Asset Transfers After SARFAESI Notice Void, NCLAT Upholds Order Against Aaj Ka Anand Ex-Directors

The National Company Law Appellate Tribunal (NCLAT) at New Delhi on Friday held that agreements transferring a company's business after issuance of a bank recovery notice under the SARFAESI law are void and unenforceable.

A bench comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra upheld the order passed by the National Company Law Tribunal, Mumbai, which had cancelled a Leave and Licence Agreement and a Usage Deed executed by Aaj Ka Anand Papers Limited and directed its suspended directors to contribute Rs 2.6 crore for fraudulent trading.

It observed, “Even though the Adjudicating Authority could not have exercised power under Section 49 to cancel the Leave and License Agreement dated 30.06.2021 and Usage Deed dated 03.08.2021 but in view of the statutory provision of Section 13(13), restraining the Corporate Debtor from any transfer, by way of sale, lease or otherwise, any of the Secured Assets of the Corporate Debtor, which provision and restrain continues to operate, both the agreement dated 30.06.2021 and 03.08.2021 have to be treated as non-est and unenforceable.”

The dispute arose from loans taken by Aaj Ka Anand Papers Limited, a newspaper publisher, from State Bank of India. After defaults, SBI issued a demand notice in September 2017 under the SARFAESI Act. The notice expressly barred the company from selling, leasing or otherwise transferring secured assets without its consent. The bank later took possession of the secured assets. Insolvency proceedings were admitted in April 2021.

Soon after, the former promoters floated Aaj Ka Anand Publications LLP and executed a Leave and Licence Agreement and a Usage Deed in June and August 2021. They thus transferred the entire business, brand, plant and machinery to the LLP for Rs 15 lakh.

Before the appellate tribunal, the promoters argued that the application filed by the Resolution Professional was only under the provision dealing with fraudulent trading. They contended that there were no pleadings under the avoidance provisions and, therefore, the tribunal lacked the power to cancel the agreements. They also claimed that the arrangements were made to keep the business running and were not meant to harm creditors.

The tribunal rejected this defence after examining the sequence of events. It noted that the promoters resigned and inducted their wives and son as directors. It also noted that the LLP was constituted after the insolvency petition was filed and that the entire business was shifted to the LLP soon thereafter.

“Execution of Leave and License Agreement and the Usage Agreement, dated 30.06.2021 and 03.08.2021, respectively was with intent to defraud the creditors of the Corporate Debtor. The said course was adopted to keep the assets out of the reach of the creditors and vested in LLP, which was constituted on 12.05.2021 by two Ex-Directors who resigned.”, it observed.

The NCLAT also rejected the argument that contribution could not be ordered against the LLP. It clarified that liability was not fastened on an unrelated third party.

The tribunal observed, “The present is a case where direction for contribution has not been made against the third party. The Suspended Director as well as both the Members of LLP were also Directors of the Corporate Debtor and direction for contribution in the impugned order has been made against all Respondent Nos.1 to 6 to the application, individually or jointly. We, thus, do not find any error in direction of contribution on this account.”

Finding no error in the NCLT order, the appellate tribunal dismissed the appeals and allowed the cancellation of the agreements.