Avoidance Provisions Under Insolvency Code Are Restorative, Not Punitive: NCLT Kochi

The National Company Law Tribunal at Kochi has clarified that the avoidance provisions under the Insolvency and Bankruptcy Code are meant to undo the preferential effect of certain transactions and restore the corporate debtor's estate, not to impose punitive liability on the beneficiary. Judicial Member Vinay Goel made the observation while partly allowing an avoidance application filed by the Resolution Professional of Astern Properties and Developers Pvt Ltd under Sections 43 and 44 of the Code. “The avoidance provisions are intended to neutralise the preferential effect of a transaction and restore the Corporate Debtor's estate to the position it would have occupied but for such preference, and not to impose a punitive liability on the beneficiary.”, the tribunal observed. Astern Properties was admitted into the CIRP on June 13, 2024. During the look-back period applicable to related parties, the RP identified payments and asset transfers aggregating more than Rs. 15 crores in favour of Astern Realtors Pvt Ltd, the holding company which owns 99 per cent shareholding in the debtor. Certain withdrawals by director Siraj Mather and a payment made to Moon Day Realtors Pvt Ltd were also challenged as preferential. While holding that the transactions satisfied the ingredients of “preference” under Section 43 of the Code, the tribunal noted that the holding company had during the same period, infused substantial funds and incurred expenses for the benefit of the corporate debtor. The tribunal said ordering a full refund without accounting for these infusions would result in unjust enrichment of the corporate debtor. The NCLT accordingly directed Astern Realtors to refund the net preferential amount of about Rs. 7.92 crore, after allowing adjustment for funds infused and ordered the director and the related-party entity to return the amounts received. It clarified that the underlying claims would revive and be dealt with in accordance with the waterfall mechanism. Case Title: CA Sreenivasan PR vs Astern Realtors Pvt Ltd & Ors Case Citation: 2026 LLBiz NCLT (KOC) 26 Case Number: IA(IBC)/239/KOB/2025 IN CP(IBC)/12/KOB/2024 For Applicant: Advocate Vinod PV For Respondents: Advocates KR Shiyas, Pradeep Joy, Rohan Kumar Click Here To Read/Download Order

Avoidance Provisions Under Insolvency Code Are Restorative, Not Punitive: NCLT Kochi

Kirit Singhania

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