Transfer of Receivables: When Does It Become a Preferential Transaction?
The National Company Law Tribunal, Amaravati Bench, in IndusInd Bank Ltd. & Ors. v. Vamsee Teja Modern Rice Mill Pvt. Ltd., has drawn an important distinction between:
the assignment or transfer of a creditor’s debt; and
the transfer of the corporate debtor’s own assets or receivables to discharge antecedent liabilities.
The distinction is significant because the first category is expressly recognised under Regulation 28 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), whereas the second may constitute a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).
The decision was rendered on 31 August 2026 in IA(IBC)/199/2026 in IA(IBC)(LIQ)/2/2026 with IA(IBC)/200/2026 in IA(IBC)(LIQ)/2/2026 in CP(IB)/45/7/AMR/2023. It is reported as [(2026) ibclaw.in 3488 NCLT].
Background
The issue before the Tribunal concerned the adjustment of receivables of the corporate debtor from M/s Tammana Trading Company against liabilities allegedly due to the respondent-directors.
The Tribunal observed that the adjustment had the effect of:
reducing or extinguishing antecedent liabilities of the respondent-directors; and
correspondingly diminishing the receivables belonging to the corporate debtor.
On this basis, the Tribunal held that the transactions required examination under the provisions governing preferential transactions in Section 43 of the IBC.
The essential question was whether the arrangement represented a legitimate assignment of debt by a creditor or, instead, a transfer of the corporate debtor’s property for the benefit of creditors holding antecedent claims.
Regulation 28 recognises creditor-initiated debt assignments
Regulation 28 of the CIRP Regulations deals with the transfer of debt due to a creditor during the insolvency resolution process. It provides:
# 28. Transfer of debt due to creditors
(1) In the event a creditor assigns or transfers the debt due to such creditor to any other person during the insolvency resolution process period, both parties shall, within seven days of such assignment or transfer, provide the interim resolution professional or the resolution professional, as the case may be, the terms of such assignment or transfer and the identity of the assignee or transferee.
(2) The resolution professional shall notify each participant and the Adjudicating Authority of any resultant change in the committee within two days of such change.
The provision contemplates a transaction in which the creditor transfers its claim against the corporate debtor to another person. In such a case, the subject matter of the transaction is the creditor’s right to receive payment.
The transaction does not, by itself, involve a transfer of the corporate debtor’s property.
Accordingly, a properly documented creditor-initiated assignment of debt, complying with Regulation 28, would not ordinarily amount to a preferential transaction merely because the assignment takes place during the look back period period.
Transfer of the corporate debtor’s receivables is materially different
A different legal position arises where the corporate debtor transfers, adjusts or appropriates its own receivables or other assets for the benefit of a creditor or another person.
Such a transaction may satisfy the essential elements of a preferential transaction under Section 43 of the IBC, namely:
there is a transfer of property or an interest in property of the corporate debtor;
the transfer is for the benefit of a creditor, surety or guarantor;
the transfer is made for or on account of an antecedent financial debt, operational debt or other liability; and
the transfer places the relevant person in a more beneficial position than it would have occupied in accordance with the distribution mechanism under Section 53 of the IBC.
The character of the transaction therefore depends not merely on the terminology used by the parties, but on the nature of the property transferred and the substance of the arrangement.
If the corporate debtor’s receivables are used to discharge or adjust liabilities owed to directors or other creditors, the transaction may be viewed as a transfer of the corporate debtor’s property for the benefit of those persons. It may consequently be examined as a preferential transaction, subject to the applicable “relevant time” and other statutory requirements under Section 43.
The key distinction
The distinction may be summarised as follows:
In the first category, the creditor transfers its own claim. The corporate debtor’s assets are not transferred merely because the identity of the claimant changes.
In the second category, the corporate debtor parts with its own property, usually to satisfy an existing liability. The transaction therefore directly engages the avoidance provisions of the IBC.
Importance of documentation
The Tribunal also treated the absence of formal assignment or transfer documentation from the creditors as a relevant circumstance.
Where a transaction is claimed to be an assignment under Regulation 28, the parties should be able to demonstrate:
the identity of the original creditor;
the identity of the assignee or transferee;
the terms of the assignment;
the date on which the assignment took place;
the debt or claim assigned; and
compliance with the disclosure requirements under Regulation 28.
In the absence of such material, an arrangement described as a “transfer” or “assignment” may instead be examined as a transfer by the corporate debtor of its own assets or receivables.
Documentation alone may not determine the legal character of a transaction. However, the absence of documentation can make it difficult to establish that the transaction was genuinely a creditor-side assignment rather than a corporate-debtor-side transfer.
Substance prevails over form
The decision reinforces the need to examine the substance and economic effect of a transaction.
A transaction is unlikely to avoid scrutiny under Section 43 merely because it is described as:
an adjustment;
a set-off;
a transfer;
a settlement; or
an assignment.
The relevant inquiry is whether the corporate debtor’s property or interest in property was transferred for the benefit of a creditor or another person in satisfaction of an antecedent liability, and whether the transaction improved that person’s position compared with the position contemplated under Section 53 of the IBC.
Thus, where the corporate debtor’s receivables are reduced or extinguished in order to discharge liabilities of directors or other persons, the transaction may be treated as preferential notwithstanding the form in which it was recorded.
Practical implications
The decision has practical implications for resolution professionals, liquidators, creditors, directors and transaction advisers.
For resolution professionals and liquidators
The following issues should be examined when reviewing a transfer or adjustment of receivables:
whether the receivables belonged to the corporate debtor;
whether the transaction reduced the corporate debtor’s asset base;
whether an antecedent liability was discharged;
who obtained the benefit of the transaction;
whether any creditor actually assigned its debt;
whether the parties complied with Regulation 28; and
whether the transaction falls within the relevant period under Section 43.
For creditors
A creditor proposing to assign its debt should ensure that the transaction is supported by a clear assignment instrument and that the terms and identity of the assignee or transferee are properly disclosed.
For corporate debtors and directors
Use of corporate-debtor receivables to discharge personal liabilities or liabilities owed to directors may attract scrutiny under the avoidance provisions of the IBC. The commercial purpose, authority, timing and beneficiaries of the transaction should therefore be carefully documented.
Conclusion
The decision in IndusInd Bank Ltd. & Ors. v. Vamsee Teja Modern Rice Mill Pvt. Ltd. draws a clear conceptual line between a creditor assigning its claim and the corporate debtor transferring its own property.
A creditor-initiated assignment of debt, properly documented and disclosed in accordance with Regulation 28 of the CIRP Regulations, does not per se constitute a preferential transaction.
However, where the corporate debtor transfers or adjusts its own receivables against antecedent liabilities, particularly without evidence of a genuine creditor-side assignment, the transaction may fall within the scope of Section 43 of the IBC and may be liable to examination as a preferential transaction.
The decision therefore highlights a basic but important principle: the legal character of a transaction depends on what was transferred, by whom, for whose benefit and with what effect - not merely on the label attached to the arrangement.
This blog is intended for general informational purposes only. It is not legal advice and should not be relied upon as a substitute for professional advice. The relevant statutory provisions, facts, procedural history and subsequent judicial developments should be independently examined before taking any action or making any decision.
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