Sangeeta Jatinder Mehta & Anr vs Kailash Shah

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No.104 of 2024 (Arising out of Order dated 02.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench-I in IA No.430 of 2023 in C.P. (IB) No.1981/MB/2019)

IN THE MATTER OF: Sangeeta Jatinder Mehta & Anr. ...Appellants

Versus Kailash Shah RP of New Empire Textile Processor Pvt. Ltd. ...Respondent

Present: For Appellants : 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.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed by two Appellants challenging order

dated 02.01.2024 passed by National Company Law Tribunal, Mumbai

Bench-I in IA No.430 of 2023. By the impugned order, the Adjudicating

Authority has declared transfer of two Flats in favour of the Appellants

(Flat Nos.903 and 904 of Tirupati Apartment), void and subject to charge.

The Adjudicating Authority further directed that Appellants shall be

jointly liable to contribute to the assets of the Corporate Debtor ("CD") to

the extent of amount involved in satisfaction of charge, if any, created in

favour of the Lenders of Appellants (Respondent No.3 and 4 to the

Application). The Appellants aggrieved by this order has filed this Appeal.

Company Appeal (AT) (Ins.) No.104 of 2024 1

2. Brief facts necessary to be noticed for deciding the Appeal are:

i. New Empire Textile Processor Private Limited owned the Flat

Nos.903 and 904 in Tirupati Apartment, Thane (West). The

Flats were purchased by Registered Sale Deed dated 21.08.2017

for consideration of Rs.69,00,000/- for each flats. Both,

Appellant Nos.1 and 2 in order to purchase the Flats availed a

loan facility from Bharat Co-operative Bank, Mumbai of an

amount of Rs.55,20,000/-. The amount was sanctioned and

disbursed to the account of the CD. The loan installments along

with interest are being paid by the Appellants till date.

ii. The CD - New Empire Textile Processor Pvt. Ltd. was admitted

to Corporate Insolvency Resolution Process ("CIRP") on

26.08.2019. The Respondent - Kailash Shah was appointed as

Resolution Professional ("RP"). Another Company - Sangeeta

Tex Dyes Pvt. Ltd. was also admitted to CIRP on 29.01.2020.

iii. Shri Kailash Shah - RP of New Empire Textile Processor Pvt.

Ltd. filed an Application being IA No.822 of 2023 for treating the

preferential transaction with regard to an amount of

Rs.1,10,40,000/-. The Respondent claimed to be an unsecured

Financial Creditor of Sangeeta Tex Dyes Pvt. Ltd., which

Application was rejected on 18.07.2023. The RP filed

Application under Section 66 being IA No.430 of 2023 in the

CIRP of New Empire Textile Processor Pvt. Ltd. alleging that

transaction of sale of Flat Nos.903 and 904 are fraudulent

Company Appeal (AT) (Ins.) No.104 of 2024 2 transactions and relief under Section 66 be allowed. In the

Application, Appellant No.1 - Sangeeta Jatinder Mehta was

impleaded as Respondent No.3 and Appellant No.2 - Divyank

Jatinder Mehta was impleaded as Respondent No.4.

iv. The Adjudicating Authority allowed the Application by the

impugned order and issued direction under paragraphs 15 and

16. Aggrieved by which order, this Appeal has been filed.

3. Challenging the impugned order, learned Counsel for the Appellant

submits that the Flats were purchased after taking loan from the Lenders

and the loan amount of Rs.55,20,000/- out of consideration of

Rs.69,00,000/- was directly paid to the account of the CD and the loan

having been taken by the Appellants for purchase of the Flats, the

transaction cannot be said to be fraudulent. It is submitted that

Adjudicating Authority has expressed doubts with regard to consultancy

charges, which were adjusted towards the sale consideration and at best

the order could have been passed for contribution of the said consultancy

charges of Rs.13,74,000/- by Appellant No.1 and Rs.13,80,000/- by

Appellant No.2. The RP has filed claims in the CIRP of another CD, where

according to the RP the amounts received in the account of CD were

transferred to a Company, which was company of husband of Appellant

No.1 and father of Appellant No.2, in which RP failed to prove its claim.

Hence, after the RP having failed to prove its claim in the CIRP of another

Company, he belatedly filed the Application under Section 66. The

Appellants after purchase of the Flats are residing in the Flats since 2017.

Company Appeal (AT) (Ins.) No.104 of 2024 3 Learned Counsel for the Appellant has also placed reliance on the

judgment of Tripura High Court in Writ Petition (C) (PIL) No.04 of 2023

in the matter of Mrs. Sudipa Nath vs. Union of India and judgment of

the Hon'ble Supreme Court in the case of Gluckrich Capital Pvt. Ltd.

vs. The State of West Bengal in Miscellaneous Application No.1302

of 2023 in Special Leave Petition (Cr.) No.___ of 2023 (Diary No.6732 of

2023).

4. Learned Counsel for the Respondent refuting the submissions of the

Appellants contends that no sale consideration was received in the

account of the CD by transfer of Flat Nos.903 and 904. The loan amount

of Rs.55,20,000/- was transferred in to M/s Sangeeta Tex Dyes Pvt. Ltd.,

where husband of Appellant No.1 and father of Appellant No.2 is Director.

Further, consideration was adjusted towards the consultancy charges.

However, there is no material brought on record that what consultancy

was provided by the Appellant to the CD to claim any consultancy

charges. It is submitted that sale of Flats were void and Adjudicating

Authority had ample jurisdiction under Sections 66 and 67 to issue

appropriate directions. Learned Counsel for the Respondent relying on

Section 66 sub-section (1) submits that Adjudicating Authority may pass

an order that any person 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 CD. It is submitted that the Appellant should be

looked at with the lens of 'related party' and their actions should be

monitored with the same perspective. The claim rejection by the RP in

Sangeeta Tex Dyes Pvt. Ltd. has no bearing and it does not debar the RP

Company Appeal (AT) (Ins.) No.104 of 2024 4 to take action under Sections 66 and 67. Learned Counsel for the RP

relied on judgments of this Tribunal in Royal India Corporation Ltd. vs.

Mr. Nandkishore Visnupant Deshpande - Company Appeal (AT) (Ins.)

No.137 of 2021 decided on 06.05.2024 and Tridhaatu Kiriti

Developers LLP vs. Mr. Arihant Nenawati, Liquidator of Royal

Refinery Pvt. Ltd. - Company Appeal (AT) (Ins.) No.95 of 2021 decided

on 02.01.2023.

5. We have considered the submissions of learned Counsel for the

parties and perused the records.

6. The Application was filed by the RP under Section 66 of the IBC.

Section 66 provides as follows:

"66. Fraudulent trading or wrongful trading. -

(1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional 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.

(2) On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if-

(a) before the insolvency commencement date, such director or partner knew or ought to have known that the there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such corporate debtor; and

(b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the corporate debtor.

(3) Notwithstanding anything contained in this section, no application shall be filed by a resolution professional under sub-

Company Appeal (AT) (Ins.) No.104 of 2024 5 section (2), in respect of such default against which initiation of corporate insolvency resolution process is suspended as per section 10A.

Explanation. - For the purposes of this section a director or partner of the corporate debtor, as the case may be, shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carrying out the same functions as are carried out by such director or partner, as the case may be, in relation to the corporate debtor."

7. Section 66, sub-section (1) provides that if it is found that any

business of the Corporate Debtor has been carried on with intent to

defraud creditors of the corporate debtor or for any fraudulent purpose,

the Adjudicating 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. The sale of Flats

were made in favour of the Appellants on consideration. Both the

Appellants had also taken loan of Rs.55,20,000/- for payment and

consideration of which amount was transferred by the Bank in the

account of the CD. Loans were taken by the Appellants and the charge

was created on the assets. It is the case of the Appellants that Appellants

are paying the loan and liability to pay the loan was on the Appellants.

Learned Counsel for the Respondent has submitted that the amount after

receiving in the account of the CD was immediately transferred to a

Company - Sangeeta Tex Dyes Pvt. Ltd. in which husband of Appellant

No.1 and father of Appellant No.2 was Director. This cannot lead to a

conclusion that sale in favour of the Appellants of the Flats were

fraudulent. The sale was made and consideration amount was received in

the account of the CD and after receiving the amount, it was transferred.

Company Appeal (AT) (Ins.) No.104 of 2024 6 The Appellants deposited the earnest money and TDS of Rs.69,000/- was

also deposited on 21.08.2017. The balance amounts were paid in 2017,

2018 and 2019. The Adjudicating Authority has expressed doubts with

regard to consultancy charges, which have been paid to the Appellants by

the CD and have been credited towards payment of the balance

consideration. Learned Counsel for the Respondent has submitted that

no materials were brought on the record to indicate that any consultancy

was provided by the Appellants, hence, the payment towards the

consultancy charges to the Appellants were fraudulent transaction

entered into by the CD. Thus, the Adjudicating Authority in paragraph

14.4 has held that Respondent Nos.3 and 4 (Appellants herein) have not

pleaded in the reply what services were rendered by them to the CD to

earn such consultancy charges. Hence, to the extent of consultancy

charges of Rs.13,74,000/- to Appellant No.1 and Rs.13,80,000/- to

Appellant No.2, cannot be said to be a bona-fide transaction. In

paragraph 14.4, following findings have been returned by the

Adjudicating Authority:

"14.4. As regards payment of consultancy charges to Respondent No. 3 & 4 and purchases made from Respondent No. 5 & 6, the Applicant has not pleaded that no benefit accrued to the Corporate Debtor from these services or purchase of goods. The Applicant has simply pleaded that the consulting charges to Respondent No. 3 & 4 came to be paid after the transaction of sale of flats. To this extent, we can find substance of the Applicant that booking of such consultancy charges may have taken place merely to set off the balance consideration receivable from Respondent No. 3 & 4 as the payments made by the Corporate Debtor has come back to Corporate Debtor as payment towards part consideration of flat.

Company Appeal (AT) (Ins.) No.104 of 2024 7 The Respondent No. 3 & 4 have also not pleaded in the reply what services were rendered by them to the Corporate Debtor to earn such consultancy charges. Accordingly, to the extent of consultancy charges of Rs. 13,74,000/- to Mrs. Sangeeta Mehta i.e. Respondent No. 3 and Rs. 13,80,000/- to Mr. Divyank Jatinder Mehta i.e. Respondent No. 4 can not be said to be a bona-fide transaction.

8. The judgment, which has been relied by learned Counsel for the

Respondent in Royal India Corporation Ltd. (supra) of this Tribunal

supports the submission of Respondent that action under Section 66,

sub-section (1) can be taken against any person. The judgment of this

Tribunal in Tridhaatu Kirti Developers LLPi also supports the

submission of learned Counsel for the Respondent. We, thus, do not find

any error in the judgment of Adjudicating Authority insofar as it has held

that transaction of payment of consultancy charges to Appellant Nos.1

and 2 were not bona-fide transaction.

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

Company Appeal (AT) (Ins.) No.104 of 2024 8 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."

10. learned Counsel for the Appellants has also relied on the judgment

of Hon'ble Supreme Court in Gluckrich Capital Pvt. Ltd. (supra), which

proceedings arose out of interim order dated 30.11.2022 passed by Delhi

High Court in Criminal M.C. No.6408 of 2022 extending the transit

anticipatory bail granted to the Respondent, who were stated to be

Suspended Directors of CD. Vide judgment dated 24.02.2023, Special

Leave Petition (Criminal) filed by the Applicant was rejected holding that it

has no locus, it being neither the informant nor a party to the

proceedings. Subsequently, an Application for clarification was filed,

which ultimately was rejected. In paragraph-7 of the judgment, the

Hon'ble Supreme Court in Gluckrich Capital Pvt. Ltd. laid down

following:

"7. In our considered opinion, in the name of seeking a clarification, the endeavor of the applicant herein is to indirectly get over with the judgment and order dated 18.01.2023 in WP(C) (PIL) 04 of 2023 passed by Tripura High Court. Such an endeavor, in the guise of a clarification, cannot be permitted."

11. The Hon'ble Supreme Court also referring to the judgment of the

Tripura High in Smt. Sudipa Nath vs. Union of India & Ors., referred to

the judgment in the case of Usha Ananthasubramanian vs. Union of

India , which pertained to matter under Section 339(1) of the Companies

Company Appeal (AT) (Ins.) No.104 of 2024 9 Act, 2013, which has been noted in paragraph-8 and ultimately in

paragraph-10 the Hon'ble Supreme Court has rejected the Application

filed by the Applicant. The Hon'ble Supreme Court observed following in

paragraph-10:

"10. We are of the considered opinion that in such circumstances, it is for the Resolution Professional or the successful resolution applicant, as the case may be, to take such civil remedies against third party, for recovery of dues payable to corporate debtor, which may be available in law. The remedy against third party, however, is not available under Section 66 of IBC, and the civil remedies which may be available in law, are independent of the said Section."

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, 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.

Company Appeal (AT) (Ins.) No.104 of 2024 10

13. In result, we partly allow the Appeal and set-aside the direction of

the Adjudicating Authority in the impugned order, insofar as it declared

the transfer of Flats by CD in favour of the Appellants, void. We, however,

uphold the direction of the Adjudicating Authority with respect to

consultancy charges of Rs.13.74 lakhs with respect to Appellant No.1 and

Rs.13.80 lakhs with respect to Appellant No.2. We direct Appellant Nos.1

and 2 to deposit the aforesaid amount in the account of CD within a

period of 30 days from today. The impugned order of the Adjudicating

Authority dated 02.01.2024, is modified to the above extent. The Appeal

is partly allowed to the above extent. Parties shall bear there own costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

23rd April, 2025

Ashwani

Company Appeal (AT) (Ins.) No.104 of 2024 11