Sale Of Corporate Debtor's Property Can't Be Declared Fraudulent Merely On Claim Of Security Interest Without Supporting Evidence: NCLT Kochi
The National Company Law Tribunal (NCLT), Kochi Bench of Shri. Vinay Goel (Judicial Member) and Smt. Madhu Sinha (Technical Member) has held that when the property of the Corporate Debtor is purchased in good faith by a bona fide purchaser, the mere fact that the sale price was slightly lower than the actual price does not bring the transaction within the ambit of a...
The National Company Law Tribunal (NCLT), Kochi Bench of Shri. Vinay Goel (Judicial Member) and Smt. Madhu Sinha (Technical Member) has held that when the property of the Corporate Debtor is purchased in good faith by a bona fide purchaser, the mere fact that the sale price was slightly lower than the actual price does not bring the transaction within the ambit of a fraudulent transaction, especially when the sale is sought to be reversed on the ground that the property was charged in favor of the Respondent, without any documentary evidence to establish such a secured interest.
The present application has been filed under section 66 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking appropriate orders against the Respondents.
The Applicant submitted that the corporate debtor sold the property, which was a secured asset under the exclusive charge of the Respondent No. 3. Therefore, the sale deeds and transfer of ownership are void and must be reversed because the sale was conducted to dissipate the assets of the corporate debtor.
Per contra, the Respondents submitted that the application filed is false and not maintainable in the eyes of law, and the transaction does not come within the ambit of Section 66 of IBC, 2016. No charge or security interest was created in favour of any financial Creditor, including Respondent No. 3 as gathered from the records of the Registrar of Companies.
The Respondent No. 3 concurred with the prayers of the Resolution Professional (RP) to declare the sale transactions carried out by the Corporate Debtor through Sale Deeds as fraudulent.
Respondent No. 4 submitted that it is not a “related party” to the Corporate Director or its directors as defined under the IBC, 2016, and hence inclusion of Respondent No. 4 in the proceedings is misconceived and a misapplication of law.
The Respondents Nos. 5 and 6 submitted that the reliefs claimed by the Applicant are factually misleading and solely aimed at unjust enrichment. If these reliefs are granted, it would lead to duplication of sale consideration already paid, thereby resulting in undue gain to the Applicant.
The Tribunal observed that there is no evidence of an equitable mortgage through the deposit of title deeds. At best, the Inter Corporate Deposit (ICD) agreement may create a negative lien that does not constitute a valid charge under law. It agreed with the Respondents' contentions and held that no valid charge had been created in favor of the Respondent No. 3.
It further observed that the sale deeds executed by the corporate debtor reference a fair value and the stamp duty as applicable. Therefore, just because the price was slightly lower than the actual price, that would not slip the transactions within the ambit of fraudulent transactions. While the fraudulent and undervalued transactions fall under different provisions of the IBC, this application has been filed under section 66 of the IBC, and the Applicant has failed to prove the creation of any security interest in favour of the Respondent No. 3. The Kerala High Court in Narayanikutty vs. Kallyanikutty held that unregistered instruments do not confer any legal title.
It held that “However, the applicant has failed to produce any documents showing that the charge in favor of Respondent No. 3 has been duly registered with the Registrar of Companies (RoC) in accordance with the law. Furthermore, there is no evidence that the alleged charge has been registered with the central registry.”
The Tribunal also observed that the transactions in question were entered into before the initiation of the CIRP and fall outside the 2-year look-back period. Generally, such transactions are exempt from scrutiny, they can be examined under section 66 of the IBC if proven fraudulent. However, the Applicant has failed miserably in providing documentary evidence by which the claim of fraud can be substantiated.
It also observed that the RP wrongly classified the Respondent No. 3 as a Secured Financial Creditor in the absence of a valid security interest. Accordingly, the submissions of the Respondents 4 to 7 were accepted, and the transactions were declared fair and valid.
Case Title: M/s. Greenlace Builders and Developers Private Limited -Versus- Mr. Kakkanatil Siraj Mather Abdul Rahiman
Case Number: IA(IBC)/219/KOB/2024 IN CP(IB)/28/KOB/2023
Judgment Date: 30/07/2025