Third Parties Who Sold Land To Corporate Debtor Cannot Be Held Liable U/S 66 Of IBC: NCLT New Delhi

The National Company Law Tribunal (NCLT), New Delhi bench of Justice Ashok Kumar Bhardwaj (Judicial Member) and Anil Raj Chellan (Technical Member) has held that third parties who sold land to the Corporate Debtor cannot be said to fall within the ambit of expression “any persons who were knowingly parties to the carrying on the business of the Corporate Debtor” as used in Section 66 of the Insolvency and Bankruptcy Code, 2016 (“Code”). It observed that an application under the Section may be maintainable against the persons who were responsible for the management of the Corporate Debtor. Background Facts On 17.02.2019, the Tribunal initiated the Corporate Insolvency Resolution Process (“CIRP”) against M/s Three C Universal Developers Private Limited (“Corporate Debtor”). The Respondent/ RP filed I.A. No. 3054/ 2021 under Section 66 of the Code against the Suspended Management and promoters of the Corporate Debtor and also made Applicants parties in the said Application. The Applicant filed the I.A. with the prayer to remove their names from the array of Respondents in the I.A. filed by the Resolution professional (“RP”). Contentions The Applicant contended that the I.A. No. 3054/ 2021 was not maintainable against the Applicants in view of the judgment of Supreme Court in Gluckrich Capital Pvt Ltd. vs. The State of West Bengal & Ors. which provides that Section 66 of the Code can only be invoked against persons who were responsible for the conduct of the business of the Corporate Debtor and not against third parties. It was submitted that the Applicants were neither responsible for the conduct of the business of the Corporate Debtor nor Partners/ Directors of the Corporate Debtor and thus, as third parties, no relief can be sought against them under Section 66. The Respondent/ RP contended that the Respondents defrauded the creditors of the Corporate Debtor to the tune of Rs. 66.7 crores by purchasing certain agricultural land parcels from the Respondents in I.A. No. 3054/2021 at exorbitant rates. The RP further contended that the judgment in Gluckrich Capital Pvt. Ltd. had been diluted by the NCLAT in Royal India Corporation Limited vs. Mr. Nandkishor Vishnupant Deshpande & Ors. wherein it has been held that an action under Section 66 can be taken against “any persons” for recovery of amount involved in the fraudulent transaction. Thus, it was contended that the Applicants were necessary parties to the I.A. No. 3054 of 2021 and could not be removed/deleted from the array of parties. Observations The issue before the Tribunal was whether the Applicants, who sold certain land parcels to the Corporate Debtor, allegedly at exorbitant prices, can be arrayed as Respondents in an application filed under Section 66 of the Code. The Tribunal referred to the judgment in Relan Buildwell Private Limited vs. Kaliber Associates, where the NCLT observed: “From a plain and simple reading of sub-section (1) of Section 66, it emerges that the satisfaction of the provision entails the following ingredients: - (i) Carrying of business; (ii) Intention to defraud the creditors of CD or for any fraudulent purpose; (iii) Any person who is knowingly party to carrying on the business with the intent to defraud creditors of the Corporate Debtor or for any other fraudulent purpose. […] 41. From the aforementioned discussion and analysis, it emerges that: - (i) Third Party may not be liable to make contribution to assets of the CD, under Section 66 of IBC, 2016, but when the Third-Party act like any person who are knowingly parties to the carrying on of the business of the CD with intent to defraud creditors of the CD or for any fraudulent purpose, it/ he may be liable to make such contribution to the assets of the CD, as it may deem fit.” The Tribunal held that third persons who sold their land to the Corporate Debtor cannot be said to fall within the ambit of expression “any persons who were knowingly parties to the carrying on the business of the Corporate Debtor” as used in Section 66 of the Code. It observed that an application under the Section may be maintainable against the persons responsible for managing the Corporate Debtor. The Tribunal rejected the contention of the RP that Royal India Corporation Limited had diluted the law as laid down by the Supreme Court in Gluckrich Capital. The Tribunal held that the law laid down by the Supreme Court cannot be diluted by a lower court/ tribunal. The Tribunal observed that even in Royal India Corporation Limited, the NCLAT had noted that the Corporate Debtor therein as well as the Appellant Company against which action under Section 66 was being taken were being managed by the same person and therefore, the Appellant Company was held not to be a “third party”. The Tribunal noted that the RP raised no such plea that the Applicants were in any way in control of...

Third Parties Who Sold Land To Corporate Debtor Cannot Be Held Liable U/S 66 Of IBC: NCLT New Delhi

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Third Parties Who Sold Land To Corporate Debtor Cannot Be Held Liable U/S 66 Of IBC: NCLT New Delhi

Tazeen Ahmed

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