Preferential, Fraudulent Or Avoidable Transaction, Material Facts To Be Pleaded : NCLT Kolkata

The National Company Law Tribunal ("NCLT"), Kolkata Bench, comprising Mr. Rohit Kapoor (Judicial Member) and Mr. Harish Chander Suri (Technical Member), while adjudicating the matter of Star India Pvt. Ltd. v Advance Multisystem Broadband Communications Ltd., has held that a transaction cannot be alleged to be preferential, fraudulent or avoidable by the Resolution Professional, unless an enquiry has been conducted by the relevant experts and specific material facts have been stated as to why such transaction would be covered under Section 45, 46, 47 and 66 of the Insolvency and Bankruptcy Code, 2016 ("IBC"). The order was passed on 30.05.2022. Background Facts Advance Multisystem Broadband Communications Limited (AMBC/Corporate Debtor) was admitted into Corporate Insolvency Resolution Process ("CIRP") vide an order dated 30.09.2019 passed by NCLT Kolkata ("Adjudicating Authority"). Shri Kuldeep Verma ("Applicant/Resolution Professional") was appointed as Interim Resolution Professional and later confirmed as the Resolution Professional. Induslnd Media and Communications Limited (IMCL) through a Shareholder's Agreement dated 18.05.2012 had invested in AMBC, and consequently held 59.61% of the paid up and issued share capital of AMBC. The remaining 40.39% share capital was held by the operating shareholders (Local cable Operators). When the business of the Corporate Debtor was transferred to a competitor in an allegedly fraudulent manner, IMCL sold its shareholding. The Resolution Professional filed an application under Section 60(5) and Section 25(2)(j) of the IBC bearing I.A. No. 841 of 2020, against IMCL and others, seeking imposition of the vicarious liability on the IMCL; piercing of corporate veil of IMCL; declaring the share transfer by IMCL as preferential, undervalued, fraudulent and void ab intio; directions for forensic audit of the IMCL and the Corporate Debtor; and initiation of investigation for money laundering et al. In a previous progress report the Resolution Professional had submitted before the Adjudicating Authority that the Corporate Debtor does not have any assets apart from the shares which stood transferred by IMCL. Contentions Of The Applicant The Applicant/Resolution Professional submitted that the Corporate Debtor had availed credit facilities from Allahabad Bank and a Sanction Letter dated 16.11.2017 was accordingly issued. The Sanction Letter had a condition that the shares of the Corporate Debtor would not be transferred without the consent of the Bank. The Resolution Professional contended that IMCL is a promoter and holding company of the Corporate Debtor and IMCL had sold its shareholding in the Corporate Debtor, which violated the terms and conditions of the Sanction Letter. The Resolution Professional regarded the share transfer as preferential, undervalued and fraudulent. Contentions Of The Respondents IMCL submitted that there was no restriction on the sale of shares held by it in the Corporate Debtor, as those shares were not the property of the Corporate Debtor. Hence, there could be no question of transfer of property at undervalued, preferential or fraudulent manner. IMCL denied being the promoter of the Corporate Debtor as it was never in control or the Board of the Corporate Debtor, which was evident from the annual returns and the Share Subscription Agreement dated 18.05.2012. Also, IMCL itself had filed a complaint before the Registrar of Companies against the illegalities committed by the promoters and directors of the Corporate Debtor, which was the reason behind selling of shares. IMCL contended that shares are separate and distinct from the assets of the company, and transfer of shares cannot be construed as transfer of assets of the company. Therefore, the selling of shares held by IMCL were not subject to the conditions laid down in Sanction Letter dated 16.11.2017. Observations Of The Adjudicating Authority The Bench observed that Resolution Professional himself was not sure as to whether the transactions impugned were wrong as alleged, as he had sought a Forensic Audit in prayer. The Bench opined that Resolution Professional can file an application under Section 25(2) (j) of the IBC only after being satisfied about the particular transactions being avoidable, fraudulent or undervalued. It was incumbent upon the Resolution Professional to seek assistance of the Forensic Audit if so required, to engage the services of accountants, legal or other professionals with a view to satisfy himself about the transactions being avoidable. Without meeting the aforesaid requirements, the Resolution Professional could not have directly approached the Adjudicating Authority for the relief sought by him. Reliance was placed on the Supreme Court judgment in Anuj Jain v Axis Bank Limited and others, Civil Appeal Nos. 8512/2019, wherein it was held that: "As...

Preferential, Fraudulent Or Avoidable Transaction, Material Facts To Be Pleaded : NCLT Kolkata

Pallavi Mishra

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