I. Prologue: The Expanding Contours of Avoidance Proceedings
The Insolvency and Bankruptcy Code, 2016 (IBC), in its elegantly drafted and robustly interpreted framework, continues to evolve through judicial exposition. The latest pronouncement by the Hon’ble National Company Law Appellate Tribunal (NCLAT) in Greenfield Overseas v. Anil Goel, rendered on 25.07.2025, is a significant milestone that reinforces the precision required in initiating and adjudicating avoidance transactions, particularly under Section 45 relating to undervalued transactions.
This case deftly navigates the complex intersections between accounting classifications, business justifications, forensic scrutiny, and statutory lookback windows. It also firmly settles key procedural and substantive questions that will indelibly shape avoidance jurisprudence.
II. Factual Canvas and Genesis of the Appeal
The appeals arose from a common impugned order of the NCLT, Mumbai, which had directed various third-party appellants—including Greenfield Overseas, Arihant International, and Marque Global—to disgorge aggregate sums exceeding ₹34 crores, held to be received under undervalued transactions by the corporate debtor Loha Ispaat Ltd. prior to CIRP.
The crux of the matter lay in the classification of these transactions—whether they were ordinary sale transactions for depreciated steel scrap (as claimed by the appellants), or purchase returns of valuable HR Coils at unjustifiable discounts (as alleged by the Liquidator). The core legal battle was fought over the application of Section 45 of the Code, the relevance of third-party involvement, the sanctity of the forensic audit, and the correct computation of the statutory lookback period.
III. Legal Issues and NCLAT’s Rulings
1. Applicability of Lookback Period under Section 45
The Tribunal reaffirmed that for unrelated parties, the lookback period under Section 45 is one year preceding the insolvency commencement date (ICD). The ICD in this case was 28.04.2017, the relevant period was from 28.04.2016 to 27.04.2017.
The NCLAT rightly disallowed the inclusion of transactions outside this window. This reinforces the statutory boundary within which a Resolution Professional or Liquidator must operate—underscoring that avoidance powers are extraordinary and cannot be exercised beyond the clear legislative limits.
2. Third Parties Can Be Proceeded Against Under Section 45
The Tribunal decisively rejected the contention that third parties or unrelated entities cannot be targeted under Section 45. It distinguished the Supreme Court’s ruling in Gluckrich Capital, which pertained to Section 66 (fraudulent transactions) and not undervalued transactions.
It held, with clarity, that Section 45 targets the effect of undervaluation—regardless of whether the recipient is related or unrelated. The concept of “beneficiary of the undervaluation” is sufficient to rope in any party, even if not related, into the ambit of recovery.
3. Ordinary Course of Business – A Fact-Specific Matrix
The appellants claimed the transactions were routine and done in the “ordinary course of business.” However, NCLAT rejected this defence by analyzing the nature of goods involved (HR Coils), their non-perishable character, and the anomalous timing and pricing of returns. The Tribunal rightly pointed out that such heavy discounts on goods that do not depreciate materially over time were commercially inexplicable.
This nuanced ruling reminds us that “ordinary course” is not a mere phrase but a robust test based on the substance of commercial dealings, industry norms, and economic rationale.
4. Forensic Audit and No Need for NCLT’s Prior Approval
A significant procedural point was the challenge to the appointment of M/s Khandelwal & Jain as forensic auditors without prior approval of the Adjudicating Authority. The Tribunal, reading Sections 20(2)(b), 25(2)(d) and Regulation 34 harmoniously, held that the appointment of forensic professionals falls within the RP’s autonomous domain, and that CoC’s cost approval suffices.
This fortifies the position that the RP’s independence is integral to the CIRP architecture, and that judicial micro-management of every procedural step is neither required nor desirable.
IV. Relief Granted: A Judicial Balancing Act
While upholding the majority of the impugned findings, the NCLAT accepted the appellants’ contention that transactions outside the lookback window were non-actionable. Accordingly, it allowed partial relief by directing the Liquidator to restrict recovery to revised amounts calculated strictly within the statutory period.
This demonstrates judicial finesse in balancing legal exactitude with equitable pragmatism, reaffirming that the sword of avoidance must be sharp, but not overreaching.
V. Epilogue: A Doctrinal Clarification with Practical Impact
The Greenfield judgment is an instructive exposition on five core principles:
- Section 45 covers third-party beneficiaries of undervalued transactions.
- Lookback periods are sacrosanct and not elastic.
- Commercial rationale, not contractual form, determines ‘ordinary course of business’.
- RPs and Liquidators can appoint forensic auditors without NCLT’s imprimatur.
- Relief must be calibrated to statutory boundaries, not generalized equity.
This decision will undoubtedly serve as a touchstone for Resolution Professionals, Liquidators, creditors, and litigants alike in future avoidance proceedings. It reminds us that while the Code empowers resolution agents to unwind tainted transactions, the compass of that power is strictly circumscribed by statute and principle.
Disclaimer
This blog is intended for academic and informational purposes only. It is based on publicly available judgment and does not constitute legal advice or opinion. Readers are encouraged to consult qualified professionals before taking any decision based on the content herein.