Offsetting receivables via accounting entries constitutes a transfer of property interest and a preferential transaction.

The Corporate Debtor (CD), WSH Pvt. Ltd., entered Corporate Insolvency Resolution Process (CIRP) on 01.02.2021

Appellant No. 1 was a director and promoter of the CD and exercised control over Wholesale Hub LLP and a proprietary firm, M/s Atul Babulal Prajapati

A forensic audit revealed that the CD had "offset" receivables due from Wholesale Hub LLP (Rs. 2,00,50,141) against payables owed by the CD to the Appellant’s proprietary firm through accounting entries dated 30.06.2019

No actual funds were routed through banking channels; the Appellants claimed this was done to "avoid unnecessary banking transactions"

The Adjudicating Authority (NCLT, Ahmedabad) declared this a preferential transaction under Section 43 and directed the Appellants to refund the amount

The Appellants challenged the order, arguing the transaction was outside the look-back period and within the ordinary course of business

1. Whether the offsetting of receivables against payables via accounting entries constitutes a "transfer of property or interest thereof" for the purpose of a preferential transaction under Section 43 of the IBC

2. Whether the impugned transaction occurred within the statutory "relevant time" (look-back period) for related parties

3. Whether the transaction qualifies for the "ordinary course of business" exception under Section 43(3) of the IBC

The court applied Section 5(24) of the IBC to define "related parties," noting that control over multiple entities by a single director satisfies the criteria

It primarily relied on Section 43 of the IBC, which deems a transaction preferential if there is a transfer of property for the benefit of a creditor on account of antecedent debt that puts said creditor in a more beneficial position than they would be under Section 53 distribution

The court followed the principles established in Anuj Jain v. Axis Bank Ltd., affirming that Section 43 operates as a legal fiction where intent is irrelevant if the statutory ingredients are met

It also referenced Section 66 regarding fraudulent or wrongful trading

The Tribunal determined that Appellant No. 1 was a related party under Section 5(24) as he controlled the CD, the debtor (Wholesale Hub LLP), and the creditor (proprietary firm)

Regarding the look-back period, the Tribunal found the transaction occurred on 30.06.2019, which is within the two-year window preceding the 01.02.2021 insolvency commencement date

The court rejected the argument that no "transfer" occurred; it held that the extinguishment or reduction of an enforceable receivable through book entries constitutes a transfer of a "property interest" under Section 43(2)(a)

The transaction satisfied Section 43(2)(b) because it settled the Appellant’s dues while leaving 14 other creditors unpaid, thereby placing the Appellant in a superior position

Finally, the "ordinary course of business" defense was rejected because the transaction bypassed banking channels, lacked corporate authorization, and involved selective adjustment of related-party debts to the detriment of the general creditor pool

It held that the square-off transaction of Rs. 2,00,50,141 was a preferential transaction under Section 43 of the IBC as it was conducted with related parties within the look-back period and resulted in the wrongful reduction of the Corporate Debtor's asset pool

The Appellants and Respondent No. 3 remain liable to pay the sum of Rs. 2,00,50,000 to the Corporate Debtor's account