The Forensic Audit's Four Transactions
Lumen Polymers Ltd entered CIRP on 1 April 2025. The RP’s forensic audit reveals four transactions: (1) payment of ₹2.5 crore to Lumen Traders, a related party, on 15 June 2023 for old raw-material supplies; (2) payment of ₹1.2 crore to Prime Logistics, an unrelated operational creditor, on 10 December 2024 for services rendered eight months earlier, made after Prime threatened legal action; (3) sale of factory land to Anand Properties, an unrelated buyer, on 1 August 2024 for ₹3 crore when the market value was ₹5 crore; and (4) creation of a charge over receivables in favour of Bank A on 1 March 2025 for an existing loan. The CD was facing a bank recovery notice and had negative net worth throughout. The RP has until 14 August 2025 to file avoidance applications.
1. Classify each transaction under the avoidance provisions and state the applicable look-back period.
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(1) Preferential transaction under s.43. The payment to a related party was made about 21.5 months before the insolvency commencement date (ICD), within the two-year look-back for related parties. It was for an antecedent debt and improved Lumen Traders’ position. The CD’s negative net worth and recovery notice support the insolvency element.
(2) Potentially preferential under s.43. The payment to an unrelated creditor was about 3.7 months before ICD, within the one-year look-back. It was for services rendered earlier, i.e. antecedent debt. The threat of legal action does not automatically make it an ordinary-course payment; the RP must examine whether it was a genuine settlement for value.
(3) Undervalued transaction under s.45. The sale was about 8 months before ICD, within the one-year look-back for an unrelated buyer. ₹3 crore against a ₹5 crore market value is 40% less - “significantly less” on any view.
(4) Preferential transfer under s.43. Creating security for an existing loan within one year before ICD can put Bank A in a better position than it would have been in liquidation. It is not automatically an extortionate credit transaction under s.50 unless the terms themselves are harsh.
2. What defences or exclusions might the transferees raise, and how should the RP assess them?
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Lumen Traders may argue ordinary course of business. But a payment to a related party 21 months after supply, while the CD was under recovery pressure, is unlikely to qualify; the RP should check the supply terms, due dates and whether the payment was part of a regular cycle.
Prime Logistics may argue that it settled a genuine dispute and that the payment was ordinary-course. The RP should check whether the underlying services were real, whether the payment exceeded normal terms, and whether the threat of litigation was bona fide. A settlement can still be a preference if it is for antecedent debt and not in the ordinary course.
Anand Properties may argue bona fide purchaser for value. Section 45 does not require mala fides; the inadequate price is the core. Anand may instead dispute valuation, so the RP needs an independent valuation as on 1 August 2024.
Bank A may argue that the charge was required by a loan covenant. If it was created for existing debt, that does not answer s.43; the RP should examine whether it was in the ordinary course of financial affairs and whether new money was advanced.
3. What orders can the Adjudicating Authority pass, and what is the deadline issue?
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For the preferential transactions, the AA can avoid the transfer and require the beneficiary to return the property or pay the value to the CD under ss.43-44. For the undervalued sale, the AA can declare the transaction void and order restoration or payment under s.45, and may order that the property be transferred back. For the charge, the AA can set aside the security interest.
On timing, s.43(5) requires the RP to apply for avoidance of preferential transactions within 135 days from the ICD. Here 1 April 2025 + 135 days = 14 August 2025, which is why the RP has that outer date. The RP should not wait for the liquidation stage; delay can prejudice recovery. For the undervalued transaction, the RP should also act promptly and treat the same date as the practical deadline. The AA may also order interim protection to prevent dissipation.