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Converting compulsorily convertible debentures into preference shares and redeeming those shares on the same day did not protect the payments in Sunshine Housing. On 3 September 2026, NCLT Mumbai ordered restoration of the identified amounts under Section 43. Its reasoning turned on the actual payments, timing and creditor priority; it did not declare every CCD conversion unlawful. Official order, paragraphs 19–24 and 37–39.
Order and separate applications
| Item | Verified detail |
|---|---|
| Tribunal | NCLT Mumbai Bench-I |
| Members | Sushil Mahadeorao Kochey, Judicial; Prabhat Kumar, Technical |
| Corporate debtor | Sunshine Housing & Infrastructure Private Limited |
| Main petition | Company Petition (IB)4733/2018 |
| Applications | IA893/2020, IA4677/2025 and IA389/2026 |
| Order date | |
| Result | IA893 partly allowed; IA4677 dismissed as non-maintainable; IA389 disposed of as infructuous |
The first RP, Rajendra M. Ganatra, brought IA893. Following a failed approved plan and a rerun of CIRP, a later professional brought IA4677, enlarging the transaction case. A respondent challenged that later application through IA389. The common order must be read application by application: partial success in the original case did not mean the enlarged case was also allowed. Paragraphs 1–15 and 39.
Why the conversion label was insufficient
The Bench recorded that the CCDs were converted into preference shares and the shares redeemed on the same dates. It found no documents establishing the tenor or terms that would justify payment becoming due on those conversion dates. The filed material also indicated redemption terms extending beyond the immediate payment dates. Paragraphs 19–24.
The Tribunal treated the right to payment and its place in the distribution hierarchy as material. It reasoned that the preference-share payments benefited recipients ahead of creditors who would rank above them in liquidation. The ordinary-course defence therefore required more than describing a familiar financing instrument or invoking internal company compliance.
This is not a rule that issuing a CCD necessarily creates a preference. The impugned transfers were the conversion-linked redemptions within the period examined, and the Bench addressed those payments against the evidence and Section 53 comparison. A pleading that names an instrument but never identifies the transfer, beneficiary and priority advantage would miss the point of the analysis.
Preference and defrauding-creditor relief required different proof
The original application also asked for Section 49 relief. The Tribunal noted that the statutory ingredients differed from a Section 43 preference case. It found that the necessary undervalue basis had not first been demonstrated, including in the office transaction the RP had itself described as not prima facie undervalued. It therefore proceeded with IA893 under Section 43 rather than treating suspicion of fraud as sufficient for every avoidance provision. Paragraph 16.
For an avoidance practitioner, the useful discipline is to identify a separate evidentiary route for each pleaded provision. A transaction may support one statutory claim while a different label fails. The order does not equate a successful preference challenge with proof of fraudulent trading or a criminal offence.
Refinancing explanations did not settle the priority inquiry
The management said that interest-bearing borrowings had been replaced with cheaper or interest-free funding and that payments were ordinary business transactions. The Bench examined existing secured obligations, the charged project receivables and the source and effect of the impugned payments. It did not accept refinancing, by itself, as proof that the ordinary-course exception applied. Paragraphs 30–35.
The mortgage transaction was separately examined against when the security was created and whether new value had been secured. Those record-specific findings should not be converted into a proposition that every repayment of an unsecured loan, every refinance or every late-created security is automatically avoidable. Paragraph 36.
Why the successor application failed
IA4677 was based on the same earlier audit material and revisited or enlarged determinations already made for IA893. The Bench held that the CIRP rerun was not a fresh process permitting that review. It also rejected reliance on relationships arising only from the later failed plan as the basis for treating persons as related at the historical insolvency commencement date. Paragraphs 25–27.
The decision left room for the successor to add evidence supporting the earlier determination; it did not accept rewriting the earlier case on this record. This is distinct from Wadhwa Buildcon’s evidence-led re-verification of homebuyer claims. Updating a claims list and revisiting an avoidance determination based on an existing audit are different exercises. Neither note supplies a universal rule governing everything a successor RP may do.
Restoration direction and statutory-version limit
Paragraph 38 directed the specified payments to be restored to the corporate debtor within 30 days, with 12% annual interest on the unpaid amount thereafter and the stated appropriation direction for later payments. IA893 was only partly allowed. The order does not establish that recipients later paid the amounts. Paragraphs 37–39.
The historical look-back analysis should not be used mechanically for a new case. Section 26 of the 2026 Amendment Act changed Section 43(4), referring to a period starting before the initiation date and ending on insolvency commencement. This note does not decide the amendment’s transitional application to every old avoidance proceeding. Official Amendment Act, section 26.
Questions practitioners may ask
Were all three applications allowed?
No. The original IA893 was partly allowed, the enlarged IA4677 was dismissed as non-maintainable and the maintainability challenge IA389 became infructuous.
Does a preference finding automatically prove fraud?
No. The Bench expressly distinguished the statutory routes and rejected the unsupported Section 49 basis while proceeding under Section 43.
Can a successor RP never bring additional evidence?
That is not the finding. The Bench distinguished supporting the existing determination with evidence from revisiting or enlarging that determination on the same earlier material.
Source and scope
The official order dated 3 September 2026, particularly paragraphs 16–27 and 34–39, is the source for this dated analysis. The text and applicable statutory references were checked on 1 November 2026. Targeted official-source research did not establish later treatment; the note does not certify the absence of an appeal, stay or subsequent compliance order.