Avoidance review over securities transfers and a post-moratorium repayment
Orion Chemicals Ltd entered CIRP on 1 April 2024 and liquidation commenced on 1 October 2025. The liquidator reviews four transactions. First, on 15 August 2022, Orion transferred 2 lakh shares of its subsidiary, Orion Logistics, to the Menon Family Trust, a related party, for ₹10 lakh when the fair value was ₹80 lakh. Second, on 1 March 2024, Orion created a pledge over its listed securities portfolio worth ₹7 crore in favour of North Bank for a fresh ₹5 crore loan disbursed the same day. Third, on 10 June 2024, after the moratorium began, Orion repaid ₹2 crore to Orion Traders, a related party. Fourth, on 1 January 2024, Orion sold listed shares to an unrelated buyer at fair value of ₹3 crore. The liquidator wants to know which transactions can be avoided and which look-back periods apply.
1. Classify each transaction under sections 43, 45, 66 and section 14. State the applicable look-back.
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Transaction 1 is an undervalued transaction under section 45: shares worth ₹80 lakh were transferred for ₹10 lakh to a related party. The look-back for a related party is two years before CIRP commencement (1 April 2022 to 1 April 2024), so 15 August 2022 is within time. Transaction 2 is not preferential: the pledge was given for a fresh ₹5 crore loan disbursed the same day and is a security interest for new value in the ordinary course, within the section 43(3) exception; it did not deplete the estate. Transaction 3 is void under section 14(1)(b) because it was a transfer of assets after the moratorium began; if it was intended to defraud creditors, section 66 may also apply. It is not a section 43 preference because it occurred after CIRP commencement. Transaction 4 was at fair value to an unrelated buyer; no undervalue and no antecedent-debt preference, so it is not avoidable.
2. If the Menon Family Trust had been an unrelated party, would transaction 1 still be avoidable?
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If the trust were unrelated, the section 45 look-back would be one year (1 April 2023 to 1 April 2024). The 15 August 2022 transfer would fall outside that period and could not be avoided as an undervalued transaction. It could still be challenged under section 66 if the liquidator proves fraudulent intent to defraud creditors, because section 66 has no look-back period. The mere fact of undervalue, without fraud, would not suffice outside the one-year window.
3. What remedy can the liquidator seek for transaction 3, and against whom?
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The liquidator should apply to the Adjudicating Authority for a declaration that the post-moratorium repayment is void under section 14 and for recovery from Orion Traders. Because Orion Traders is a related party, the liquidator should also consider section 66 if there is evidence of intent to defraud creditors. The amount can be recovered as money had and received or as property of the corporate debtor; the liquidator should not treat it as a section 43 preference, since the transaction occurred after the CIRP commenced.