NCLAT Declares Transactions Fraudulent U/S 66 Of IBC Due To Corporate Debtor’s Failure To Diligently Negotiate One-Sided Clause In MOU
The Nationwide Firm Legislation Appellate Tribunal (NCLAT) New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member), Justice Mohammad Faiz Alam Khan and Mr. Naresh Salecha (Technical Member) has held {that a} full give up on the a part of the company debtor to barter the phrases of the Memorandum of Understanding, by which the property from the Respondent was to be bought, and agreeing to a one aspect clause that empowers the Respondent to unilaterally terminate the settlement and forfeit all the quantity paid in pursuance of the mentioned settlement would fall inside scope of fraudulent transactions below part 66 of the Code.
Temporary Details:
This attraction has been filed by the Appellants below Part 61 of the Insolvency and Chapter Code, 2016 (“Code”), difficult the Impugned Order dated 02.04.2024 handed by the Nationwide Firm Legislation Tribunal, Mumbai Bench-I (“Adjudicating Authority”) whereby the Adjudicating Authority has disallowed the applying of the Decision Skilled below Part 66 of the Code for refund of quantity in respect of transactions entered into between the suspended administration and Respondent No. 7 & 8 aggregating to Rs. 32,59,00,000/- alongwith curiosity.
Company Insolvency Decision Course of (CIRP) was initiated towards Respondent No. 1 (Company Debtor) on 03.08.2020 vide order in CP(IB) No. 1632/MB/2019. The Appellants contended that the Forensic Audit Report dated 15.11.2021 by M/s BDO India LLP which was submitted on the request of the Decision Skilled, conclusively recognized suspicious and fraudulent transactions involving the suspended administration and third events, together with Respondents No. 7 and eight.
The Decision Skilled based mostly on his impartial evaluation and the Forensic Audit Report filed an utility below part 66 of the Code in search of refund for compensation of loss suffered to the collectors of the Company Debtor in respect of 4 transactions.
Nevertheless, the above utility of the Decision Skilled was partly allowed. Towards the above order, the current attraction has been filed.
The Appellant submitted that an advance of Rs. 29.35 Crore was paid by the Company Debtor to Respondent No. 7 between 10.08.2015 and 31.03.2016, purportedly for a property buy, however was completely written off on 31.03.2020.No proof exists of any property being acquired, indicating that the advance was siphoned off in connivance with the suspended administration to defraud collectors.
It was additional submitted that the MoU’s forfeiture clause (Clause 9), permitting Respondent No. 7 to retain Rs. 29.35 Crore, is bigoted and one-sided, designed to facilitate fraudulent switch of funds. Underneath Part 54 of the Switch of Property Act, 1882, agreements for the sale of immovable property price Rs. 100 or extra should be registered, rendering the MoU legally poor.
It was additional submitted that the suspended administrators made no efforts to get well the advance, indicating complicity with Respondent No. 7 to defraud the Company Debtor’s collectors.
It was additional contended that the Decision Skilled has discharged the burden of proof below Part 66 of the Code by presenting the Forensic Audit Report, ledger accounts, and unregistered agreements as proof of fraudulent conduct.The Respondents’ failure to present credible explanations shifts the burden to the Respondent to show the transactions’ legitimacy.
Per contra, the Respondent submitted that the Appellants, representing solely roughly 30% of the Committee of Collectors (‘CoC’), haven’t produced any doc or authority letter demonstrating that they signify all the CoC. Within the absence of such authority, the attraction is dangerous in regulation and liable to be dismissed.
It was additional submitted that the applying lacks the three obligatory milestones below Part 66: a transparent ‘opinion,’ an acceptable ‘dedication,’ and a concrete ‘discovering’ of fraudulent intent. The Decision Skilled did not comply with Regulation 35A of the IBBI (Insolvency Decision Course of for Company Individuals) Laws, 2016, and didn’t set up mens rea towards the Respondents, rendering the applying faulty.
It was additional contended that the transactions with Respondent No. 7 and Respondent No. 8 predate the submitting of the Part 7 utility and fall past the two-year look-back interval from the CIRP admission date i.e., 03.08.2020.
It was additionally submitted that the MoU’s Clause 9, which allowed Respondent No. 7 to forfeit the earnest cash if the Company Debtor did not pay the total consideration by 31.08.2019, was mutually agreed upon. The MoU’s unregistered standing doesn’t render it invalid, as registration is not obligatory for preliminary agreements below the Switch of Property Act, 1882.
The Respondent No. 8 submitted that the transaction with the Company Debtor concerned an inter-corporate deposit of Rs. 8.98 Crores for the acquisition of property. The transaction was an funding to construct an asset, with no accrual of curiosity or reimbursement phrases, distinguishing it from a mortgage transaction.
Observations:
The Tribunal famous that the quantity to the tune of Rs. 29.35 crores was transferred to the M/s Dev Land & Housing Pvt. Ltd. for the acquisition of property as per MOU executed on 18.08.2015. Nevertheless, the quantity that was paid was written off on 31.03.2016 and there’s no proof that the property was transferred.
It additional famous that the transaction was based mostly on an alleged solid and unregistered MOU on stamp paper of Rs. 100 which was not even notarised and registered. Moreover, clause 9 of the MOU permitted the Respondent No. 7 to forfeit all the quantity unilaterally which signifies that the Suspended Director failed to guard the curiosity of the company debtor. 40 % of the whole quantity was paid however there was no request for extension of time, renegotiation or settlement that too amid monetary misery.
It additional noticed that the Deed of Cancellation was executed with none Board Decision and objections from the suspended director. It was alleged that the Cancellation Deed was fabricated and backdated on a stamp paper of 2019 and it was executed through the peak COVID 19. The Deed additionally lacked the signature of the Suspended Director which additional raises considerations concerning the genuineness of the MOU. In mild of the above dialogue, the Tribunal held that these all lend credence to the claims raised by the Appellant.
The Tribunal additional noticed that clause 9 of the MOU gave absolute energy to the Respondent to unilaterally terminate the settlement and forfeit all the quantity and additional prohibit the company debtor from initiating authorized proceedings or claiming any proper over the property. Such a lop sided clause is extremely uncommon within the industrial transaction through which the obligations and rights of each the events are balanced. Within the current case, no efforts had been made by the company debtor to renegotiate the timeline, scale back the forfeiture quantity and search for the acquisition of the property after paying the EMD.
It additional mentioned that the default was attributed to extraneous causes with none rationalization. All this reveals that this transaction was entered into to give up of Rs. 29.35 crores by the company debtor to the Respondent which raises critical considerations concerning the intent of the Respondent and recommend a fraudulent transaction falling inside the contour of part 66 of the code.
The Tribunal held that part 66 of the code doesn’t prescribe any look again interval however imposes an obligation on the administrators to behave in the perfect curiosity of the company debtor and its collectors. Within the current case, the Suspended Director did not train its responsibility in a accountable method. This provision has been integrated to handle such misconduct on the a part of the Administrators.
It additional noticed that the Auditor who was appointed by the Decision Skilled with an approval of the CoC discovered that each one 4 transactions had been fraudulent. The findings of the Auditor had been additionally accepted by the Decision Skilled. It’s the responsibility of the court docket to assess the intent, construction and objective for which transactions occurred to uncover fraud, reckless indifference that hurt the collectors.
Accordingly, the current attraction was allowed and the impugned order was put aside.
Case Title: Vistra ITCL (India) Restricted and Ors. Versus Satra Properties (India) Ltd. and Ors.
Case Quantity: Comp. App. (AT) (Ins) No. 1043 of 2024 & I.A. No. 3794 of 2024
Judgment Date: 03/07/2025
For Appellants: Mr. Vaibhav Gaggar, Sr. Advocate together with Mr. Devashish Chauhan, Ms. Madhura MN & Ms. Jasleen Singh Sandha, Advocates.
For Respondents: Ms. Neha Agarwal, Mr. Pulkit Sharma & Ms. Vanshika Mittal, for R-1.
Mr. Malak Bhatt, Ms. Neeha Nagpal & Mr. Shreyansh Chopra, for R-2 to six.
Mr. Aayush Agarwala & Mr. Prakash Jha, for R-7.
Mr. Zeeshan Hashmi, for R-8.
