Failure to Serve Respondents Leads to Dismissal of Sections 43 & 66 IBC Application by NCLT Ahmedabad
The National Company Law Tribunal, Ahmedabad Bench, in the matter of Omkarchand Maloo Liquidator For Intelligent Textiles Engineers Pvt. Ltd. Vs Yash Jatinbhai Baxi & Ors., declined to entertain an avoidance application under the Insolvency and Bankruptcy Code, 2016 on the ground that effective service had not been completed upon key respondents.
The application, filed under Sections 43 and 66 of the Insolvency and Bankruptcy Code, 2016, sought directions under Sections 44, 67, 73 and 74 for recovery of amounts alleged to be involved in preferential and fraudulent transactions. However, the Tribunal ultimately dismissed the application solely because the respondents were never properly served, despite multiple opportunities and clear directions for substituted service.
This order underscores that even in avoidance applications—often critical for value maximisation in insolvency—courts will not bypass the foundational requirement of service and hearing, in line with principles of natural justice.
Background of the Corporate Insolvency Proceedings
Initiation of CIRP and subsequent liquidation
The Corporate Insolvency Resolution Process (CIRP) of Intelligent Textile Engineers Private Limited commenced on 02.08.2021 in CP(IB) No. 657/9/NCLT/AHM/2019. During the CIRP, a Resolution Professional was in charge of the affairs and management of the corporate debtor.
Subsequently, by a liquidation order dated 19.01.2024 passed in IA No. 587 of 2022, the corporate debtor went into liquidation. Following this, the earlier Resolution Professional was replaced, and the present applicant was brought on record in his capacity as Liquidator of the corporate debtor.
Appointment of Transaction Auditor and audit findings
Acting on the decision of the Committee of Creditors (CoC), a Transaction Auditor was engaged to examine the affairs of the corporate debtor and identify potentially avoidable transactions.
The Transaction Auditor furnished a Transaction Audit Report dated 11.05.2022, which flagged a series of dealings as:
- Preferential transactions, and
- Fraudulent transactions,
within the meaning of the relevant provisions of the Insolvency and Bankruptcy Code, 2016.
Relying on this report, the applicant sought:
- Recovery of ₹51,79,000 as alleged preferential transactions, and
- Recovery of ₹1,99,09,000 as alleged fraudulent transactions.
These sums were stated to represent amounts that, according to the Transaction Auditor, ought to be clawed back into the estate of the corporate debtor.
Reliefs Sought in the Application
The application, originally moved by the Resolution Professional and later pursued by the Liquidator, was filed as IA No. 644 of 2022 in CP(IB) 657/9/NCLT/AHM/2019 under Sections 43 and 66 of the Insolvency and Bankruptcy Code, 2016. The applicant requested the Adjudicating Authority to:
- Allow the application in full.
- Issue appropriate orders/directions in terms of
Sections 44,67,73and74of the Insolvency and Bankruptcy Code, 2016, including:- Recovery or restoration of amounts considered legitimately due to the corporate debtor, and
- Claw-back of amounts characterised as preferential or fraudulent transactions, on the basis of the forensic / transaction audit report.
- Grant any further reliefs as the Tribunal deemed just and proper.
Thus, the substantive objective of the application was to enhance the value of the liquidation estate by nullifying avoidable transactions and recovering sums allegedly diverted.