CD’s Unsecured Loan to an Unrelated Party Became Fraudulent When Removed from Books | NCLAT

Case Details: Shri Baiju Trading and Investment (P.) Ltd. v. Arihant Nenawati - [2023] 152 taxmann.com 150 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Rakesh Kumar Jain, Judicial Member & Naresh Salecha, Technical Member
  • Sanchar Anand & Kshitiz Garg, Advs. for the Appellant.
  • Kaustav Som & Abhijeet Singh, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant took a loan from the corporate debtor and failed to repay the same. The CIRP was initiated against the corporate debtor and RP was appointed. The RP filed an application u/s 66 of the IBC against the appellant, R2 and R3 i.e. suspended directors of the corporate debtor, alleging fraudulent transactions between the corporate debtor and the appellant. The same was allowed by the Adjudicating Authority (NCLT) vide the impugned order.

Aggrieved by the impugned order, the appellant filed an instant appeal to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

The appellant contended that the RP, on an assumption basis, had classified the transaction between the appellant and the corporate debtor to be fraudulent in nature, which was also wrongly accepted by the NCLT.

It was noted that the said loan transaction was written off by R2 & R3 from the books of the corporate debtor. Further, Section 66 provides that if it is found that any business of the corporate debtor has been carried on with an intent to defraud the creditors of the corporate debtor or for any fraudulent purpose, the NCLT may, on the application of the RP pass an order to make liable to such contribution to the assets of the corporate debtor as may deem fit.

NCLAT Held

The NCLAT observed that the transactions of giving huge amounts to unconnected/unrelated parties without any collateral security and writing off the same from books were to be termed as fraudulent transactions done with the intent to defraud creditors of the corporate debtor.

The NCLAT held that since the appellant was a principal beneficiary of fraudulent and wrongful trading, there was no error in the impugned order and the instant appeal was to be dismissed.

List of Cases Reviewed

• • Nandkishor Vishnupant Deshpande v. Shalibhadra Exports (P.) Ltd. [2023] 152 taxmann.com 149 (NCLT – Mum.) (para 51) affirmed [See Annex].
  • Ram Preeti Yadav v. U.P. Board of High School & Intermediate Education, [2003] 8 SCC 311 (para 43)
  • Nitin Bharal v. Stockflow Express (P.) Ltd. 2022 SCC OnLine NCLAT 179 (para 45) followed.

List of Cases Referred to

• • Svenska Handels Bunken v. Indian Charge Chrome [1994] 2 SCC 155 (para13)
  • Anil Rishi v. Gurbaksh Singh [2006] 5 SCC 558 (para 13)
  • Ram Preeti Yadav v. U.P. Board of High School & Intermediate Education [2003] 8 SCC 311 (para 30)
  • Nitin Bharsal v. Stockflow Express (P.) Ltd.2022 SCC Online NCLAT 179 (para 45).