NCLT Kochi: No Fraud in Sale of Corporate Debtor’s Property Without Proof of Security Interest
Pranav B Prem
The Kochi Bench of the National Company Law Tribunal (NCLT), comprising Shri Vinay Goel (Judicial Member) and Smt. Madhu Sinha (Technical Member), has held that the sale of a corporate debtor’s property to a bona fide purchaser cannot be treated as a fraudulent transaction merely because it was allegedly charged in favour of a party, without any documentary evidence to prove such a security interest. It emphasised that a slightly lower sale price does not, by itself, make a transaction fraudulent.
The application was filed under Section 66 of the Insolvency and Bankruptcy Code, 2016 (IBC), by the Resolution Professional (RP) of Greenlace Builders and Developers Private Limited, alleging that the corporate debtor had sold a secured asset under the exclusive charge of Respondent No. 3, rendering the sale deeds and transfers void. It was contended that the sale was meant to dissipate the assets of the corporate debtor.
Respondents’ Stand
The Respondents denied the allegations, stating that no charge or security interest existed in favour of any financial creditor, including Respondent No. 3, as per the records of the Registrar of Companies. Respondent No. 4 argued that it was not a “related party” under the IBC, making its inclusion in the proceedings misconceived. Respondents Nos. 5 and 6 submitted that the relief sought would result in duplication of sale consideration already paid, leading to unjust enrichment. Interestingly, Respondent No. 3 itself supported the RP’s request to declare the sale transactions fraudulent.
Tribunal’s Observations
The Tribunal found that there was no proof of an equitable mortgage through the deposit of title deeds. At most, the Inter Corporate Deposit (ICD) agreement created a negative lien, which did not amount to a valid legal charge. Referring to Narayanikutty vs. Kallyanikutty, it reiterated that unregistered instruments do not confer legal title. It also noted that the applicant failed to produce any evidence showing that the alleged charge had been registered with either the RoC or the central registry.
It further observed that the sale deeds in question reflected fair value and appropriate stamp duty. The mere fact that the sale price was marginally lower than market value was insufficient to categorise the transaction as fraudulent. While fraudulent and undervalued transactions are covered under separate provisions of the IBC, the application was filed solely under Section 66, and no fraudulent intent was established.
Look-back Period and Classification Error
The Tribunal highlighted that the transactions occurred before the commencement of the Corporate Insolvency Resolution Process (CIRP) and beyond the two-year look-back period. While such transactions could still be examined under Section 66 if fraudulent, the applicant had failed to substantiate such a claim with documentary proof. It also noted that the RP had wrongly classified Respondent No. 3 as a secured financial creditor despite the absence of a valid security interest.
Accepting the submissions of Respondents 4 to 7, the NCLT dismissed the application, holding that the sale transactions were fair and valid, and that the applicant had failed to prove the creation of any security interest in favour of Respondent No. 3 or establish any fraudulent intent.
Appearance
For the Applicant: Mr. Akhil Suresh, Advocate
For the Respondent Nos. 1 to 2: Mr. Rohan Kumar, Advocate
For the Respondent Nos. 3: Mr. Vinod P V, Advocate
For the Respondents No. 4 & 5: Mr. Sankar P Panicker, Advocate
For the Respondents No. 6 & 7: Mr. Zibi Jose, PCS
Cause Title: M/s. Greenlace Builders and Developers Private Limited V. Mr. Kakkanatil Siraj Mather Abdul Rahiman
Case No: IA(IBC)/219/KOB/2024 IN CP(IB)/28/KOB/2023
Coram: Shri Vinay Goel [Judicial Member], Smt. Madhu Sinha [Technical Member]
