NCLAT Declares Transactions Fraudulent U/S 66 Of IBC Due To Corporate Debtor's Failure To Diligently Negotiate One-Sided Clause In MOU
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member), Justice Mohammad Faiz Alam Khan (Judicial Member), and Mr. Naresh Salecha (Technical Member), allowed an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, and set aside the order passed by the NCLT Mumbai Bench-I dated 02.04.2024. The Appellate Tribunal held that a corporate debtor’s blind acceptance of an unbalanced forfeiture clause, without any effort to renegotiate or protect its interests, amounted to a fraudulent transaction under Section 66 of the Code.
Background of the Case
The appeal was filed by Vistra ITCL (India) Ltd., Pratiti Trading Pvt. Ltd., and Gajendra Investment Ltd., who are financial creditors of the corporate debtor—Satra Properties (India) Ltd. They challenged the NCLT’s partial rejection of an application filed by the Resolution Professional under Section 66 of the Code. The application had sought directions for refund of ₹29.35 crore and ₹3.24 crore from Respondent Nos. 7 and 8 respectively, on the ground that these amounts were siphoned off through fraudulent transactions by the suspended management.
CIRP against the Corporate Debtor was initiated on 03.08.2020. In the course of the process, the Resolution Professional appointed M/s BDO India LLP as the forensic auditor with approval of the Committee of Creditors. The audit report dated 15.11.2021 identified four potentially fraudulent transactions, out of which two involving Respondent Nos. 7 and 8 were not accepted by the Adjudicating Authority.
Arguments Advanced
It was contended that ₹29.35 crore was paid to Dev Land & Housing Pvt. Ltd. (Respondent No. 7) between August 2015 and March 2016 under an MoU dated 18.08.2015 for the purchase of a property. However, no property was ever transferred, and the entire amount was written off on 31.03.2020—just a few months before the CIRP admission. The MoU was printed on a ₹100 stamp paper, was unregistered, lacked notarisation, and crucially, did not include a payment schedule. Further, the MoU was not signed by Mr. Praful Satra, the suspended director, raising suspicion about its authenticity.
Clause 9 of the MoU gave absolute discretion to the seller to forfeit the entire amount without giving the Corporate Debtor any right to seek legal redress or claim ownership of the property. The appellants argued that such a clause, devoid of mutuality, was entirely one-sided and lacked commercial logic. They also pointed out that no Board Resolution was passed authorising either the payment or the cancellation of the transaction. The cancellation deed dated 20.03.2020, which justified the forfeiture, was also unregistered and allegedly fabricated—executed on a stamp paper dated 2019 and unsigned by the suspended director.
Regarding the ₹3.24 crore transaction with C. Bhansali Developers Pvt. Ltd. (Respondent No. 8), it was submitted that the amount was originally shown as a loan on which interest was received. However, the entry was later reversed with a vague note referring to it as “excess interest” without any supporting documentation. Respondent No. 8 was a related party, and Mr. Praful Satra was also its director. The transaction was written off in March 2020, shortly before CIRP, raising red flags about its legitimacy.
The respondents, in their defence, submitted that the MoU was standard in the real estate sector and that registration was not mandatory for such preliminary agreements. They claimed the forfeiture clause was mutually agreed, and the write-off was a legitimate accounting adjustment. They also challenged the maintainability of the appeal on the ground that the appellants represented only around 30% of the CoC and had no authority from the entire CoC.
Findings of the Appellate Tribunal
The Tribunal meticulously examined the terms of the MoU and found several indicators of mala fide intent:
The MoU lacked a payment schedule, was not notarised or registered, and was executed on a mere ₹100 stamp paper despite involving a ₹75 crore transaction.
Clause 9 granted complete and unilateral forfeiture rights to Respondent No. 7 while barring the Corporate Debtor from initiating any legal proceedings or claiming rights over the property.
Despite paying ₹29.35 crore—nearly 40% of the total consideration—the Corporate Debtor made no effort to renegotiate the terms, seek an extension, or safeguard its interests during financial distress.
The Deed of Cancellation was executed without any Board Resolution and was unsigned by the suspended director, further casting doubt on the genuineness of the documents.
The stamp paper used for the cancellation deed was dated 2019, whereas the deed bore the date 20.03.2020, during the peak of the COVID-19 pandemic.
The Tribunal observed that these factors, taken together, reflected a complete surrender by the Corporate Debtor and a failure to exercise due diligence. The conduct amounted to reckless indifference towards the interests of the creditors. Referring to Section 66 of the IBC, the Tribunal noted that the provision does not prescribe any look-back period but imposes an obligation on directors to act prudently and in good faith.
Regarding the ₹3.24 crore transaction with Respondent No. 8, the Tribunal noted that the accounting entry described the amount as “interest on loan” and that it was later reversed without any supporting documents. The Adjudicating Authority had treated the amount as an investment, but the Appellate Tribunal held that such a conclusion was unsupported by the record. The respondent was a related party, and the absence of due process indicated breach of fiduciary duty.
Holding that both transactions were fraudulent in nature and designed to benefit related parties at the expense of the Corporate Debtor’s creditors, the NCLAT allowed the appeal and set aside the order of the Adjudicating Authority. The application filed by the Resolution Professional under Section 66 of the IBC was revived for further action, and the matter was remanded back to the NCLT for fresh consideration. The Tribunal emphasised that such conduct clearly fell within the mischief sought to be addressed under Section 66 of the Code.
Appearance
For Appellants: Mr. Vaibhav Gaggar, Sr. Advocate along with Mr. Devashish Chauhan, Ms. Madhura MN & Ms. Jasleen Singh Sandha, Advocates.
For Respondents: Ms. Neha Agarwal, Mr. Pulkit Sharma & Ms. Vanshika Mittal, for R-1, Mr. Malak Bhatt, Ms. Neeha Nagpal & Mr. Shreyansh Chopra, for R-2 to 6, Mr. Aayush Agarwala & Mr. Prakash Jha, for R-7, Mr. Zeeshan Hashmi, for R-8.
Cause Title: Vistra ITCL (India) Limited and Ors. V. Satra Properties (India) Ltd. and Ors.
Case No: Comp. App. (AT) (Ins) No. 1043 of 2024 & I.A. No. 3794 of 2024
Coram: Justice Rakesh Kumar Jain [Judicial Member], Justice Mohammad Faiz Alam Khan [Judicial Member], Mr. Naresh Salecha [Technical Member]
