Transfer of Assets, Within Group Cos., ‘Ex-facie’, Won’t Come Within Umbrage of Fraudulent Trading u/s 66(1) of IBC | NCLAT

Case Details: Renuka Devi Rangaswamy v. Madhusudan Khemka - [2023] 153 taxmann.com 118 (NCLAT-Chennai)

Judiciary and Counsel Details

• • M. Venugopal, Judicial Member & Shreesha Merla, Technical Member
  • T.K. Bhaskar, Adv. for the Appellant.

Facts of the Case

In the instant case, the CIRP was commenced against the corporate debtor and the appellant was appointed as an IRP. While inspecting the manufacturing unit of the corporate debtor, IRP found that the corporate debtor had acquired lands but no documents related to same were available in the offices of the corporate debtor and assets could not be traced.

Further, when queries were put to respondents Nos. 2 and 3 (i.e. the suspended directors of the corporate debtor), they avoided the same, and did not furnish any information or documents.

The IRP filed an application under section 66 of the IBC on the ground that agricultural land at 9 locations belonging to farmers was purchased with funds of the corporate debtor, however, all sale deeds were registered in the name of respondent No. 3 and not in the name of the corporate debtor.

Respondent Nos. 2 and 3 submitted that money for the purchase of land was given by ‘R’ which was the Group Company of the corporate debtor.

The Adjudicating Authority (NCLT) by the impugned order rejected the said application on the ground that the transfer of assets within group companies per se would not constitute fraudulent trading under section 66(1) of the IBC. Therefore, the transfer of assets among its group companies could not be brought under section 66(1) of the IBC.

NCLAT Held

The NCLAT held that since the appellant had failed to establish an aspect of fraud or dishonest intent, on the respondent’s side, the order passed by the NCLT was free from any legal errors.

The NCLAT, further held that the transaction of transfer of assets, within Group Companies, ex-facie, will not come within umbrage of fraudulent trading under section 66(1) of IBC.

List of Cases Reviewed

• • Mrs. Renuka Devi Rangaswamy v. Madhusudan Khemka [2023] 153 taxmann.com 117 (NCLT – Chennai) (para 42) affirmed [See Annex].

List of Cases Referred to

• • Maria Margarida Sequeria Fernandes v. Erasmo Jack de Sequeria AIR 2012 SC 1727 (para 9)
  • Mrs. Renuka Devi Rangaswamy (Resolution Professional of Regen Infrastructure and Service (P.) Ltd. v. Regen Powertech (P.) Ltd. [2022] 145 taxmann.com 62/[2023] 175 SCL 75 (NCLAT – Chennai) (para 15)
  • Venus Recruiter (P.) Ltd. v. Union of India [2020] 12 taxmann.com 346 (Delhi) (para 28)
  • Nitin Bharal v. Stockflow Express (P.) Ltd. [Comp. App. (AT) (Ins.) No. 454 of 2022, dated 4-5-2022] (para 29)
  • South India Paper Mills (P.) Ltd. v. Sree Rama Vilasam Publications [1982] 52 Comp. Cas. 145 (Ker.) (para 39).