NCLAT Upholds RP’s Power To Appoint Transaction Auditor Without CoC Approval, Partly Sets Aside Preferential Transaction Order

May 11, 2026 : The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that a Resolution Professional (RP) is empowered to appoint professionals, including transaction auditors, for conduct of the Corporate Insolvency Resolution Process (CIRP) without prior consultation or approval of the Committee of Creditors (CoC), observing that neither the Insolvency and Bankruptcy Code, 2016 nor the CIRP Regulations mandate such approval.

A Bench comprising Justice N. Seshasayee (Judicial Member), Arun Baroka (Technical Member) and Indevar Pandey (Technical Member) passed the judgment while partly allowing an appeal filed by suspended directors of KSS Ltd. against an order of the National Company Law Tribunal (NCLT), Mumbai Bench, in a preferential transaction application.

The appeal was filed by Dharamveer Singh Magan Singh Shekhawat, Harsh Upadhyay and Sandip Joshi, suspended members of the Board of Directors of KSS Ltd., challenging the NCLT’s direction requiring them and other suspended directors to jointly and severally refund Rs.47,92,646 to the Corporate Debtor in connection with transfers made to sister concerns K Sera Sera Miniplex Ltd. and K Sera Sera Digital Cinema Ltd.

The Corporate Insolvency Resolution Process against KSS Ltd. commenced on January 24, 2023, following which the RP appointed M/s Arihant A. Jain & Associates as Transaction Auditor to examine transactions undertaken between January 24, 2020 and January 23, 2023 for identifying transactions under Sections 43, 45, 49, 50 and 66 of the IBC.

Based on the transaction audit report, the RP filed an application under Section 43 of the Code alleging preferential transfers of Rs.39 lakh to K Sera Sera Miniplex Ltd. and Rs.8,92,646 to K Sera Sera Digital Cinema Ltd., both related entities of the Corporate Debtor.

Before the Appellate Tribunal, the suspended directors argued that the RP had appointed the transaction auditor and filed the avoidance application without approval or consultation with the CoC. They further contended that the transactions were carried out in the ordinary course of business and therefore fell within the exception under Section 43(3)(a) of the IBC. The appellants also argued that the transferee companies were necessary parties and ought to have been impleaded in the proceedings.

Rejecting the challenge to the appointment of the transaction auditor, the NCLAT referred to Section 25(2)(d) of the Code and Regulation 27(2) of the CIRP Regulations and held that the RP has statutory authority to appoint professionals necessary for conduct of CIRP.

The Tribunal observed:

“Further Regulation 27 (2) of CIRP regulations 2016, provides that the RP may appoint any professional to assist him in discharge of his duties in conduct of the CIRP, if he is of the opinion that the services of such professionals are required and such services are not available with the Corporate Debtor. Nowhere does the Code provide for consultation by RP with CoC to appoint professionals. RP is empowered under the Code to appoint Transaction Auditors.”

The Appellate Tribunal also rejected the argument that filing an avoidance application required CoC approval, holding that under Section 25(2)(j) of the Code, filing applications for avoidance transactions forms part of the RP’s statutory duties.

On merits, the Tribunal examined the two transactions separately. In relation to the Rs.39 lakh transfer to K Sera Sera Miniplex Ltd., the NCLAT held that although the entity was a related party, it was not shown to be a creditor, surety or guarantor of the Corporate Debtor, which is an essential requirement under Section 43(2)(a) of the IBC for declaring a transaction preferential.

The Tribunal held:

“In regard to transfer of Rs. 39 Lakhs with M/s K. Sera Sera Miniplex Ltd. towards Working Capital Loan, we note that the aforesaid Company though a related party, is not a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and therefore, it is not an entity covered by the Section 43(2)(a) which is an essential condition for declaring a transaction as preferential.”

However, with respect to the transfer of Rs.8,92,646 to K Sera Sera Digital Cinema Ltd., the Tribunal noted that the entity had filed a claim of more than Rs.3.08 crore in the CIRP and was therefore a creditor of the Corporate Debtor. It held that the transfer placed the related party creditor in a more beneficial position than other creditors in the waterfall distribution under Section 53 of the Code.

The NCLAT further observed that there were no supporting documents establishing that the transaction was carried out in the ordinary course of business and upheld the finding that the transfer constituted a preferential transaction under Section 43 of the IBC.

Accordingly, the Tribunal partly allowed the appeal and modified the NCLT’s order by restricting the liability of the suspended directors to Rs.8,92,646 instead of Rs.47,92,646. The directors and other respondents were directed to jointly and severally refund the amount to the Corporate Debtor within 30 days along with interest.

Case Title: Dharamveer Singh Magan Singh Shekhawat & Ors. v. Dharmendra Dhelariya, Resolution Professional of KSS Ltd. & Ors.

Case No.: Company Appeal (AT) (Ins.) No. 1522 of 2025