Adjudicating Authority Cannot Declare A Sale Transaction Void U/S 66(1) Of IBC: NCLAT New Delhi

Background
The Corporate Debtor, New Empire Textile Processor Pvt. Ltd., owned two flats in the Tirupati Apartment. The flats were sold to the appellants through the registered sale deed in the year 2017 for a consideration of Rs. 69 lakhs each. The appellants took loans of Rs. 55.2 lakhs each from the Co-operative Bank to buy the flats. The bank transferred the loan amounts directly to the Corporate Debtor's account.

CIRP of the Corporate Debtor was initiated in the year 2019, and a Resolution Professional was appointed. The Resolution Professional filed an application under Section 66 of the IBC, alleging that the sale transaction and the payment of consultancy charges to the appellants were fraudulent transactions. The Adjudicating Authority upheld the validity of the claims and pronounced the sale transaction as legally void. Furthermore, it issued a directive requiring the appellants to contribute to the assets of the Corporate Debtor.

Contention of the Parties

The appellants argued that since the loan amount was directly disbursed to the Corporate Debtor, the transaction should not be categorized as fraudulent in nature. In support of its submission the appellant relied on the judgments of Tripura High Court and the Hon'ble Supreme Court in the cases of Mrs. Sudipa Nath v. Union of India and Gluckrich Capital Pvt. Ltd. v. The State of West Bengal respectively.

However, the respondent contended that no sale consideration was received by the Corporate Debtor, instead the funds were diverted to another entity which was allegedly being controlled by the appellant's husband. The respondent also argued that nothing has been proved as to what consultancy was provided by the appellant to the Corporate Debtor, for which the consultancy charges has been claimed.

It was also highlighted that the tribunal is very much empowered to impose liability on the parties involved in the fraudulent transactions, including related parties. In supports of its submission, the respondent relied on the Royal India Corporation Ltd. vs. Mr. Nandkishore Visnupant Deshpande and Tridhaatu Kiriti Developers LLP vs. Mr. Arihant Nenawati.

Observations of the NCLAT

The tribunal observed that the consideration amount was disbursed into the account of the Corporate Debtor and later on it was transferred. This evidence cannot lead to the conclusion that sale transactions of the appellants were fraudulent.

The bench observed that the appellants have failed to show what services were provided to claim the consultancy charges and directed the appellants to return the amounts paid for consultancy charges.

Relying on the judgment of the Tripura High Court in the case of Mrs. Sudipa Nath v. Union of India the tribunal held that under Section 66(1) of the IBC, the Adjudicating Authority was not empowered to declare the sale deed in favor of the appellants as void.

The bench partially allowed the appeal and quashed the Adjudicating Authority's order to the extent that it had invalidated the transfer of flats by the Corporate Debtor to the appellants.

Case Title: Sangeeta Jatinder Mehta & Anr. V. Kailash Shah RP of New Empire Textile Processor Pvt. Ltd.

Case Number: Company Appeal (AT) (Insolvency) No. 104 of 2024

For Appellant: Ms. Sowmya Saikumar, Mr. Siddharth Praveen Acharya, Mr. Surya Kant Vyas and Mr. Siddharth Vaid, Advocates

For Respondent: Mr. Gaurav Mitra, Ms. Honey Satpal, Ms. Aishwarya Modi, Mr. Kanishk Khullar, Ms. Pooja Singh, Mr. Akash Agarwalla, Advocates.

Bench: Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member- Technical)

Judgment Date: 23/04/2025