Anubhav Anilkumar Aggarwal vs Rajendra Kumar Girdhar

IN THE MATTER OF: 1. Anubhav Anilkumar Aggarwal 601, Khatau Condominium, J M Mehta Road, Off - Napean Sea Road, Malabar Hill, Mumbai 400006 ...Appellant No. 1 2. Gokul Anilkumar Aggarwal Having his address at Off- Napean Sea Road, Malabar Hill, Mumbai - 400006 ...Appellant No. 2 Versus

1. Rajendra Kumar Girdhar The Resolution Professional Sumedha Management Solutions Pvt. Ltd., C-703, Marathon Innova, Off G.K. Marg, Lower Parel West, Mumbai- 400013 ...Respondent No. 1 2. Invent Assets Securitization and Reconstruction Pvt. Ltd. Bhaktawar, Suite B, Ground Floor Backbay Reclamation Scheme Block III, 229, Nariman Point, Mumbai 400021 ...Respondent No. 2

Present: For Appellant : Mr. Sandeep Bajaj, Mr. Vipul Jai, Mr. Mayank Biyani, Mr. Danish Ranjan & Ms. Vrinda Mishra, Advocates. For Respondent : Mr. Sumant Batra, Sr. Advocate along with Mr. Sarthak Bhandari & Ms. Riya Kaur Arora, for R1/ Liquidator. Mr. Abhishek Anand, Mr. Siddant Asthana & Mr. Siddhartha Negi, for R-2. JUDGMENT

(Hybrid Mode)

[Per: Justice Mohd. Faiz Alam Khan, Member (Judicial)]

The instant appeal challenges an order dated 07.05.2024 passed by

Ld. NCLT Mumbai allowing IA 2853/2021 moved by the Resolution

Professional of CD under Section 66 of the Insolvency and Bankruptcy Code,

directing the erstwhile directors of Chamber Construction Pvt. Ltd. (CD) to

contribute Rs. 36.53 crores to the Corporate Debtor's assets due to alleged

fraudulent/wrongful trading.

Contents of Appeal

2. Appellant in memo of appeal stated that the Corporate Debtor

admitted into CIRP by Ld. NCLT order dated 16.07.2019, thereafter the RP

sought liquidation of the CD, which remains pending before NCLT. Kotak

Mahindra Bank assigned a debt receivable from Mafatlal Engineering

Industries Ltd. (in liquidation since 30.09.1999 under Order of Hon'ble

Bombay High Court) to Respondent No. 2 via Assignment Agreement dated

29.11.2011. Respondent No. 2 then executed an MOU dated 17.12.2011

with the Corporate Debtor to assign the Mafatlal debt (principal Rs.

15,34,49,940 with 12% interest) to the Corporate Debtor for a total

purchase consideration of Rs. 36,90,00,000, of which 99% was payable by

28.11.2011 and 1% by 30.06.2013. The Official Liquidator of Mafatlal

admitted a claim of Rs. 16,68,35,784 pursuant to Respondent No. 2's debt.

3. In the 7th COC meeting held on 31.08.2020, Appellant No. 2 informed

the RP that the Corporate Debtor paid Rs. 38,19,05,000 to Respondent No.

2 between 11.10.2011 and 07.01.2014, and that Respondent No. 2 also

Company Appeal (AT) (Ins) No. 1277 of 2024 2 of36 received Rs. 2 crores from the Mafatlal OL and also that the Respondent No.

2 had received Rs. 3,29,05,000 in excess over the agreed sale consideration

of Rs. 36,90,00,000 under the MOU and also that an amount of Rs. 2 crores

has been received by Respondent No.2 from the Liquidator of Mafatlal.

4. The RP thus arrived at a conclusion that an amount of Rs.

3,29,05,000 (Rupees Three Crore Twenty Lakh Five Thousand only) has

been received by the respondent No.2, over and above the sale consideration

of the MOU i.e. Rs. 36,90,00,000/-(Rupees Thirty Six Crores Ninety Lakhs

Only).

5. The RP thereafter wrote a letter dated 23.10.2020 to the Respondent

No.2 stating that respondent is liable to refund the excess amount and

execute the Assignment Agreement as per the terms of the MOU. The

Respondent responded to this letter vide letter dated 09.1.2020 and denied

being in receipt of excess amount. respondent No. 2 further contented that

Rs. 4,90,53,905 from Rs. 38,19,05,000 paid by the Corporate Debtor was

adjusted towards part handling and consultancy charges and that only Rs.

76,77,497 (Not Rs. 2 crores) was received from the Liquidator of Mafatlal,

which Respondent No. 2 appropriated towards its own debt.

6. The RP wrote a letter dated 06.02.2021to Respondent No. 2 objecting

to non-execution of the MOU and appropriation of sums from the Mafatlal.

Respondent No. 2 however replied on 26.02.2021. RP wrote another letter

dated 21.08.2021 demanding execution of the Deed of Assignment and

refund of Rs. 3,29,05,000. Respondent No. 2's however replied vide reply

dated 02.09.2021 and asserted that the Corporate Debtor's payments stood

forfeited for non-payment of entire consideration under the MOU.

Company Appeal (AT) (Ins) No. 1277 of 2024 3 of36

7. The RP thereafter filed an application under Section 66 alleging that

the aforesaid transaction with Respondent No. 2 as wrongful/fraudulent

conduct, seeking various directions against Respondent No. 2 and

contribution by the erstwhile directors for the loss to the Corporate Debtor's

estate. Ld. NCLT by passing the impugned order, allowed the application

and ordered directors appellants to contribute Rs. 36.53 crores to the estate

of Corporate debtor.

Reply by Respondent No.1

8. Respondent No. 1 Liquidator of Chamber Constructions Pvt. Ltd.

(Corporate Debtor) in his reply stated that Kotak assigned a Mafatlal

receivable to Respondent No. 2 on 29.11.2011 and 17.12.2011, Respondent

No. 2 and the Corporate Debtor executed an MOU for assignment of this

debt for Rs. 36.90 crore, against which the Corporate Debtor paid

approximately Rs. 38.19 crore between 11.10.2011 and 07.01.2014, while

the Mafatlal Official Liquidator admitted a related claim of about Rs. 16.68

crore. It is further stated that the MOU required 99% to be paid by

28.11.2011 which was a date preceding Respondent No. 2's own acquisition

of this debt from Kotak (29.11.2011), suggesting pre-arrangement to siphon

Corporate Debtor funds, before the asset was actually owned by the seller.

9. It is also stated that in terms of schedule 3 of the MOU dated

17.12.2011, 99% of the total consideration was to be paid by the CD on

28.11.2011 and admittedly the CD had made payment of Rs.

36,53,00,000/- on 28.11.2011 which constitutes 98.997% of the total

consideration under the MOU i.e. Rs. 36.90 crores, prior to the date of MOU

and even prior to the date of assignment of debt from Kotak to respondent

Company Appeal (AT) (Ins) No. 1277 of 2024 4 of36 No.2. Therefore, on the date of the execution of the MOU i.e. 17.12.2011, the

Corporate Debtor was already in default of clause 2 of the MOU, resulting in

forfeiture.

10. It is also stated that despite being in default the CD started making

payments under the MOU to respondent till January 2014, which is patently

absurd and clearly suggest that the transaction is fraudulent.

11. It is also stated that there is a "no recourse & forfeiture" clause was

deliberately kept in the MOU as the CD in terms of the MOU was at default

even at the date of execution of the MOU and also that "expenses" clause

also devoid of any logic and there is no valid reason to support the notion

that the CD would be responsible for the expenses as specified under clause

3(3) of the MOU.

12. It is further stated that the transaction of acquisition of debt of the

Mafat Lal by the CD was in breach of the circulars and guidelines issued by

the RBI and lacked valuation discipline, and was grossly disproportionate to

the Mafatlal debt's admitted value of Rs. 15.34 crore, whereby the CD had

agreed in advance to acquire the debt of Mafatlal from Kotak through

respondent No.2 even prior to the acquisition of debt by the respondent No.1

from Kotak which clearly show that the transaction was fraudulent and was

undertaken to defraud the creditors of the CD.

13. It is further stated that the RP was informed by the appellant vide

letter dated 07.10.2020 that the Corporate Debtor has paid Rs.

38,19,05,000 to Respondent No. 2 between 11.10.2011 and 07.01.2014,

and that Respondent No. 2 also received Rs. 2 crores from the liquidator of

Mafatlal.

Company Appeal (AT) (Ins) No. 1277 of 2024 5 of36

14. It is also stated that the RP wrote a letter dated 23.10.2020 to the

Respondent No.2 stating that respondent is liable to refund the excess

amount of Rs. 3,29,05,000/- and execute the Assignment Agreement as per

the terms of the MOU. The respondent No. 2 vide letter dated 09.01.2020

denied being in receipt of any excess amount and further contented that Rs.

4,90,53,905 from Rs. 38,19,05,000 paid by the Corporate Debtor was

adjusted towards part handling and consultancy charges in terms of the

MOU and that only Rs. 76,77,497/- was received from the Liquidator of

Mafatlal it has appropriated towards its own debt.

15. It is also stated that the RP wrote letters dated 06.02.2021 and

23.08.2021 to Respondent No.2 objecting to non-execution of the MOU and

appropriation of sums from the Mafatlal, however Respondent No. 2 replied

on 26.02.2021 and dated 02.09.2021 and asserted that the Corporate

Debtor's payments stood forfeited for non-payment of entire consideration

under the MOU and also that Rs. 1,48,905/- is further recoverable from the

CD.

16. It is further stated that directions may be passed against "any person"

under Section Code 66 of the Code, including third parties who knowingly

assist or benefit from offending transactions and in this regard the

Adjudicating Authority has committed a mistake in not directing respondent

No.2 to make appropriate contribution to the estate of the CD. Many

precedents have been cited by the Respondent No.1 in its reply, which we

will deal later on at an appropriate stage in this judgment.

Company Appeal (AT) (Ins) No. 1277 of 2024 6 of36 Reply by Respondent No.2

17. Respondent No. 2 i.e. Invent Assets Securitization and Reconstruction

Pvt. Ltd. in its short reply as stated that Kotak Mahindra Bank had entered

into an assignment agreement on 29.11.2011 with the Respondent No. 2 for

the purpose of assigning the debt receivable under the credit facility availed

by Mafatlal Engineering Industries Ltd. (Mafatlal) in favour of Respondent

No. 2 and a Memorandum of Understanding (MoU) was executed on

17.12.2011 for assignment of the debt of the Mafatlal in favour of the CD

and in view of the terms of MoU the CD was to pay a total consideration of

Rs. 36,90,00,000/- (Rs. Thirty-Six crores ninety lakhs only) in two tranches

i.e. 99% of the consideration to be paid by 28.11.2011 and the balance 1%

was to be paid by 30.06.2013 which could be extended upto 30.06.2014 and

any further extension may be made with the consent of the parties.

18. It is further stated that as the CD failed to adhere to the terms of the

MoU as well as the payment schedule stipulated therein, the Respondent

No. 2 was constrained to enforce its rights under clause 2 of the MoU which

stipulates the condition of forfeiture in the event of default, which empowers

the Respondent No. 2 to forfeit the amount already paid by the CD.

19. It is further stated that the Respondent No. 2 is the asset

reconstruction company and has been in the business of acquiring the

financial assets from various banks and financial institutions since 2008

and has an asset under management of the value of Rs. 3,500 Crores and

thus there was no unusualness in the transaction which has been wrongly

labelled by the Ld. Tribunal as fraudulent.

Company Appeal (AT) (Ins) No. 1277 of 2024 7 of36

20. It is also stated that the transaction was undertaken between the

Respondent No. 2 and the CD way back in the year 2011 which is much

prior to the initiation of CIRP against the CD. Moreover, the subject

transaction was entered into by the parties with a due diligence and market

assessment, as the CD had shown its interest in investing in a distressed

financial assets and at the same time Respondent No. 2 was also in

discussion with Kotak Mahindra Bank to acquire the financial asset of

Mafatlal (in liquidation).

21. It is further stated that the subject transaction was entered in normal

course of business and there was no ill intention behind the same, however,

the Ld. NCLT has not considered that there is a huge gap of time between

the execution of the transaction and commencement of CIRP against the

CD.

22. It is also stated that allegation that Respondent No. 2 received an

amount of Rs. 3,29,05,000/- (Rs. Three crore twenty-nine lakhs five

thousand only) over and above the consideration of Rs. 36,90,00,000/- (Rs.

Thirty-Six crores ninety lakhs only) are baseless and without any evidence.

It is also stated that keeping in view the clauses 3(a ) and 3 (c ) of the MoU

the amount remitted by the CD before and after the execution of MoU was

also adjusted as per the understanding with the CD, towards the expenses,

part handling charges and consultancy charges paid to savlani and

investment trade and company and also to Morris energy ltd. and this

position was clarified by the answering Respondent through its letters dated

09.11.2020, 26.02.2021 and 02.09.2021 addressed to the Respondent No.

1.

Company Appeal (AT) (Ins) No. 1277 of 2024 8 of36

23. It is further stated that in total Respondent No. 2 has received a sum

of Rs. 38,19,05000/- (Thirty-eight crores nineteen lakhs five thousand only)

up to Rs. 07.01.2014 from the CD and after forfeiture of Rs. 33,30,00,000/-

+Rs. 67,83,490/- incurred in part handling charges and payment of Rs.

4,22,70,415/-= Rs. 38,20,53,905/- were adjusted and in this way an

amount of Rs. 1,48,905 (one lakh forty-eight thousand nine hundred and

five only) was still recoverable from the CD which has been foregone by the

Respondent. It is further stated that in realty an amount of only Rs.

76,77,497/- (Rs. Seventy-six lakhs seventy-seven thousand four hundred

and ninety-seven only) was received by the Respondent No. 2 from the

official liquidator of mafatlal and amount of Rs. 2 crores as alleged by the

Respondent No. 1 has not been received by the answering Respondent.

24. It is also stated that there was no material on record to suggest the

transaction emanating out of the MoU as fraudulent and the Ld. Tribunal

was not having any authority or jurisdiction to set aside the MoU entered

into between the parties.

Submissions of Ld. Counsel for Appellant

25. Ld. counsel for the appellant submits that the impugned order dated

07.05.2024 passed by the Ld. NCLT under Section 66 has been passed

without jurisdiction and misconceives the statute as it was not within the

jurisdiction of the Tribunal to set aside a concluded MOU and labels an

ordinary commercial arrangement/ transaction as "fraudulent,".

26. It is further submitted that although Section 66 application was

confined to wrongful/fraudulent trading and personal liability, not

avoidance of transactions--which is the remit of Chapter III (Sections 43-51)

Company Appeal (AT) (Ins) No. 1277 of 2024 9 of36 and has no ingredient of Section 66 of the Code. Jurisdiction and statutory

limits of Section 66 does not confer power to avoid or set aside transactions

and that power only lies under Sections 43-51, whereas Section 66

addresses intent to defraud in carrying on business and personal liability of

those in control and thus the NCLT has travelled beyond Section 66 by

declaring the MOU void and thereby extinguishing contractual remedies.

27. It is also submitted that the dispute is quintessentially contractual as

Respondent No. 1 has sought performance of the MOU by Respondent No. 2

(execution of the assignment on receipt of consideration) and such relief lies

with the civil court and could not be granted under insolvency adjudication

through Section 66.

28. It is also submitted that there is no material indicating that the

Corporate Debtor carried on business with the intent to defraud creditors or

for any fraudulent purpose and mere suspicion, commercial misjudgement,

or loss does not satisfy the statutory threshold for initiation of action under

66 of the Code. It is impressed upon that at the time of the MOU (2011), the

Corporate Debtor was a going, profit-making concern with no default and it

was classified as NPA only on 31.08.2016, long after the impugned

transaction therefore the essential mens rea for attraction of Section 66 is

absent.

29. It is further submitted that Kotak Mahindra Bank has assigned the

receivable from Mafatlal to Respondent No. 2 on 29.11.2011and Respondent

No. 2 and the Corporate Debtor executed an MOU (17.12.2011) for

assignment of this debt to the Corporate Debtor for Rs. 36.90 crore, the

Corporate Debtor paid Rs. 38.19 crore between 11.10.2011 and 07.01.2014.

Company Appeal (AT) (Ins) No. 1277 of 2024 10 of36 The Liquidator of Mafatlal admitted a claim of about Rs. 16.68 crore on this

receivable. Respondent No. 2 claimed adjustments for expenses, asserted

that receipt from liquidator of Mafatlal was only about Rs. 0.77 crore (not

Rs. 2 crore), and pleaded forfeiture of amount given by CD for non-payment

of entire consideration and also that these are contractual disputes which

could be addressed through specific performance/refund, not under Section

66.

30. It is further submitted that the order fastens liability on respondents

(erstwhile directors) under Section 66, although Section 66(2) presupposes

CIRP context and conduct of the directors of the company for acting in a

fraudulent manner and also to act negligently while CIRP in contemplation

in near future, while in 2011 there was neither default nor may be in

contemplation of the appellants that CIR may be inflicted on CD and the

Code was itself was not in force.

31. It is further submitted that Respondent No. 1 seeks to stigmatise a

transaction taken place in 2011 as fraudulent in 2021 and even if Section

66 has no codified look-back period but a reasonable limitation period must

be applied and the adjudicating authority should not reopen decade-old

commercial acts even when IBC was not envisaged.

32. It is also submitted that Appellants had no role in the impugned

transaction and the decisions was taken by the late director who managed

the company until 01.05.2014. Imposing Rs. 36.53 crore contribution

ignores the absence of personal involvement and applies insolvency

remedies to a civil dispute. It is submitted that the impugned order be set

aside and the parties be set free to avail their contractual remedies

Company Appeal (AT) (Ins) No. 1277 of 2024 11 of36 (including any action for specific performance/refund if pursued in proper

forum).

33. Ld. counsel for the appellants have cited following case laws in

support of their contention:

(I) Piramal Capital and Housing Finance Ltd v. 63 Moons

Technologies Ltd & Ors, 2025 SCC OnLine SC 690 (relevant

paras 56, 60, 61): relied upon to underline limits of insolvency

jurisdiction and preservation of contractual remedies.

(II) Sangeeta Jatinder Mehta & Anr v. Kailash Shah, RP of New

Empire Textile Processor Pvt. Ltd., 2025 SCC OnLine NCLAT

349 (relevant para 9, 12): on scope of Section 66 and need for

clear evidence of fraudulent intent.

(III) Sudipa Nath v. Union of India, 2023 SCC OnLine Tri 79

(relevant paras 17, 19): on statutory interpretation constraining

adjudicatory powers.

(IV) Regen Powertech Pvt. Ltd. v. Wind Construction Pvt. Ltd., 2022

SCC OnLine NCLAT 3801 (relevant paras 33-35): on limitation

principles and proper forum for contractual disputes. (V) Shibu Job Cheeram v. Ashok Velamur Seshadri, Liquidator of

M/s Archana Motors Ltd., 2023 SCC OnLine NCLAT 8041

(relevant paras 43, 44): emphasizing evidentiary threshold for

Section 66 and public domain transactions.

(VI) S. Kanan v. Yogendra Vaspal & Ors., 2024 SCC OnLine NCLT

1071 (relevant paras 24-35): to impress upon that when

commercial decisions do not equal fraud.

Company Appeal (AT) (Ins) No. 1277 of 2024 12 of36 (VII) Vijendra Kumar Jain v. Nitin Ramchandra Jadhav & Ors., 2022

SCC OnLine NCLT 15287 (relevant paras 26-28): on remedies

via specific performance vs insolvency avoidance.

(VIII) NileshKumar Paurush & Ors v. Arvind Mittal & Anr., 2025 SCC

OnLine NCLAT 1537 (relevant paras 41, 44): on director liability

and Section 66 prerequisites.

(IX) Venkatesan Sankaranarayanan, RP for RTIL Ltd v. Nitin

Shambhukumar Kasliwal & Ors. (relevant paras 5-7): on

look-back period and proof of intent for wrongful trading.

(X) Sailesh Bhai Chandra Desai, Liquidator of EMI Transmission

Ltd v. Sanjiv Sethi & Anr. (relevant para 13): on distinguishing

civil disputes from fraudulent trading under IBC.

Submissions of Ld. Counsel for Respondent No.1

34. Ld. counsel for the Respondent No. 1 (Liquidator) submits that there

is no illegality in the impugned judgment as the "Mafatlal debt acquisition"

by the CD is a collusive, non-ordinary course transaction engineered to

divert funds from the Corporate Debtor, with built-in forfeiture and

pre-acquisition payment terms in MOU that prejudiced creditors.

35. It is submitted that the transaction is such which may not be held in

ordinary course as the Corporate Debtor is a real-estate company and not

an NBFC/ARC and acquiring a third-party receivable (Mafatlal) was outside

its usual business and commercially inexplicable, in the back ground that

Mafatlal had been in court liquidation since 1999 and the official liquidator

had admitted only about Rs. 15.34 crore, yet the MOU price was kept as Rs.

Company Appeal (AT) (Ins) No. 1277 of 2024 13 of36 36.90 crore and the fact that Mafatlal is in liquidation has not been

mentioned in the MOU.

36. It is also submitted that the MOU demanded 99% payment by

28.11.2011, a date preceding Respondent No. 2's own acquisition from

Kotak (29.11.2011), and also contained a "no recourse & forfeiture" clause.

The CD however paid Rs. 36.53 crore by 28.11.2011 and continued paying

till 07.01.2014, which shows a pre-set mechanism to move money despite

cancellation/default. The CD ultimately paid about Rs. 38.19 crore though

the Liquidator of Mafatlal Lal admitted only Rs. 15.34 crore and Respondent

No. 2 later on appropriated large "expenses/consultancy" and asserted

forfeiture, which is non-transparent and inconsistent with arm's-length

conduct and RBI's 01.07.2009 norms for transparent asset acquisitions by

ARCs.

37. It is submitted that Kotak assigned a Mafatlal receivable to

Respondent No. 2 on 29.11.2011 and 17.12.2011, Respondent No. 2 and the

Corporate Debtor executed an MOU for assignment of this debt for Rs. 36.90

crore, against which the Corporate Debtor paid approximately Rs. 38.19

crore between 11.10.2011 and 07.01.2014, while the Mafatlal Official

Liquidator admitted a related claim of about Rs. 15.34 crore. The chronology

as highlighted by the Ld counsel is that the MOU required 99% to be paid by

28.11.2011 which was a date preceding Respondent No. 2's own acquisition

of this debt from Kotak (29.11.2011), suggesting pre-arrangement to siphon

Corporate Debtor funds, before the asset was actually owned by the seller.

It is also highlighted that a "no recourse & forfeiture" clause was purposely

placed in the MOU and also that Respondent No. 2 later claimed large

Company Appeal (AT) (Ins) No. 1277 of 2024 14 of36 "expenses" set-offs and asserted that the Corporate Debtor's payments stood

forfeited for non-payment of total consideration on time and also stated that

only about Rs. 76.77 lakh (not Rs. 2 crore) was received from the Mafatlal

Liquidator. The RP however tabulated the Corporate Debtor's cheques and

claimed an excess of Rs. 3.29 crore paid over and above the consideration

mentioned in the MOU.

38. Ld. counsel for the Liquidator further submits that the deal between

the CD and the Kotak was in breach of the circulars and guidelines issued

by the RBI and lacked valuation discipline, and was grossly disproportionate

to the Mafatlal debt's admitted value i.e. about Rs. 15.34 crore versus the

Rs. 36.90 crore price agreed upon by the CD, which clearly indicates a

non-commercial fraudulent motive harmful to the creditors of CD.

39. Ld. counsel for the Liquidator also submits that under Section 66

directions may be passed against "any person" carrying on the CD's

business for fraudulent purposes, including third parties who knowingly

assist or benefit from offending transactions; reliance in this regard is

placed on Royal India Corporation Ltd. v. Mr. Nandkishor Vishnupant

Deshpande (RP) and Phoenix ARC (P) Ltd. v. Spade Financial Services

Ltd., emphasising that action under Section 66(1) of the Code may extend

beyond directors where collusion is shown.

40. Ld. counsel for the liquidator submits that the Schedule 3 of the MOU

demanded 99% payment by 28.11.2011 and the CD had already paid Rs.

36.53 crore by then which is prior to both the dates I.e. MOU execution and

Respondent No. 2's acquisition of the debt, which shows pre-fixed movement

of funds and conscious acceptance of forfeiture by having a "no recourse &

Company Appeal (AT) (Ins) No. 1277 of 2024 15 of36 forfeiture" clause in the MOU and so much so about 90% of the

consideration was paid in one go , till the date when the debt of Mafatlal was

even not acquired by the respondent No.2 and only 1% consideration which

comes about Rs.36,90,000/- ( Thirty Six Lakhs Ninety Thousand Only), was

stipulated to be paid over the next two years, which is highly unusual and

smells of fraud.

41. It is also submitted that when the MOU was executed the CD was

already burdened with liabilities of about 100 Crores and despite this the

CD adventured to acquire a debt at a very high price and this transaction

was totally unconnected with its normal business and no effort were ever

made by the appellants to get the assignment deed executed.

42. Ld. counsel has also highlighted Directors' conduct and submits that

Appellants were directors throughout the relevant period; fiduciary duties

required protecting creditors, yet no steps were taken to enforce assignment

or challenge forfeiture for more than a decade, which is sufficient to draw

adverse inference about their intent. Moreover, a transaction audit was

approved in October 2019 but auditors reported non-cooperation, lack of

secure access, and missing documents, which is a further indication of

opacity around the transaction.

43. It is submitted that provision of fraudulent trading as provided under

Section 66(1) and of wrongful trading under 66(2) are distinct and Section

66(1) can apply without proving twilight-of-insolvency timing if business was

carried on "with intent to defraud creditors or for any fraudulent purpose,"

and it authorises directions against "any person" knowingly party to such

conduct.

Company Appeal (AT) (Ins) No. 1277 of 2024 16 of36

44. It is also submitted that the "expenses" head provided in MOU lacks

commercial logic so far as obliged the CD to bear, Respondent No. 2's later

claim of about Rs. 4.90 crore as expenses and its appropriation of sums

from the Liquidator of Mafatlal. It is urged that order should also have

been passed against Respondent No. 2 as "any person" involved in the

fraudulent business may be subject to recovery as the beneficiaries of

fraudulent trading.

45. Ld. counsel for the Liquidator has relied on the following case laws:

I. Royal India Corporation Ltd. v. Mr. Nandkishor Vishnupant

Deshpande (RP) & Ors., 2024 SCC OnLine NCLAT 640 in order to

show that Section 66(1) empowers action against "any person" who

were parties to carrying on the business so as to defraud creditors,

not just directors.

II. Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC

475 to highlight that beneficiaries may also be targeted.

III. Mr. Tenny Jose & Ors. v. Prathap Pilai, RP of Tenny Jose Limited

(NCLAT Chennai): in order to highlight the third-party liability where

an "other entity" knowingly assists and benefits from offending

business.

Submissions of Ld. Counsel for respondent No.2

46. Ld. Counsel for Respondent No. 2 has confined his submissions only

with regard to the NCLT's observations in the impugned judgment labelling

the MOU with the Corporate Debtor as a sham and to set aside any

avoidance of that MOU. It is submitted that the deal entered into between

the parties was a bona fide, arm's-length assignment arrangement whose

Company Appeal (AT) (Ins) No. 1277 of 2024 17 of36 non-completion arose from the Corporate Debtor's own default under agreed

timelines and forfeiture terms and the jurisdiction and scope under Section

66 targets only fraudulent/wrongful trading and personal liability; it does

not empower avoidance of concluded contracts, which is governed by

Chapter III of the IBC (Sections 43-51), therefore declaring the MOU as void

under Section 66 exceeds jurisdiction vested in the NCLT.

47. It is further submitted that there is no evidence of

preferential/undervalued/fraudulent intention and a contractual default

cannot be retrofitted into the definition of fraud as provided under Section

66.

48. It is further submitted that MOU entered into between the parties with

due diligence and set clear timelines and conditions, including cancellation

on default and forfeiture of amount paid if the Corporate Debtor failed to

complete payment and since CD defaulted in timely balance payment, the

same resulted in extinguishing any obligation of the respondent No.2 to

execute the assignment. Clauses 3(a) and 3(c) of the MOU have also been

highlighted to show that interim costs, expenses, and professional fees was

stipulated on the CD in case of default and the amount paid above the core

consideration were appropriations toward part consideration and

contractually agreed handling expense, including payments to Morris

Energy Ltd. and Savlani Trading & Investment Co. Pvt. Ltd.

49. Ld. counsel for the respondent No. 2 has also provided a utilization

table with the written submissions showing about Rs. 33.30 crore treated as

past payment toward the MOU, roughly Rs. 0.68 crore as

expenses/handling, and around Rs. 4.23 crore as consultancy charges,

Company Appeal (AT) (Ins) No. 1277 of 2024 18 of36 totalling Rs. 38,20,53,905 out of the receipts up to 07.01.2014, with a small

balance of Rs. 1,48,905 still recoverable from the Appellant, in order to

negate the claim of the CD.

50. It is also submitted that even if the transaction was initiated in

normal business, the failure to consummate it was due to the CD's

non-adherence to agreed timelines and not due to not any sham tactic

adopted by Respondent No. 2.

51. Request has been made to delete the adverse observations made by

Ld. NCLT in branding the MOU a sham and also to hold that Section 66

cannot be used to avoid or set aside the MOU or to pass directions against

Respondent No. 2 as a third party and recognise that any remedy, if at all,

lies in contractual enforcement consistent with the MOU's cancellation and

forfeiture scheme.

52. Following case Laws have been relied by respondent No.2:

I. Piramal Capital and Housing Finance Ltd. (formerly DHFL) v. 63

Moons Technologies Ltd. & Ors., 2025 SCC OnLine SC 690 (paras 56,

60, 61, 63, 66): cited to underline that insolvency fora cannot disturb

pre-CIRP contracts and cannot re-characterize commercial defaults as

fraud.

II. Sangeeta Jatinder Mehta & Anr. v. Kailash Shah, RP of New Empire

Textile Processor Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 104

of 2024 (paras 9, 12) cited to highlight strict ingredients of Section 66

and need to establish clear fraudulent intent.

Company Appeal (AT) (Ins) No. 1277 of 2024 19 of36 III. Sudipa Nath v. Union of India, 2023 SCC OnLine Tri 79 (para 19):

cited on statutory construction limiting adjudicatory overreach and

preserving civil court domains.

Analysis and Findings

53. Having heard learned counsel for the parties and having perused the

impugned order dated 07.05.2024 passed by the Adjudicating Authority, the

pleadings, documentary record, and written submissions of Respondent No.

1 (Liquidator), Respondent No. 2, we are of the view that before proceeding

further we should have a look on the law on the subject which has been

relied on by the parties.

54. This appellate tribunal in Swapan Kumar Saha v. Ashok Kumar

Agarwal, (2025) ibclaw.in 911 NCLAT, while considering many cases,

including those relied on by Ld. counsel for the appellants, held as under:

"28......b. Can Section 66(1) of the Code be interpreted or invoked or made operational without recourse to Section 66(2) of the Code? Do they operate independent of each other or jointly?"

44. We further note that the next subsection 66(2) relates to specific provisions for a Director or partner of the CD for which CIRP is going on. This subsection provides that if before the insolvency commencement date, a director or partner knew or ought to have known that CIRP could not have been avoided and failed to exercise due diligence in minimising potential loss to the creditors, AA may direct the erring director or partner to be liable and make such contributions to the assets of the CD as it may deem fit. We observe that the first provision (section 66(1)) is very broad but not the second one (Section 66(2)) ......

45. From a bare reading of Section 66(1) and Section 66(2) of the IBC we find that both have self-contained

Company Appeal (AT) (Ins) No. 1277 of 2024 20 of36 provisions, with clear mechanisms for their invocation during a CIRP. Further, a perfunctory glance at Section 67 of the IBC will make it abundantly clear that the draftsmen and legislators clearly intended for Sec 66(1) and Section 66(2) to operate independently, as the opening line of Section 67(1) and 67(2) of the IBC would reflect, ........"

55. Thereafter the bench proceeded to consider the ratio laid down in

Gopal Kalra v. Akhilesh Kumar Gupta [2025 SCC Online NCLAT 1129] as

under: -

"46. Appellant places its reliance on decision of this Appellate Tribunal in the judgement of 03.07.2025 in Gopal Kalra v. Akhilesh Kumar Gupta [2025 SCC Online NCLAT 1129], wherein the Bench framed the issue to be adjudicated upon as - "I. Whether the transactions undertaken by the Appellant in the LED Bulb business during FY 2016-17 constituted fraudulent trading under Section 66(1) of the Code?". We find that the bench proceeded to adjudicate upon the issue by first categorically stating the ingredients to be met in order to attract Section 66(1) of the IBC. The relevant paragraph has been reproduced below:

"32. To determine whether these transactions amount to fraudulent trading, we must apply the ingredients of Section 66(1) of the IBC, which authorizes the Adjudicating Authority to direct any person who was knowingly a party to carrying on business with intent to defraud creditors or for any fraudulent purpose, to contribute to the assets of the Corporate Debtor. This requires us to examine:

i. Whether there was an intent to defraud; and

ii. Whether the Appellant was a knowing party to such conduct."

Company Appeal (AT) (Ins) No. 1277 of 2024 21 of36 Therefore, instead of supporting this case of the Appellant, the judgement supports the case of the Respondent- Liquidator. "

47. The Respondent also places reliance of the decision of this Appellate Tribunal in Sangeeta Jatinder Mehta and Anr. v. Kailash Shah RP of New Empire Textile Processor Private Limited [CA(AT)(INS) 104 of 2024] wherein the Bench has held,

"7. Section 66, sub-section (1) provides that if it is found that any business of the Corporaicating Authority may on the application of the RP pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit."

48. Finally, reliance is also placed by the Appellant on the decision of this Appellate Tribunal in Renuka Devi Rangaswamy, Interim Resolution Professional of M/s.

Regen Infrastructure Services Pvt. Ltd. v.

Madhusudan Khemka, Suspended Director of M/s.

Regen Infrastructure Services Pvt. Ltd. [2023 SCC Online NCLAT 1722] wherein the Hon'ble Bench held that

"38. The Appellant has a 'duty', to establish to the satisfaction of this 'Tribunal', that a 'person', is knowingly carrying on the business with the 'Corporate Debtor', with an 'dishonest intention', to 'defraud', the 'Creditors'. For a 'Fraudulent Trading'/ 'Wrongful Trading', necessary materials are to be pleaded by a 'Litigant'/ 'Stakeholder', by furnishing 'Requisite Facts', so as to come within the purview of the ingredients of Section 66 of the I & B Code, 2016. Suffice it, for this 'Tribunal', to pertinently point out that the ingredients of Section 66(1) and 66(2) of the I & B Code, 2016, operate in a different arena."

Company Appeal (AT) (Ins) No. 1277 of 2024 22 of36 This judgement also supports the case of the Respondent and rebuts the case of the Appellant in very clear terms as the Respondent had been successfully able to set up a case that the business of the corporate debtor was carried on with intent to defraud creditors of the Corporate Debtor. "

56. This appellate tribunal again in Nalinesh Kumar Paurush and

Others v. Arvind Mittal and Another,2025 SCC OnLine NCLAT 1537,

after considering, Regen Powertech Pvt. Ltd, Renuka Devi Rangaswamy ,

Shibo Job Cheeran ( Supra) opined in paragraph no. 44 that to attract

section 66 of the Code though the standard of proof would be preponderance

of probability but the same is subject to the heavy proof to the applicant, as

each and every commercial transaction which has resulted in the loss may

not be labelled as fraudulent. This observation is in the background that the

party who is alleging the existence of a fact is obliged to prove the same and

it cannot be taken as proved without any substantial material or evidence

produced before the court. thus the applicant of an application under

section 66 of the Code is obliged to prove the contents of the application by

placing adequate material and evidence on record and in addition the Court

may also take into consideration the attending facts and circumstances in

consideration on the principle that a fact may also be proved by leading

circumstantial evidence. it is also to be recalled that the onus in civil

matters keep on shifting and when the burden has been discharged by the

one party it is obligatory on the contesting party to discharge its onus.

Company Appeal (AT) (Ins) No. 1277 of 2024 23 of36

57. Hon'ble Supreme Court again in Piramal Capital & Housing

Finance Ltd. v. 63 Moons Technologies Ltd., (2025) 256 Comp Cas 707:

2025 SCC Online SC 690 held as under:

"60. However, in cases of "fraudulent or wrongful trading"

in respect of the business of the CD as contemplated in section 66, the properties and the persons involved may or may not be ascertainable and therefore the Adjudicating Authority is not empowered to pass orders to avoid or set aside such transactions, but is empowered to pass orders to the effect that any persons, who were knowingly parties to the carrying on of business in such manner, shall be liable to make such contributions to the assets of the CD, as it may deem fit. The Adjudicating Authority in such applications may also direct that the director of the CD shall be liable to make such contribution to the assets of the CD as it may deem fit, as contemplated in section 66(2). In case of fraudulent trading or wrongful trading, it would be a matter of inquiry to be made by the Adjudicating Authority as to whether the business of the CD was carried on with intent to defraud creditors of the CD or was carried on for any fraudulent purpose."

58. Thus the factual matrix of this case is to be appreciated in the

background of the ratio laid down by above mentioned case laws. Having

perused the record, we find that Kotak Mahindra Bank assigned a receivable

of Mafatlal Engineering (under winding up since 1999) to Respondent No. 2

on 29.11.2011 and an MOU dated 17.12.2011 was executed between the CD

and Respondent No. 2 to assign the receivable to Respondent No.2 to the

Corporate Debtor for Rs. 36.90 crore, against which the Corporate Debtor

made payments aggregating about Rs. 38.19 crore during the period 2011-

Company Appeal (AT) (Ins) No. 1277 of 2024 24 of36 2014, however, the formal deed of assignment in favour of the Corporate

Debtor was never executed.

59. It is also reflected that the MOU contained a cancellation/forfeiture

stipulation tied to timelines of payment in terms that 99% of the

consideration is to be paid by 28.11,2011 and on the basis of these

stipulations in the MOU, the Respondent No. 2 later claimed forfeiture and

expense/consultancy adjustments and maintained that the Corporate

Debtor's default relieved it of any obligation to execute the assignment. The

Official Liquidator of Mafatlal admitted a claim of Rs. 16,68,35,784

pursuant to Respondent No. 2's debt.

60. It is also evident that in the 7th COC meeting held on 31.08.2020,

Appellant No. 2 informed the RP that the Corporate Debtor has paid Rs.

38,19,05,000 to Respondent No. 2 between 11.10.2011 and 07.01.2014,

and that Respondent No. 2 has also received Rs. 2 crores from the liquidator

of Mafatlal, Respondent No.2 however stated that in realty an amount of

only Rs. 76,77,497/- (Rs. Seventy-six lakhs seventy-seven thousand four

hundred and ninety-seven only) was received by the Respondent No. 2 from

the official liquidator of Mafatlal and also stated in the table appended with

its reply that in total Respondent No. 2 has received a sum of Rs.

38,19,05000/- (Thirty-eight crores nineteen lakhs five thousand only) up to

Rs. 07.01.2014 from the CD, out of which Rs. 33,30,00,000/- were received

under MOU dated 17.12.2011 + Rs. 67,83,490/- has been incurred in part

handling charges and payment of Rs. 4,22,70,414/ has been made towards

payment of consultancy charges to Savlani and Morris and in this way Rs.

382053905/-is shown to have been utilised and an amount of Rs. 148905

Company Appeal (AT) (Ins) No. 1277 of 2024 25 of36 (one lakh forty-eight thousand nine hundred and five only) is shown

recoverable from the CD which according to Respondent No.2 has been

foregone.

61. It is also evident that the RP wrote a letter dated 06.02.2021 to

Respondent No.2 objecting to non-execution of the MOU and appropriation

of sums from the Mafatlal. Respondent No. 2 however replied on

26.02.2021. RP wrote another letter dated 21.08.2021 demanding execution

of the Deed of Assignment and refund of Rs. 3,29,05,000. Respondent No.

2's however replied vide reply dated 02.09.2021 and asserted that the

Corporate Debtor's payments stood forfeited for non-payment of entire

consideration under the MOU and thereafter the RP thereafter filed has filed

application under Section 66 of the Code.

62. Thus there are certain facts of this case which are not disputed.

(i) It is not disputed that Kotak Mahindra bank sold a debt owed by

Mafatlal Engineering (already in court-run liquidation) to

Respondent No. 2 on 29.11.2011 (principal Rs. 15,34,49,940 with

12% interest). In this way Respondent No. 2 i.e. Invent Assets

Securitization and Reconstruction Pvt. Ltd. bought the right to

collect money from Mafatlal.

(ii) The Official Liquidator of Mafatlal admitted a claim of Rs.

16,68,35,784 pursuant to Respondent No. 2's debt.

(iii) It is also not in dispute that Respondent No. 2 then executed an

MOU on 17.12.2011 with the Corporate Debtor to assign the

Mafatlal debt (principal Rs. 15,34,49,940 with 12% interest) to the

Corporate Debtor for a total purchase consideration of Rs.

Company Appeal (AT) (Ins) No. 1277 of 2024 26 of36 36,90,00,000, of which 99% was payable by 28.11.2011 and 1%

by 30.06.2013, which may be extended till 30.06.2014. (Thus the

debt pertaining to which the claim was admitted by the liquidator

of Mafatlal for Rs. 16,68,35,784/- was sold to CD for consideration

of Rs. 36,90,00,000/-).

(iv) The CD had made payment of Rs. 36,53,00,000/- till 28.11.2011

which constitutes 98.997% of the total consideration under the

MOU i.e. Rs. 36.90 crores, prior to the date of MoU (17.12.2011)

and even prior to the date of assignment of debt from Kotak to

respondent No.2 (29.11.2011).

(v) The CD has paid Rs. 36,53,00,000/- till 28.11.2011 and

thereafter Rs. 1,66,05,000/- in various instalments from

18.12.2013 to 07.01.2014. (Thus in total Respondent No. 2 has

received a sum of Rs. 38,19,05000/- (Thirty-eight crores nineteen

lakhs five thousand only) up to 07.01.2014 from the CD.

Rs.1,29,05,000/- in excess of the consideration).

(vi) There is clause in the MOU dated 17.12.2011 in terms that if the

in the event of any default in making payment by the proposed

purchaser to the seller as per the schedule of payment as

mentioned in the schedule of payment (Schedule 3), the purchase

assignee be allowed 10 days' time from the due date and if the

assignee fail, the amount already paid by the purchaser will be

forfeited and the MOU stands cancelled.

Company Appeal (AT) (Ins) No. 1277 of 2024 27 of36

(vii) It is also not in dispute that CD fails to make payment of 1% of

consideration within the time stipulated and the respondent No. 2

has claimed to forfeit the amount paid by the CD.

(viii) It is also not in dispute that even after default in payment the CD

continued paying Respondent No.2 and paid Rs. 38,19,05000/-

(Thirty-eight crores nineteen lakhs five thousand only) up to

07.01.2014, even more than the required consideration and the

excess payment stated to have been set off/ adjusted by the

Respondent No.2 towards part handling charges and payment of

consultancy charges, in view of the clauses of the MOU.

(ix) Respondent No. 2 did not execute the final Assignment Deed and

states that the Corporate Debtor hadn't paid the full amount on

time, the payments made by it stood forfeited. Some money, which

according to Respondent No.1 is Rs. 2 crores and according to

Respondent No.2 is only Rs. 7677497/- (Rs. Seventy-six lakhs

seventy-seven thousand four hundred and ninety-seven only) was

also received from Mafatlal's Official Liquidator, which has also

been kept by Respondent No. 2.

63. Above undisputed facts would sufficiently demonstrate that Kotak

Mahindra bank sold a debt owed by Mafatlal Engineering, which was

already in court-run liquidation, to Respondent No. 2 on 29.11.2011 and

this amount was Rs. 15,34,49,940 principal with 12% interest. Respondent

No. 2 executed an MOU on 17.12.2011 with the Corporate Debtor to assign

the Mafatlal debt (principal Rs. 15,34,49,940 with 12% interest) to the

Corporate Debtor for a total purchase consideration of Rs. 36,90,00,000, of

Company Appeal (AT) (Ins) No. 1277 of 2024 28 of36 which 99% was payable by 28.11.2011 and 1% by 30.06.2013. Significantly

the Official Liquidator of Mafatlal had admitted the claim of Rs.

16,68,35,784/- only, with regard to this debt. This fact alone makes this

transaction highly doubtful and unusual and against all commercial wisdom

and common sense.

64. So much so the MOU entered into on 17.12.2011 contains a payment

schedule by which 99% of 36,90,00,000/- was payable by 28.11.2011 and

rest 1% by 30.06.2013, which may be extended till 30.06.2014. The CD

admittedly had made payment of Rs. 36,53,00,000/- till 28.11.2011 which

constitutes 98.997% of the total consideration of Rs. 36.90 crores. Thus on

the date of execution of the MOU the CD was in default, as it has only paid

only 98.997% of the agreed consideration. In other words, by entering into

the MOU the CD allowed the happening of the default intentionally by

paying less than 99% of the consideration.

65. Other glaring suspicion which encircles this transaction is that, even

prior to the date of assignment of debt from Kotak to respondent No.2 i.e. on

29.11.2011, this debt was assigned/sold by the respondent to CD, which is

evident by the stipulation of payment of 99% of the consideration by

28.11.2011 by the CD.

66. Another circumstance which label this transaction as fraudulent is

that even 1% of the consideration was not paid by the CD in due time and

no efforts has ever been made by the appellants to get the assignment deed

executed by the Respondent No.2.

67. Thus we are more than satisfied that the business of the CD was

carried on by the appellants with the intent to defraud creditors and for

Company Appeal (AT) (Ins) No. 1277 of 2024 29 of36 fraudulent purpose. The MOU executed on 17.12.2011 admittedly

demanded payment of 99% consideration by 28.11.2011 and appellants

apparently permitted forfeiture , firstly by not paying 99% of the

consideration or by in other words by paying less than 99% (98.997%) of the

consideration, which appears to be an intentional and deliberate Act on the

part of the appellants and secondly by entering into the MOU on 17.12.2011

and by putting a schedule of payment by which the 99% of the payment is

to be done by 28.11.2011, while the seller's own acquisition from Kotak is of

date 29.11.2011, this shows that these clauses and payment schedule were

deliberately kept in order to allow forfeiture of the money. Moreover, it is a

contract wherein 98.997% of the consideration was paid and little more than

1% consideration was left, purposely so that the large sums could be taken

out of the CD.

68. Ld. Counsel for the appellant and Respondent No. 2 vehemently

submits that there is a long gap between the initiation of CIRP against the

CD and the happening of the impugned transaction as the impugned

transaction has taken place in the year 2011 while the CIRP against the CD

was initiated on 16.07.2019 therefore at that time there may not be any

contemplation in the mind of the appellants that the company may go in

insolvency as otherwise also the CD was performing excellently in the year

2011.

69. We do not find any substance in the submissions made by Ld.

Counsel for the Respondent no. 2, for the reason that the legislature in its

wisdom consciously, has not provided any look back period for fraudulent

transactions and thus it would not be justified by this Tribunal to

Company Appeal (AT) (Ins) No. 1277 of 2024 30 of36 supplement the words in a statutory provision which has not been

deliberately enacted by the legislature. The legislature has intentionally

kept no look back period for fraudulent transactions and the time gap

between the transaction and CIRP, in our understanding is meaningless, if

the transaction appears to be fraudulent. Once a transaction has been held

to a fraudulent transaction there is no limitation to look back if the other

ingredients of Section 66 (1) of the Code are satisfied.

70. We are of considered view that the impugned transaction is a

fraudulent transaction entered into by the appellants with respondent No.2

to take funds out of the CD, fraudulently. We are also of the view that if the

transaction has been found fraudulent the same could not be exonerated on

technical issues or minor irregularities committed by the adjudicating

authority.

71. The other submission of the Ld. Counsel for the Respondent No. 2, is

with regard to the fact that the NCLT in any case cannot declared a

document void or set aside the same as that power is only possessed by a

Civil Court and therefore the impugned order passed by Ld. NCLT is bad on

this score. Reliance has been placed by Ld. Counsel on Gluckrich Capital

Pvt. Ltd. (supra) and Shrimati Sudeepanath (Supra) the Judgments passed

by Hon'ble Supreme Court and Hon'ble High Court of Tripura, respectively.

72. In Gluckrich Capital Pvt. Ltd. (supra) the Hon'ble Supreme Court

was dealing with IA which was moved for clarification of judgment/order

dated 24.02.2023, and the order dated 24.02.2023 was passed in a criminal

matter and application of the appellant was dismissed as he was not having

any locus. An application was moved to clarify that judgment to the effect

Company Appeal (AT) (Ins) No. 1277 of 2024 31 of36 that it shall not come in the way of the applicant persuading the RP to

consider initiation of proceedings for recovery under Section 66 of the IBC

against the persons who appears to be responsible for fraudulent affairs of

the CD and in this scenario the Hon'ble Supreme Court has considered the

judgment of the Tripura High Court in Sudipa Nath (supra) and concluded

that it is for the Resolution Professional or SRA to take such civil remedies

against third party. This case is not relevant so far as the facts of this case

are concerned.

73. This appellate tribunal in Sangeeta Jatinder Mehta & Anr. v.

Kailash Shah RP of New Empire Textile Processor Pvt. Ltd., Company

Appeal (AT) (Insolvency) No.104 of 2024 relied on also by Ld counsel for

the appellant held as under:

"9. The judgment of Tripura High Court in Smt. Sudipa Nath (supra) has been relied by the Appellant. In paragraph 19 of the judgment, following was laid down:

"(19) Therefore, in legislature wisdom and as apparent from the text of 66(1) it is clear that firstly it confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful. Secondly section 66(1) contemplates an application thereunder only by the resolution professional and by none other. Thirdly section 66 (1) also restricts the power of NCLT subject to being satisfy with pre-requisite that any business of the corporate debtor has been carried on with intent to defraud creditors or the corporate debtors or for any fraudulent purpose and if satisfied it powers to pass an order is only against such person who are responsible for the conduct of such fraudulent business of the corporate debtor with mens rea to make them personally liable to make such contributions to the assets of the corporate debtor as it may deem fit."

12. The present is a case where Adjudicating Authority has also held that payments of consultancy charges to the Appellants is fraudulent and in exercise of power under Section 66(1) has directed the said contribution void. We, Company Appeal (AT) (Ins) No. 1277 of 2024 32 of36 however, relying on the judgment of Tripura High Court in Smt. Sudipa Nath agree with the submission of the Appellant that Adjudicating Authority could not have declared the Sale Deed in favour of the Appellants dated 21.08.2017, as void. As observed above, the Sale Deed was obtained by the Appellants of two Flats by payment of consideration of Rs.69,00,000/- each, out of which Rs.55,20,000/- was obtained by loans, and the Lenders, transferred the said amount in the account of the CD and loans having been taken by the Appellants, the Appellants are still discharging the liabilities of the loans. We, thus, are of the view that sale transaction in favour of the Appellants could not have been declared void."

74. Hon'ble High Court of Tripura in Smt. Sudipa Nath V Union of India

and others, (2023) 237 Comp Cas 458: 2023 SCC OnLine Tri 79: (2023)

173 CLA 45: AIR 2023 Trip 38, another case relied on by Ld. counsel for

appellants, held as under:

"19. Therefore, in Legislature wisdom and as apparent from the text of section 66(1) it is clear that firstly it confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on the NCLT to fix the liabilities on the persons responsible for conducting business of the corporate debtor which is fraudulent or wrongful. Secondly section 66(1) contemplates an application thereunder only by the resolution professional and by none other. Thirdly section 66(1) also restricts the power of the NCLT subject to being satisfy with pre- requisite that any business of the corporate debtor has been carried on with intent to defraud creditors or the corporate debtors or for any fraudulent purpose and if satisfied it powers to pass an order is only against such person who are responsible for the conduct of such fraudulent business of the corporate debtor with mens rea to make them personally liable to make such contributions to the assets of the corporate debtor as it may deem fit."

75. It is held by Hon'ble Supreme Court in Prem Singh & Others vs

Birbal & others, (2006) 5 SCC 353 in para no. 16 of the report that

"16. When a document is valid, no question arises of its cancellation.

When a document is void ab Initio, a decree for setting aside the same would not be necessary as the

Company Appeal (AT) (Ins) No. 1277 of 2024 33 of36 same is non est in the eyes of law, as it would be a nullity."

(Emphasis Ours)

76. Hon'ble Supreme Court of India in Shailja Krishna vs Satori Global

Ltd. and Others, 2025 SCC Online SC 1889, while considering the dispute

under sections 397 and 398 of the Companies Act, 1956 framed following

issues: -

"23. Having heard the parties and on consideration of the materials on record, the following points arise for determination:

(a) Whether the company petition, decided in favour of the appellant by the National Company Law Tribunal, was maintainable under sections 397 and 398 of the Companies Act, 1956?

(b) Assuming that the company petition was maintainable, whether the National Company Law Tribunal had jurisdiction to decide whether the gift deed is valid or not?

(c) If the answer to the above question is in the affirmative, were the facts on record and the law such as to support the finding of the National Company Law Tribunal that the gift deed is invalid?

(d) Whether the appellant was able to prove that she has been a victim of mismanagement and oppression by the directors of the company? Analysis maintainability".

(Emphasis Ours)

77. Point no. 3, mentioned above, is relevant for our consideration and the

same has been answered by the Hon'ble Supreme Court, in paragraph no.

30 and 31 as under: -

"30. The aforesaid decisions confirm the view that the National Company Law Tribunal/Company Law Board possess a wide jurisdiction to decide all such matters that are incidental and/or integral to the complaint alleging oppression and mismanagement. Such power is, however, subject to any other legislative enactment specifically

Company Appeal (AT) (Ins) No. 1277 of 2024 34 of36 debarring the National Company Law Tribunal/Company Law Board from exercising its powers in this respect.

31. In the instant case, it is an admitted fact that the determination of whether the gift deed is valid or not is central to the decision herein and, therefore, the National Company Law Tribunal did have full jurisdiction to decide whether the gift deed is valid or not, or whether it is against the provisions of the Companies Act, 1956 and/or internal regulations of the company, including but not limited to the articles of association and the memorandum of association."

(Emphasis Our)

78. In the case at hand also the validity of the MOU, alleged to have been

executed between appellant and respondent no.2, was at the core of the

issue and thus in the back ground of the above mentioned precedents it

is/was well within the jurisdiction of the Ld. NCLT to consider this

document with regard to gauge its validity and when it has been found

fraudulent and void ab initio, it is non-est in the eyes of Law and may be

ignored, as there was no need to get the same cancelled by any competent

Civil Court and in our considered view the same has been rightly ignored by

the Ld. Adjudicating Authority. Therefore, no illegality appears to have been

committed by Ld. NCLT on this score.

79. It is also to be recalled that fraudulent transactions may not be

validated because certain minor procedural mistake has been committed by

the Tribunal because of their far reaching consequences, not only on the

Corporate debtor or entities connected there with but also on the national

economy. We are of the considered view that a document which is per se

fraudulent and void ab initio even without being declared as void may be

ignored by a court, even if it not having jurisdiction to declare it void or

Company Appeal (AT) (Ins) No. 1277 of 2024 35 of36 cancel it. The fraud vitiates the whole transaction or a document in totality.

The same principle may not be applicable to 'voidable' documents for which

a declaration would be necessary from the competent court. After all there is

clear cut distinction between the treatment which may be given to voidable

and void ab initio documents.

80. Keeping in view all the facts and circumstances of this case, we are of

the considered view that no illegality has been committed by the Ld.

Tribunal in holding the impugned transaction as fraudulent and also in

directing the appellants to contribute Rs. 36,53,00,000/- to the assets of the

CD. We, thus do not find any good ground to interfere in the impugned

judgment. In result the appeal preferred by the appellants lacks merit and is

dismissed as such.

81. There is no order for costs.

82. IA's if any are disposed of accordingly and if there is any interim order

passed by us the same is also vacated.

[Justice Mohd. Faiz Alam Khan] Member (Judicial)

[Naresh Salecha] Member (Technical)

New Delhi.

21.11.2025.

sr

Company Appeal (AT) (Ins) No. 1277 of 2024 36 of36