NCLT Hyd. (2026.04.17) in Sivaram Prasad Bhamidi (Bankruptcy Trustee) vs Mulpuri Siva Ramakrishna and Anr. [(2026) ibclaw.in 1228 NCLT, IA (IBC)/1963/2025 IA (IBC)/1964/2025 IA (IBC)/1972/2025 in CP (IB) No.390/95/HDB/2020] held that;-.
Under Section 165, a transaction is preferential if it results in placing a creditor or associate in a better position than they would have been in the event of bankruptcy.
Under Section 164, a transaction is undervalued if it is made without consideration or for consideration significantly less than the value given by the bankrupt.
Respondent No. 2, being the son of the Bankrupt, squarely falls under the definition of an “associate” pursuant to Section 79(2). Consequently, these transactions are subject to stricter scrutiny, and the burden of proof shifts significantly to the Respondents to justify the commercial validity of these transfers.
The Hon’ble Supreme Court in Anuj Jain (supra) has held that the determination of avoidance transactions requires strict satisfaction of statutory ingredients and cannot be based merely on assumptions or audit reports.
In Shakti Yezdani & Anr. v. Jayanand Jayant Salgaonkar & Ors4., the Hon’ble Supreme Court held that “the nominee holds the securities in a fiduciary capacity for the legal heirs, and a will executed in accordance with the Indian Succession Act, 1925, supersedes the nomination.” Thus, a nominee does not acquire ownership or beneficial interest in the asset. Hence, it cannot be treated as forming part of the bankruptcy estate.
Here, it is clear that the money was originally a loan from a family member and was subsequently repaid. Repaying an associate in full while the Corporate Debtor’s creditors remain unpaid constitutes a clear preference. Therefore, this transaction is deemed preferential and must be reversed.
there is insufficient evidence to conclusively establish that it was made without consideration or for inadequate value. However, the fact remains that the payment was made to an associate during the relevant period. Even if it does not strictly qualify as an undervalued transaction under Section 164, its effect is to benefit an associate over other creditors. Therefore, it is covered under Section 165.
Excerpts of the Order;
# 1. This Interlocutory Application has been filed by the Applicant, the Bankruptcy Trustee, seeking directions against Respondent No.2 to repay to the Bankruptcy Estate of the Respondent No.1 an amount of Rs. 1,07,15,822 towards transactions falling under Section 164 and 165 of the Insolvency and Bankruptcy Code, 2016 (“Code”).
# 2. It is submitted that this Adjudicating Authority, vide order dated 24.01.2025 passed in IA (IBC) No. 2110/2024 in CP (IB) No. 390/95/HDB/2020, initiated the bankruptcy process against Respondent No.1, who is the personal guarantor to the corporate debtor, and appointed Mr. Dantu Indu Sekhar as the Bankruptcy Trustee under Section 125 of the Code.
# 3. It is submitted that upon resignation of the erstwhile Bankruptcy Trustee, this Adjudicating Authority, vide order dated 01.09.2025 in IA (IBC) No. 1423/2025, appointed the present Applicant as the Bankruptcy Trustee in terms of Section 146 of the Code.
# 4. It is stated that the erstwhile Bankruptcy Trustee had appointed a transaction auditor, Mr Sridhar Nukala, to undertake an audit of the transactions undertaken by the Bankrupt during the relevant periods from the viewpoint of Sections 164, 165 and 167 of the Code of the Bankrupt during the relevant period.
# 5. It is submitted that the Transaction Auditor, during the course of the audit, identified certain suspicious transactions and submitted his report1 on 03.11.2025, more specifically set out in the table below. The transactions listed at Serial Nos. 2 and 4 (Rs.45,00,000) being one and the same, only one has been included in the table below of transactions identified in favour of Respondent No.2.
# 6. It is contended that the transaction auditor has reported that the above transactions amounting to Rs 1,07,15,822/- attract the provisions of preferential transactions. The details of transactions as reported by the Transaction Auditor as preferential transactions are as under:
# 7. It is submitted by the Applicant that upon perusal of the report of the Transaction Auditor, not all transactions listed by the Transaction Auditor fall under Preferential Transactions. The transactions fall under two categories, namely Preferential Transactions under Sec 165 and under valued transactions under Sec 164.
# 8. It is submitted that Serial No.1 falls under Sub Section (7) and Sub Clause (a) & (b) of Sub Section (8) of Section 165 – preferential transactions and Serial Nos 2 & 3 fall under Sub Clause (b) of Sub Section (6) of Section 164 – Undervalued transactions.
# 9. It is submitted that the payment listed at serial No.1 is towards the settlement of the preexisting debt in preference to the debts of other creditors. The payments at serial No.2 & 3 appear to have been made without any consideration and hence qualify as undervalued transactions.
# 10. It is alleged that the beneficiary in both categories of the transactions is the son of the Bankrupt and falls under the category of ‘associate’ of the Bankrupt under Section 79(2)(a).
# 11. According to the Applicant, the transaction at Sl No 1 attracts Section 165 of the Code. On enquiry from the Transaction Auditor, it was explained by the Bankrupt that an amount of Rs 51 lakhs was taken as a loan from his son’s wife, Mrs Rukmini on 11.01.2022 and it was repaid to his son subsequently during the period of two years ending on the date of the application for bankruptcy. Thus, the repayment culminated into a preferential transaction because an existing debt of his associate has been settled in preference to the debts of other creditors during the relevant period. The application for bankruptcy has been filed by the applicant, SBI on 18.10.2024 and therefore, the selected transactions fall under the relevant period.
# 12. The Applicant identified certain Transactions that fall under Sec 164.
# 13. The Applicant submits that the explanation of the Bankrupt fails to establish receipt of consideration, and therefore, the Bankruptcy Trustee concluded that the transactions attract Section 164 of the Code. The Applicant states that the amounts so paid by the Bankrupt to his son are attracting relevant provisions of Section 164 and Section 165 of the Code.
Counter
# 14. The Respondents deny all allegations and contentions raised in this Application filed by the Bankruptcy Trustee. It is submitted that the transaction referred to therein does not constitute a “Preferential Transaction” or “Undervalued Transaction” as defined under the Code.
# 15. It is submitted that the true nature and purpose of each transaction clearly establishes that the transactions were temporary financial accommodations between family members and not otherwise and the Applicant misunderstood the same and filed the instant application based on Transaction Audit, which itself was carried out without application of mind.
# 16. According to the Respondents, the monies were used exclusively for arranging bank guarantees required for the passport release of Respondent No.1, whose passport was seized by the Passport authorities in connection with the CBI Investigation. It is stated that the Hon’ble High Court, New Delhi, vide orders dated 04.04.2014 and 25.04.2014, allowed temporary release of passport on furnishing a Bank Guarantee of Rs. 50,00,000/- in favour of Regional Passport Officers. It is further submitted that due to urgency, family members extended temporary financial support enabling placement of Fixed Deposits solely for backing the said Bank Guarantee and that there was no intention to prefer, no depletion of estate and no lack of consideration.
# 17. It is stated that Respondent’s Son, Mr. Rushyant and his wife Mrs Rukmini Mulpuri provided support to the first respondent to make a fixed deposit and to back the necessary bank guarantee in order to release a passport. It is contended that a mere relationship as “son” does not automatically render a transaction preferential or undervalued unless the statutory ingredients of Sections 164 and 165 are satisfied.
# 18. It is further submitted that the transaction of Rs. 52,15,822/- was made to Mr. Rushi Mulpuri and not to Respondent No.2, and that Respondent No.2 is not involved. The Respondents submit that Respondent No.1 was nominee in NHAI Bonds standing in the name of his deceased brother and received the redemption amount only as a nominee, which does not confer ownership, and the amount was transferred to the beneficiary, being the nephew. It is submitted that nominee receipts are held in a fiduciary capacity and do not form part of the Bankruptcy Estate.
# 19. It is submitted that the NHAI Bond redemption amount of Rs.52,15,822/- was received by Respondent No.1 only as a nominee and transferred to the nephew, being the rightful beneficiary, and therefore does not constitute a transaction of the Bankruptcy Estate. It is further submitted that Respondent No.2 is not involved in the said transaction and has been wrongly implicated.
# 20. It is further submitted that the transaction of Rs.52,15,822/- was made to Mr. Rushi Mulpuri and not to Respondent No.2, and that Respondent No.2 is not involved. The Respondents submit that Respondent No.1 was nominee in NHAI Bonds standing in the name of his deceased brother and received the redemption amount only as a nominee, which does not confer ownership, and the amount was transferred to the beneficiary, being the nephew. It is submitted that nominee receipts are held in a fiduciary capacity and do not form part of the Bankruptcy Estate.
# 21. The Respondents submit that reliance on the Transaction Audit Report is misplaced as it is only a prima facie opinion and cannot substitute judicial determination, as held by the Hon’ble Supreme Court in Anuj Jain IRP v. Axis Bank Ltd2., and that the Applicant has failed to establish the existence of any pre-existing debt, absence of consideration, or any prejudice to creditors. It is contended that the transactions were part of family financial arrangements and do not qualify as preferential or undervalued transactions under the Code. It is further submitted that mere movement of funds without net loss cannot attract Sections 164 or 165.
# 22. The Respondent refers to the Sarbati Devi v. Usha Devi3 where it was held that a nominee does not become the owner of the asset. Nominee receipts cannot be subjected to avoidance proceedings as ownership never vested with Respondent No.1, and therefore, the question of preferential or undervalued transfer does not arise. The Respondents contend that the Transaction Auditor has exceeded his mandate by recording legal conclusions and that filing of the Application solely based on the audit report amounts to a fishing and roving enquiry and abuse of the process of law.
Rejoinder
# 23. The Applicant denies the submission of the Respondent and states that the Respondent no 1 in his counter admitted that the money was originally received from the son’s wife and that the amount was repaid to the son of the Bankrupt. However, the Respondent has attempted to justify the transaction by contending that a mere relationship does not render the transaction preferential or undervalued.
# 24. The Applicant submits that the contention of the Respondents that the transaction of Rs.50,00,000/- was a “family arrangement” and not a debtor-creditor relationship is untenable and that such transactions fall within the ambit of preferential transactions under Section 165 of the IBC, 2016.
# 25. It is further submitted that the Bankrupt admitted that the money received from his daughter-in-law, Mrs. Rukmani, on 11.01.2022 and the amount so received from the deposit was returned to his son, Mr. Rushyant Mulpuri; however, records show that Rs.51,00,000/- was returned to Mrs. Meena Mulpuri on 12.07.2022, instead of the daughter-in-law or son, contradicting the Bankrupt’s claim. It is submitted that had the deposit amount been returned to the rightful owner, the subsequent payment of Rs.50,00,000/- would not have arisen.
# 26. It is submitted that the money received from Mr. V. Kutumbarao on 31.01.2023 was disbursed to family members, namely Rs.45,00,000/- to his daughter Mrs. Spandana and Rs. 5,00,000/- to his son Mr. Rushyant Mulpuri, demonstrating preferential treatment. The Applicant contends that the Bankrupt has engaged in intra-family transactions which lack commercial substance and fall within Sections 164 to 167 of the IBC.
# 27. It is further submitted that with respect to the amount of Rs.52,15,822/-, claimed to have been paid to the legal heir of his brother, Respondent No.1 has failed to produce any proof establishing that he acted only as a nominee or that the recipient was the sole legal heir. In the absence of such proof, an adverse inference is liable to be drawn against the Respondents. It is submitted that the Bankruptcy Trustee may be permitted to proceed against the said recipient, as the IBC does not permit preferential or undervalued transactions with family members in preference to others.
Findings and Decision
# 28. We have carefully considered the pleadings, documents on record, submissions of the parties, and the provisions of the Code.
# 29. At the outset, Sections 164 and 165 of the Code require satisfaction of specific legal ingredients. Under Section 165, a transaction is preferential if it results in placing a creditor or associate in a better position than they would have been in the event of bankruptcy. Under Section 164, a transaction is undervalued if it is made without consideration or for consideration significantly less than the value given by the bankrupt.
# 30. The impugned transactions occurred within the “relevant period” as defined under Sections 164 and 165 of the Code. Given that the bankruptcy application was filed on 18.10.2024, the two-year look-back period for transactions with “associates” extends to 18.10.2022. Respondent No. 2, being the son of the Bankrupt, squarely falls under the definition of an “associate” pursuant to Section 79(2). Consequently, these transactions are subject to stricter scrutiny, and the burden of proof shifts significantly to the Respondents to justify the commercial validity of these transfers.
# 31. The Hon’ble Supreme Court in Anuj Jain (supra) has held that the determination of avoidance transactions requires strict satisfaction of statutory ingredients and cannot be based merely on assumptions or audit reports.
# 32. Applying the above principles, we proceed to examine the impugned transactions. From the record, the following transactions are under consideration:
(i) Rs.50,00,000/- dated 26.12.2022,
(ii) Rs.5,00,000/- dated 31.01.2023, and
(iii) Rs.52,15,822/- dated 01.10.2024
aggregating to Rs.1,07,15,822/-
Transaction of Rs. 52,15,822/- dated 01.10.2024
# 33. It is the case of the Respondents that the amount represents redemption proceeds of bonds held by the deceased brother of the Bankrupt, which were received by the Bankrupt only in the capacity of a nominee and thereafter transferred to the rightful beneficiary.
# 34. From the bank statement placed on record, it is observed that on 01.10.2024, an amount of Rs 52,15,822/- was debited in favour of “RUSHI MULPUR”, following credits described as redemption proceeds of NHAI Bonds. The entries specifically reflect:
● credit of Rs 5,00,000/- and Rs 2,15,822/- towards bond redemption; and
● Subsequent debit of Rs 52,15,822/- to the said beneficiary.
# 35. The said entries establish that the transaction of Rs. 52,15,822/- is directly linked to the redemption of NHAI Bonds and is not an independent transfer from the general funds of the Bankrupt. In Shakti Yezdani & Anr. v. Jayanand Jayant Salgaonkar & Ors4., the Hon’ble Supreme Court held that “the nominee holds the securities in a fiduciary capacity for the legal heirs, and a will executed in accordance with the Indian Succession Act, 1925, supersedes the nomination.” Thus, a nominee does not acquire ownership or beneficial interest in the asset. Hence, it cannot be treated as forming part of the bankruptcy estate.
# 36. Accordingly, the transaction of Rs 52,15,822/- is held to be outside the bankruptcy estate and is not liable to be examined under Sections 164 or 165 of the Code.
Transactions of Rs. 50,00,000/- dated 26.12.2022
# 37. The case of the Respondents is that the amount of Rs 50,00,000/- represents a temporary financial accommodation extended by family members for the limited purpose of furnishing a bank guarantee pursuant to directions of the Hon’ble High Court of Delhi.
# 38. On perusal of the bank statements, the sequence of transactions is clear.
39. The Applicant considered this transaction as a preferential transaction under section 165 of the Code. To qualify as a preferential transaction under Section 165, the bankrupt must do something which has the effect of putting a person in a position which, in the event of the bankruptcy, will be better than the position that person would have been in if that thing had not been done.
# 40. Here, it is clear that the money was originally a loan from a family member and was subsequently repaid. Repaying an associate in full while the Corporate Debtor’s creditors remain unpaid constitutes a clear preference. Therefore, this transaction is deemed preferential and must be reversed.
Transactions of Rs. 5,00,000/- dated 31.01.2023
# 41. The Applicant categorised the transaction dated 31.01.2023 for Rs 5,00,000 as an undervalued transaction under Section 164 of the Code. Upon perusal of the HDFC Bank statements, the debit of the said amount to Respondent No. 2 is clearly established. Under Section 164, a transaction is considered undervalued if the bankrupt makes a gift or enters into a transaction for a consideration, the value of which is significantly less than the value provided by the bankrupt.
# 42. Here, we refer to a connected IA 1963 of 2025 wherein the Respondent stated that the payment of Rs 5,00,000/- was part of financial dealings within the family. While the transaction raises suspicion due to a lack of clarity, there is insufficient evidence to conclusively establish that it was made without consideration or for inadequate value. However, the fact remains that the payment was made to an associate during the relevant period. Even if it does not strictly qualify as an undervalued transaction under Section 164, its effect is to benefit an associate over other creditors. Therefore, it is covered under Section 165.
# 43. In view of the aforesaid, transactions of Rs. 50,00,000/- and Rs. 5,00,000/- were made in favour of an associate during the relevant period and had the effect of preferring such associate over other creditors. The Respondent is directed to refund a total amount of Rs. 55,00,000/- to the bankruptcy estate of Respondent No.1 within a period of 30 days from the date of this order.
Accordingly, the Interlocutory Application is partially allowed.
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