued by Institute

of Company Secretaries

In common parlance, 'ordinary course of business' would include

transactions which are entered into in the normal course of

business

pursuant to or for promoting or in furtherance of the company's

business objectives, as per the charter documents of the

company. For example, in case of a manufacturing company,

purchase and sale of goods, taking premises on lease/rent,

construction of factory, employing workers, etc. will be

considered as ordinary course of business. To carry on a

business, several activities are carried on by the company; all

such activities will be considered to be in the ordinary course of

business. However, if a manufacturing company, for the purpose

of diversification, decides to acquire another company which is

engaged in a completely unrelated business, this activity will not

be considered to be in the ordinary course of business. To decide

Company Appeal (AT) (Ins.) No. 1522 of 2025 -15-

whether an activity which is carried on by the business is in the

ordinary course of business, the following factors may be

considered:

a. Whether the activity is covered in the objects clause of the

Memorandum of Association

b. Whether the activity is in furtherance of the business

c. Whether the activity is normal or otherwise routine for the

particular business (i.e. activities like advertising, staff

training etc).

d. Whether the activity is repetitive/frequent

e. Whether the income, if any, earned from such

activity/transaction is treated as business income in the

company's books of account

f. Whether the transactions are common in the particular

industry

g. Whether there is any historical practice to conduct such

activities

h. The financial scale of the activity with regard to the

operations of the business

i. Revenue generated by the activity

j. Resources committed to the activity

The above list is not exhaustive. Individually, none of the above

parameters can amounts to the transactions being in the ordinary

course of business. In other words, any activity which is routine

and in accordance with the usual customs and practices of a

particular business can be described to be 'in the ordinary course

of business'. For a company, the interpretation needs to be

Company Appeal (AT) (Ins.) No. 1522 of 2025 -16-

contextual, taking into account the nature of the activity and its

relevance in the overall context of the company's business".

xiii It is submitted by the Appellant that the Corporate Debtor and its

sister concerns are in the same business which took a hit after

covid19 pandemic had hit the nation and therefore, transfer of

money was for the purposes of business capital requirements.

Furthermore, the fact that there was a categorical pleading in the

Application that the amounts have not been transferred towards any

outstanding debt. In addition, thereto, there is no cogent evidence

which is placed on record either with the Transaction Audit Report

or the Application to show that the amounts have been transferred

towards any outstanding debt i.e. any antecedent debt. Therefore,

the said transactions are squarely covered under the ordinary course

of business in terms of Section 43(3) of the Code and hence, the

Impugned Order deserves to be set aside.

xiv Ld. Counsel further submits that the Ld. NCLT, Mumbai Bench - I in

the matter of 'Ericsson India Private Limited v. Reliance

Communication Limited, I.A. No. 1269 of 2020 in C.P. (IB) No. 1387 of

2017' have held that payment towards antecedent debt was in

ordinary course of business. However, in the instant case there is no

existence of Antecedent Debt which is a pre-requisite for a

transaction to be termed as preferential in nature. It is further

relevant to refer to the decision of NCLT, Mumbai Bench - I in the

matter of 'Union Bank of India v. Rolta India Limited', I.A. No. 3648 of

Company Appeal (AT) (Ins.) No. 1522 of 2025 -17-

2023, C.P. (IB) No. 530/MB/2020 wherein, the transaction by CD

with the subsidiary company has been held not to be a preference as

per Section 43 of the Code, 2016.

xv In view of the submissions above he prays for setting aside the

impugned order or pass any such order or further orders that this

appellate tribunal may deem fit in the facts and circumstances of the

present case.

Submission of Respondent No. 1/RP:

5. Submissions of Respondent no. 1 are as follows:

i. Ld. Counsel for the Respondent No. 1/RP submits that the present

Appeal fails to disclose any cogent ground in support of the relief

sought by the Appellants and is thus, liable to be dismissed at the

threshold by this Hon'ble Tribunal.

ii. Ld. Counsel submits that the Corporate Insolvency Resolution

Process of the Corporate Debtor was initiated on 24.01.2023. The

Respondent No. 1 had appointed Transaction Auditor on 10.03.2023

to conduct transaction audit, who submitted the Final Report of

Transaction Audit on 03.08.2023 in view of which, the Respondent

No. 1 had filed the Interlocutory Application No. 4648/2023 for the

identified transactions.

iii. Ld. Counsel further submits that the following two transactions have

been identified to be preferential transactions (subject transactions):

Company Appeal (AT) (Ins.) No. 1522 of 2025 -18-

a) Transfer of a sum of Rs. 39,00,000/- (Rs. Thirty-Nine Lakhs

Only/-) by the Corporate Debtor to its wholly owned subsidiary

viz 'M/s K Sera Sera Miniplex Limited' within a review period of

two years during the period of financial stress.

b) Transfer of a sum of Rs. 8,92,646/- (Rs. Eight Lakh Ninety-Two

Thousand Six Hundred Forty-Six only/-) to M/s K Sera Sera

Digital Cinema Limited i.e. a sister concern for the outstanding

debt within the review period as defined under Section 43 (4) of

the Code.

iv. It is submitted that the Ld. Adjudicating Authority has correctly held

these transactions as preferential while holding the Appellants and

Respondents No. 2 to 4 jointly and severally liable to repay/refund

the amount of Rs. 47,92,646/- to the account of the Corporate

Debtor.

v. Ld. Counsel for Respondent No.1 denied that the subject transaction

are not preferential transactions. The transaction claimed to be

avoidable for being preferential to the creditors of the Corporate

Debtor meets the criteria as defined under the Code and the judicial

precedents and more specifically explained in the below mentioned

paragraphs:

Transfer to M/s K Sera Sera Miniplex Ltd:

a) That for seeking necessary orders under Section 44 of the Code,

the ingredients of Section 43 are required to be met and it is

Company Appeal (AT) (Ins.) No. 1522 of 2025 -19-

submitted that the same have been fulfilled for the present

transaction.

b) That it is submitted that M/s K Sera Sera Miniplex Limited is an

wholly owned subsidiary of Corporate Debtor and thus a related

party. That the review period for the transactions with the

related parties as provided under Section 43 (4) is two years

preceding the insolvency commencement date.

c) The CIRP of the Corporate debtor was initiated on 24.01.2023.

The Corporate Debtor had transferred a sum of Rs. 39,00,000/-

in January 2022 i.e. within a period two years preceding the

commencement of the CIRP.

d) It is submitted that the initiation of the CIRP was imminent due

the financial distress of the Corporate Debtor. However, during

the period of financial distress the Corporate Debtor transferred

a sum of Rs. 39,00,000/- to the K Sera Sra Miniplex Limited.

The only explanation provided by the Appellants for making this

transfer was for working capital requirement of the wholly owned

subsidiary.

e) He submits that the Appellants gave preference to K Sera Sera

Miniplex against the creditors of the Corporate Debtor by

transferring a sum of Rs. 39,00,000/- to its wholly owned

subsidiary and by this act, it kept the money out of the reach of

the creditors of the Corporate Debtor.

Company Appeal (AT) (Ins.) No. 1522 of 2025 -20-

Transfer of Money to M/s K Sera Sera Digital Cinema limited:

a) That it is submitted that M/s K Sera Sera Digital Cinema is a sister

concern of the Corporate Debtor and has been classified as a

related party of the Corporate Debtor.

b) K Sera Sera Digital Cinema is also an unsecured creditor of the

Corporate Debtor and had filed a claim of Rs. 3,08,58,210.63/-

which was admitted by the Answering Respondent.

c) That the Corporate Debtor transferred a sum of Rs. 8,92,645/-

during a period of two years preceding the commencement of the

CIRP.

d) Ld. Counsel submitted that the Corporate Debtor transferred a

property to K Sera Sera Digital Cinema Limited during the period of

two years preceding the commencement of CIRP against its

antecedent debt for which a claim was filed and admitted. Thus, it

was given preferential treatment over other creditors of the

Corporate Debtor.

e) That it is also an admitted position of fact that the transfer was

made against the outstanding debt. Therefore, the said amount was

not transferred during the ordinary course of business.

vi. Ld. Counsel submits that with regard to the ground of the Appellants

that the Respondent No. 1 did not discuss the Transaction Audit

report with the CoC and has filed the Application without discussion

Company Appeal (AT) (Ins.) No. 1522 of 2025 -21-

with the CoC is without any substance and cannot be a ground of

challenge. It is submitted that in terms of the provisions of the Code,

the Resolution Professional is required to form an opinion, before

filing the Application. It is clear from these sections that it is purely

in the domain of Interim Resolution Professional/ Resolution

Professional to appoint the Transaction Auditor and frame an

opinion. Nowhere, in the Code or Regulation, it has been stipulated

that the approval of the CoC is required. The Application was filed by

the Answering Respondent after framing of opinion on the expert

report of the Transaction Auditor.

vii. Ld. Counsel further submits that the Respondent No. 1 did not make

any independent opinion. it is further submitted that Respondent No.

1 as Resolution Professional was already having preliminary

information about transactions based on whatever documents were

available in the public domain; as available with the CoC and with

the Corporate Debtor. This preliminary information coupled with

professional inputs of the Transaction Auditor, which having been

prepared by an expert agency was an aiding mean for the Answering

Respondent in determining the facts surrounding each transaction

and in making out whether the ingredients of Sections 43 were

applicable to such transactions before filing an application before the

Adjudicating Authority. It is further submitted that the Respondent

No. 1 had filed an application after reviewing the report of the expert

agency therefore, the ground to challenge is frivolous.

Company Appeal (AT) (Ins.) No. 1522 of 2025 -22-

viii. Ld. Counsel further submits that in view of the above, the present

appeal is frivolous and wholly devoid of merit, serving no purpose

other than to unnecessarily consume judicial time. From a legal

standpoint, the appeal is completely non-maintainable and deserves

to be dismissed at the threshold.

Analysis and findings

6. We have heard both the parties in detail, gone through the

voluminous records of the case and also seen the written submission of

Appellant. The Respondent No.1 did not file any note of submissions.

Respondents No. 2,3 & 4 did not file any reply and are treated as performa

respondents.

7. The contention of appellants in brief is that there was no

transparency in appointment of Transaction Auditor and the same was

done without the approval of Committee of Creditors. The RP has failed to

implead the sister concerns of the Corporate Debtor, which were necessary

parties to the adjudication. The appellants are not the creditors or surety

or guarantors of the CD and in such a situation the responsibility for

payment of the alleged preferential transaction could not be placed on

them. It is stated that even otherwise the alleged transactions were made

in the ordinarily course of business, which is covered by the exception

under Section 43 (3) (a) of the Code. It has also been stated that the

alleged transaction does not fall within the five criteria's which have been

laid down by the Hon'ble Supreme Court in Anuj Jain's (supra).

Company Appeal (AT) (Ins.) No. 1522 of 2025 -23-

8. Per contra the Respondent No.1/ RP has stated that the appellants

have not denied the transfer of funds and their main defence is that such

transfer is done in the ordinarily course of business. It is also submitted

that no supporting documents have been provided to show that the

aforesaid transactions are in ordinarily course of business. It is an

admitted fact that the two companies to whom the transfer has been done

are sister concerns of the Corporate Debtor. In the case of related parties,

the look back period provided in the Code is two years. The Code also

provides that any transfer to related parties during the look back period

would be deemed to be preferential. The RP has powers under the Code to

appoint Transaction Auditors to identify preferential and undervalued

transactions and for this the approval of Committee of Creditors is not

required. It is his submission that the appeal is devoid of any merit and

should be dismissed forthwith.

9. We now examine the issues raised by the appellant. The first

contention of the appellant is that the Transaction Auditor has been

appointed by the Resolution Professional in a non-transparent manner

and without the approval of CoC and further the application under Section

43 has been filed without the approval of CoC.

10. The duties of Resolution Professional are mentioned in Section 25 (1)

& (2) of the Code. The relevant portion of the said Section in extracted

below:

Company Appeal (AT) (Ins.) No. 1522 of 2025 -24-

"25. Duties of resolution professional (1) It shall be the duty of the resolution professional to

preserve and protect the assets of the corporate debtor,

including the continued business operations of the corporate

debtor.

(2) For the purposes of sub-section (1), the resolution

professional shall undertake the following actions, namely: -

(d) appoint accountants, legal or other professionals in the

manner as specified by Board;"

11. The relevant regulation in this regard is the Regulation 27 (2) of IBBI

(Insolvency Resolution Process for corporate persons) Regulations, 2016.

The same is extracted below:

"27. Appointment of Professionals

(1) The resolution professional shall, within seven days of

his appointment but not later than forty-seventh day from

the insolvency commencement date, appoint two registered

valuers to determine the fair value and the liquidation

value of the corporate debtor in accordance with regulation

35.

(2) The interim resolution professional or the resolution

professional, as the case may be, may appoint any

professional, in addition to registered valuers under sub-

regulation (1), to assist him in discharge of his duties in

conduct of the corporate insolvency resolution process, if he

is of the opinion that the services of such professional are

Company Appeal (AT) (Ins.) No. 1522 of 2025 -25-

required and such services are not available with the

corporate debtor."

12. Section 25 (2) (d) of the Code provides the power to IRP/RP to

appoint Accountants, Legal or other professionals in the manner as

specified by the board. Further Regulation 27 (2) of CIRP regulations 2016,

provides that the RP may appoint any professional to assist him in

discharge of his duties in conduct of the CIRP, if he is of the opinion that

the services of such professionals are required and such services are not

available with the Corporate Debtor. Nowhere does the Code provide for

consultation by RP with CoC to appoint professionals. RP is empowered

under the Code to appoint Transaction Auditors and accordingly, we do

not find any merit in this contention of the appellant.

13. Regarding the contention of Respondent that application under

section 43 has been filed by the RP without the approval of CoC, we note

that the Code does not have any such provision in this regard. On the

contrary, under Section 25(2)(j), the RP is duty-bound to file application

for avoidance of transactions under Chapter-III of the Code and it is one of

the statutory responsibilities of the RP. Such contention of Respondent

again is without any merit.

14. The appellant has also invited our attention to non-joinder of the

two subsidiary companies of the corporate debtor who are the parties in

the aforesaid preferential transactions. It is the submission of the

appellant that their presence was necessary for complete and effectual

Company Appeal (AT) (Ins.) No. 1522 of 2025 -26-

adjudication of the disputes and in absence of their participation in

proceedings, the effective and complete adjudication is not possible. The

appellants have cited the judgment of Hon'ble Supreme Court in Aliji

Momonji (supra) in this regard.

15. The Insolvency and Bankruptcy Code, 2016 is a complete Code for

adjudication of disputes relating to such matters. The code provides for

summary proceedings and the procedure for the same are designed

accordingly. Keeping these in mind, the RP has been given a timeline of 90

days from the initiation of CIRP till filling of application under section 43

for declaring a transaction as preferential. The RP, therefore, in this period

gets a transaction or forensic audit of CD to identify such transactions and

file the application before the Adjudicating Authority within 90 days. It is

not possible to look into the balance sheets of the other parties in such

transactions. The identification of such transactions is based on the

financial statements of the Corporate Debtor only. There is no necessity to

look into financial statements of counter-parties to such transactions.

Therefore, there is no need of joinder of such parties. We further note that

this plea was not taken during the proceedings at the stage of Adjudicating

Authority.

16. The appellants have admitted to the transaction but they have

stated that these transactions are covered by exception to preferential

transactions provided under section 43 (3) (a) of the Code. The subject of

preferential transaction is covered under Section 43 of the Code, which is

extracted below:

Company Appeal (AT) (Ins.) No. 1522 of 2025 -27-

"Section 43. Preferential transactions and relevant time

(1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section 44.

(2) A corporate debtor shall be deemed to have given a preference, if-

(a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and

(b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53.

(3) For the purposes of sub-section (2), a preference shall not include the following transfers-

(a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee;

(b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that-

(i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property

and

Company Appeal (AT) (Ins.) No. 1522 of 2025 -28-

(ii) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property:

PROVIDED that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate debtor.

Explanation: For the purpose of sub-section (3) of this section, "new value" means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the resolution professional under this Code, including proceeds of such property, but does not include a financial debt or operational debt substituted for existing financial debt or operational debt.

(4) A preference shall be deemed to be given at a relevant time, if-

(a) It is given to a related party (other than by reason only of being an employee), during the period of two years preceding the insolvency commencement date; or

(b) a preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date.

(Emphasis supplied)

17. Section 43 of the Code deals with the preferential transaction and

relevant time. The nature of such transactions has been dealt with by the

Section 43 (2) & (3) and the look back period is prescribed in Section 43

(4). We note that for the related party the time period of two years has

been prescribed as look back period from the date of commencement of

Company Appeal (AT) (Ins.) No. 1522 of 2025 -29-

insolvency. The RP has accordingly ordered the transaction audit of the

CD for the corresponding period.

18. Section 43 (2) provides that if any transfer of property or interest

thereof of the Corporate Debtor has been done for the benefit of a creditor

or a surety or a guarantor for an existing financial debt or operational debt

or other liabilities of the Corporate Debtor and such transfer has an effect

of putting such creditor or a surety or a guarantor in a beneficial position

than in case of distribution under Section 53 of the Code, such

transactions would be deemed to be preferential.

19. Appellants herein rely on exceptions to the provision under section

43(2) to claim that the aforesaid transactions were made in ordinarily

course of business between the Corporate Debtor and the subsidiary

companies (transferee herein), and are covered under the exception

provided in Section 43(3)(a).

20. It is an admitted fact that transfers were made to the two

subsidiaries companies of the Corporate Debtor. We have a look at the

relevant portion of Transaction Audit Report at pages 31 & 32 of the same,

which are extracted below:

Company Appeal (AT) (Ins.) No. 1522 of 2025 -30-

Company Appeal (AT) (Ins.) No. 1522 of 2025 -31-

21. Page 31 of Audit Report above, relates to the first transfer of Rs. 39

lakhs to M/s K Sera Sera Miniplex Ltd. in the Financial Year 2021-22, the

Transaction Auditor has identified the same to be likely preferential

transaction. A reply was sought from the management, wherein it was

stated that amount was paid for the working capital requirement of wholly

owned subsidiary company. The Auditors in their comment have noted

that KSS Ltd. (CD) should have utilized the funds in paying of its own

creditors instead of transferring it to the subsidiary company as KSS Ltd.

itself was incurring losses in that period. The auditor therefore reached the

conclusion that the company has given preference to its subsidiary.

Company Appeal (AT) (Ins.) No. 1522 of 2025 -32-

22. Page 32 of the Transaction Audit Report relates to the second

transfer of Rs. 8,92,646/- in FY 2021-22 to M/s K Sera Sera Digital

Cinema Ltd. The Transaction Auditor again identified the transaction to be

likely preferential. The reply from the management in this case was that

the amount was paid against old outstanding. Based on the same the

audit reached the conclusion that there is no such amount outstanding as

per data provided to them, the company has been incurring losses, it

should have cleared the debts of outsiders first and then of the related

parties so it seems to be a preferential transaction.

23. It should be noted here that the transaction auditor has sought the

comments of the erstwhile management but they could not rebut the

findings of the audit. In the hearings before the Adjudicating Authority,

when these transactions were referred to the respondents, they could not

effectively rebut the opinion formed by RP except for claiming that these

transactions were made in ordinary course of business.

24. The appellant in his reply to IA No. 4648 of 2023 has, in para 12,

averred the following:

"12. With respect to contention about alleged preferential transactions, it is submitted that the said transactions were carried out in normal course of business out of business prudence and customs & usage in the industry. It is stated that parties with whom alleged preferential Transactions are made, were having debit as well as credit balance either for themselves or for parties that they represent. Therefore, as per the prevailing customs in the

Company Appeal (AT) (Ins.) No. 1522 of 2025 -33-

business of trading of lamination, those debit and credit entries were squared off. There is no evidence that these parties are "preferred" over other creditors when it comes to distribution under Section 53 of the Code. In fact, it is stated that amount paid to subsidiary company cannot be classified as preferential transaction. Also, preferential transactions under Section 43 of the Code, are barred so as to ensure just and equitable distribution amongst creditors under Section 53. Therefore, unless it is shown that transactions referred in the application are with a view to prefer those parties over other creditors, the transactions with those parties cannot be termed as preferential transactions under Section 43 of the Code."

25. It is the submission of the appellant that the said transactions were

carried out in normal course of business out of business prudence and

custom and uses in the industry. The transactions involved squaring off

existing debit and credit balances. Nowhere in their pleadings have the

appellants produced any documents relating to provision of any product or

service by the transferees to the CD. Their contention is actually a vague

assertion of such transactions being undertaken under the ordinary

course of business, but the same has been made without any document

supporting such underlying transactions.

26. We note that in the CIRP proceedings of the Corporate Debtor, M/s

K.Sera Sera Digital Cinema has filed a claim of Rs. 3,08,58,210.63 which

was admitted by the Resolution Professional/ Respondent No.1 here. This

is an admitted position on record. K. Sera Sera Digital Cinema is therefore

Company Appeal (AT) (Ins.) No. 1522 of 2025 -34-

a creditor of the CD and is squarely covered by Section 43 (2) (a) of the

Code. Accordingly, the transfer of Rs.8 Lakhs made by the CD to its sister

concern K. Sera Sera Digital Cinema has to be treated as preferential

transaction as under Section 43 (2)(b) of the code, it would have the effect

of putting K.Sera Sera Digital Cinema in a beneficial position than it would

have been in case of distribution of assets made under Section 53. Such

transaction cannot be said to have been made in ordinary course of

business under the exception provided in Section 43 (3) (1) of the Code.

27. Based on the documents on record, we note the following:

i. The transferee companies namely, K. Sera Sera Miniplex Ltd. and K.

Sera Sera Digital Cinema Ltd. are subsidiary companies of the CD,

and are related parties.

ii. There is a transfer of Rs. 39 Lakhs to M/s K. Sera Sera Miniplex Ltd.

and Rs. 8,92,646/- to K. Sera Sera Digital Cinema Ltd. In the CIRP

of CD M/s K.Sera Sera Digital Cinema Ltd. had filed a claim of

Rs.3.08 Crores. So, it is also a creditor of CD.

iii. The aforesaid transactions took place in January 2022, which is

within 2 years of lookback period provided for related parties under

section 43(4) of the Code.

iv. There are no documents to show transactions relating to provision of

goods or services by the subsidiary companies for which payment

has been made by the CD. The aforesaid transactions therefore are

Company Appeal (AT) (Ins.) No. 1522 of 2025 -35-

not covered under the exception provided in section 43(3)(a) of the

code.

v. Under section 43(4)(a), in case of a related party, preference shall be

deemed to have been given regarding such transactions within a

period of 2 years preceding the insolvency commencement date.

28. It is clear from the factual matrix that the K. Sera Sera Digital

Cinema Ltd. is a financial creditor of the corporate debtor and a payment

of Rs. 8,92,646/- has been made to it by the CD within the lookback

period and such payment has been made in spite of CD itself passing

through financially difficult times. It also cannot be said to have been

made in ordinary course of business as we noted earlier. This transaction

has the effect of reducing the amount payable to other unrelated creditors

of the CD under section 53 of the Code. Therefore, the aforesaid

transaction qua K. Sera Sera Digital Cinema Ltd. is a preferential

transaction under Section 43 of the Code. This transaction squarely meets

the requirements of a preferential transaction as per the norm laid down

by Anuj Jain (supra).

29. In regard to transfer of Rs. 39 Lakhs with M/s K. Sera Sera Miniplex

Ltd. towards Working Capital Loan, we note that the aforesaid Company

though a related party, is not a creditor or a surety or a guarantor for or

on account of an antecedent financial debt or operational debt or other

liabilities owed by the corporate debtor; and therefore, it is not an entity

covered by the Section 43(2)(a) which is an essential condition for

Company Appeal (AT) (Ins.) No. 1522 of 2025 -36-

declaring a transaction as preferential. Accordingly, we hold that this

transaction is not a preferential transaction.

30. In view of the findings above, only the transfer of Rs. 8,92,646/-

made by the CD to K. Sera Sera Digital Cinema Ltd. is held as preferential

transaction under Section 43 of the Code.

31. The appeal is accordingly disposed of in the following manner: The

respondents in IA No. 4648 of 2023 who are appellants 1 to 3 and

respondents 2 to 4 in this appeal are jointly and severally directed to

repay/ refund the amount of Rs. 8,92,646/- to the Account of the

Corporate Debtor within a period of 30 days from the pronouncement of

this order together with interest in the same manner as directed by Ld.

Adjudicating Authority.

Pending IA's, if any, are closed. No order as to costs.

[Justice N Seshasayee] Member (Judicial)

[Mr. Arun Baroka] Member (Technical)

[Mr. Indevar Pandey] Member (Technical) Place: New Delhi

Harleen

Company Appeal (AT) (Ins.) No. 1522 of 2025