TaxTMI 
TaxTMI 
2025 (7) TMI 354
X X X X Extracts X X X X
X X X X Extracts X X X X
....ALECHA, MEMBER (TECHNICAL) 1. This appeal Company Appeal (AT) (Ins) No. 1043 of 2024 has been filed by the Appellants i.e. Financial Creditors of the Corporate Debtor, under Section 61 of the Insolvency and Bankruptcy Code, 2016 ("Code"), challenging the Impugned Order dated 02.04.2024 passed by the National Company Law Tribunal, Mumbai Bench-I ("Adjudicating Authority") in I.A. 1626 of 2023 filed in C.P. (IB) No. 1632/MB/2019, wherein the Adjudicating Authority has disallowed the application of the Resolution Professional under Section 66 of the Code for refund of amount in respect of transactions entered into between the suspended management and Respondent No. 7 & 8 aggregating to Rs. 32,59,00,000/- alongwith interest. 2. Satra Properties (India) Ltd., which is the Corporate Debtor, is the Respondent No. 1 herein. 3. The Suspended Management (Respondents No. 2-6), M/s Dev Land & Housing Pvt. Ltd. (Respondent No. 7) and M/s C. Bhansali Developers Pvt. Ltd. (Respondent No. 8) are the other Respondents herein. 4. The Appellants submitted that the Corporate Insolvency Resolution Process (CIRP) was initiated against Res....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 29.35 Crore. The Appellant submitted that the suspended directors made no efforts to recover the advance, indicating complicity with Respondent No. 7 to defraud the Corporate Debtor's creditors. The Appellants submitted that the transaction's fraudulent nature is evident from the suspicious timing of the write-off and cancellation, executed sometime before the CIRP admission on 03.08.2020, when the suspended directors knew likely insolvency. 10. The Appellants submitted that the Adjudicating Authority's reliance on the MoU and Deed of Cancellation to validate the transaction was erroneous, as these documents lack legal sanctity. The Appellants contended that the Adjudicating Authority's order dated 30.01.2024, directing Respondent No. 7 to file account statements, and its observation that orders could be passed under Section 66(1), support the Appellant's case that the transaction was fraudulent. 11. The Appellants submitted that a loan of Rs. 3.24 Crore advanced to Respondent No. 8, a related party, was partly written off in January 2018. The Appellants contended that the absence of documentation explaining the transaction's nature indicates it was undertaken to benefit Re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot meet the requirements of Section 66 of the Code. The Respondents contended that the application lacks the three mandatory milestones under Section 66: a clear 'opinion,' a suitable 'determination,' and a concrete 'finding' of fraudulent intent. The Respondent Nos. 2 to 6 further submitted that the Resolution Professional failed to comply with Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, and did not establish mens rea against the Respondents, rendering the application defective. 18. The Respondent Nos. 2 to 6 submitted that the transactions with Respondent No. 7 and Respondent No. 8 predate the filing of the Section 7 application and fall beyond the two-year look-back period from the CIRP admission date i.e., 03.08.2020. The Respondents contended that these transactions were conducted in the ordinary course of business and cannot be assailed as fraudulent under Section 66 of the Code. 19. The Respondent Nos. 2 to 6 submitted that the Corporate Debtor, engaged in construction and real estate development, routinely advances monies to third parties for property purchases through MoUs, as is standard industry practice. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0, forfeiting the Rs.29.35 Crore earnest money per Clauses 4 and 5 of the MoU. The Respondent Nos. 2 to 6 contended that the deed's unregistered status does not invalidate it, as registration is not required for cancellation agreements. The Respondent Nos. 2 to 6 further submitted that the write-off of Rs. 29.35 Crore in March 2020 was a legitimate accounting adjustment, and Respondent No. 7 refunded Rs. 4.90 Crore to the Corporate Debtor as compensation, as confirmed by Respondent No. 2 via email to the Resolution Professional. 25. The Respondent Nos. 2 to 6 submitted that the transaction was conducted in good faith and in the ordinary course of business, with no intent to defraud creditors. The Respondent Nos. 2 to 6 contended that the Appellants' allegation of connivance is speculative and unsupported by evidence, such as communications or agreements indicating fraudulent intent. The Respondent Nos. 2 to 6 further submitted that the Adjudicating Authority rightly upheld the transaction's legitimacy, noting its alignment with industry practice and the cancellation deed's terms. 26. The Respondents submitted that the transaction with Respondent No. 8, initiated in 2007, invo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laced, as no evidence links these decisions to the imminent CIRP. 30. Concluding their pleadings, the Respondents 2 to 6 requested this Appellate Tribunal to dismiss the appeal with costs. 31. The Respondent No. 7 i.e. Dev Land & Housing Private Limited, submitted that the appeal fails to meet the threshold requirements for initiating proceedings under Section 66 of the IBC, as laid down by the Hon'ble Supreme Court of India and other courts rendering it liable to be dismissed in limine with exemplary costs. 32. The Respondent No. 7 submitted that, as a third party to the Corporate Debtor, it cannot be subjected to proceedings under Section 66 of the Code. The Respondent No. 7 contended that the Hon'ble Supreme Court of India in Gluckrich Capital Pvt. Ltd. v. State of West Bengal [(2023 SCC OnLine SC 1187)] explicitly held that remedies against third parties are not available under Section 66 of the Code, and civil remedies, if any, must be pursued independently. 33. The Respondent No. 7 submitted that the Interlocutory Application (IA) No. 1626 of 2023 by the Resolution Professional was based solely on an incomplete and inconclusive Forensic Audit Report dated 15.11.20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....indicative of fraudulent intent. 39. The Respondent No. 8 submitted that the transaction's nature was an inter- corporate deposit and not a fraudulent transaction under Section 66 of the Code, as the board resolution of Respondent No. 8 demonstrates that Respondent No. 2 (a suspended director of the Corporate Debtor) was also a director of Respondent No. 8, actively managing the property's transactions, as reflected in the Corporate Debtor's 2018-19 financial statements listing Respondent No. 8 as an associate. Further, the Respondent No. 2, holding a 20% stake in Respondent No. 8, consciously decided to retain the valuable asset (the property) rather than seek repayment of the deposit, a decision that preserves the Corporate Debtor's investment. 40. Concluding pleadings, the Respondent No. 8 requested this Appellate Tribunal to dismiss the appeal with cost. Findings 41. Heard the Counsel for the parties and perused the record available with us. Shorn of unnecessary details, we note that the Corporate Debtor was initiated into CIRP vide order dated 03.08.2020. The present Appeal has been preferred by the Appellants, constituting 32.19% of voting share in the CoC, aggrie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der u/s. 66 of the Code directing the Respondent Nos. 1, 5 to 9 to remit I refund the amount of INR 29.35 Crore along with interest @ 18% p.a. in the bank account of the Corporate Debtor to compensate the loss suffered by the Creditors of the Corporate Debtor with respect to Transaction No. 1; c) Be pleased to pass an order uls. 66 of the Code directing the Respondent Nos. 2, 5 to 9 to remit I refund the amount of INR 2.65 Crore along with interest @ 18% p.a. in the bank account of the Corporate Debtor to compensate the loss suffered by the Creditors of the Corporate Debtor with respect to Transaction No. 2; d) Be pleased to pass an order uls. 66 of the Code directing the Respondent Nos. 3. 5 to 9 to remit I refund the amount of INR 3.24 Crore along with interest @ 18% p.a. in the bank account of the Corporate Debtor to compensate the loss suffered by the Creditors of the Corporate Debtor with respect to Transaction No. 3; e) Be pleased to pass an order uls. 66 of the Code directing the Respondent Nos. 4, 5 to 9 to remit I refund the amount of INR 1.22 Crore along with interest @ 18 % p.a. in the bank account of the Corporate Debtor to compensate the loss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m the date of alleged execution of the MoU dated 18.08.2015, which is not normal in commercial sense as payment schedule in invariably stipulated as fulcrum of any MoU Agreement. (iv) We observe that Clause 9 of the MoU seems to be one sided and entitles only the Respondent No. 7 to forfeit the entire amount paid by the Corporate Debtor without any possibility for dialogue or negotiation. Prima-facie, such clause defies any commercial logic as to why the Suspended Director should agree to such one -sided arbitrary Clause without taking care of the interest of the Corporate Debtor. (v) We take into consideration that Rs. 29,35,00,000/- was paid by the Corporate Debtor to Respondent No. 7 as an advance between 10.08.2015 to 31.03.2016, however, there has been no follow up or communication from the Corporate Debtor seeking extension of time or renegotiation on payment arrangements, or reduction of the consideration by way of one-time settlement, in case Corporate Debtor was facing financial distress. This become more significant since almost 40% of the entire sale consideration has been paid as EMD, which also seems to be exorbitant and excessive, looking at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. (ix) The said forfeiture of the money by the Respondent No. 7 was done taking shelter of Clause 9 "forfeiture clause as contained in the MoU dated 18.08.2015. At this stage, we have also taken into consideration the entire MoU dated 18.08.2015 and its various clauses especially Clauses 4, 5 & 9. We have also seen and noted provision of Deed of Cancelation dated 20.03.2020. (x) We note that the Adjudicating Authority has treated this transaction as commercial transaction treating the fact that the money was advance, given by the Corporate Debtor for purchase of land and property which the Corporate Debtor could not complete for want of non payment of balance Operational Creditor payment to the Respondent No. 7. The Adjudicating Authority has also taken into account the factor that the MoU dated 18.08.2015 and deed of cancelation dated 20.03.2020 were duly signed and therefore, the Adjudicating Authority concluded that the transaction could be held to be falling within the scope of Section 66 of the Code. However, the Adjudicating Authority found that from the date of cancelation Rs. 4.90 Crores is stated to be have been refunded by Respondent no. 1 and was allow....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of termination, the Intending Purchaser shall not take any steps or initiate any proceedings against the Intending Vendor and the Intending Purchaser shall not claim any rights, title or interest in to or upon the said Property or otherwise against the Intending Vendor, either pursuant to this MOU or otherwise howsoever in relation to the transactions hereby contemplated ." (Emphasis Supplied) (xiv) From above, it seems that the Clause 9 gives an absolute right to the Respondent No. 7, to terminate the MoU on its discretion and to forfeit the entire amount paid by the Corporate Debtor by then. The Corporate Debtor was also bound by MoU not to take any action for initiating any proceedings against the Respondent No. 7 and further the Corporate Debtor was also disentitled to file any claim for any right, title or interest in the said property. We find that the said Clause 9 to be rather unusual which gives unrestrictive and unfettered rights only in favour of the Respondent No. 7. It needs to be appreciated that normally, when commercial transactions takes place, the rights and obligations of both the parties are clearly stipulated and evenly balanced and not made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gulations, as such we reject the pleadings of the Respondent on this ground. 51. Transaction No. 3 w.r.t. C. Bhansali Developers Pvt. Ltd.(Respondent No. 8 herein) (i) Now, we will also examine the Transaction No. 3 with C. Bhansali Developers Pvt. Ltd., where the impugned order concludes that the transaction with Respondent No. 8 was "in the nature of an investment", whereas the materials on record, especially the Ledger Account of M/s C. Bhansali Developers Pvt. Ltd. in the books of the Corporate Debtor describe the payment as "Interest Recd on Loan." This implies that the transaction was more in nature of loan extended by the Corporate Debtor, rather than in the nature of investment as found by the Adjudicating Authority in its Impugned Order. It is also noted that there is a common directorship of Mr. Praful Satra (Respondent No. 2) in C. Bhansali Developers Pvt. Ltd., confirming that the decision to transfer funds might have been hit by conflict of interest and breach of fiduciary duty. (ii) It has also been brought out that C. Bhansali Developers Pvt. Ltd. is the related party of the Corporate Debtor, which is not disputed. (iii) The logic of the....