NCLT New Delhi: Corporate Debtor Cannot Evade Liability By Transferring Debt To Holding Company
Pranav B Prem
The National Company Law Tribunal (NCLT), New Delhi Bench, comprising Shri Manni Sankariah Shanmugha Sundaram (Member-Judicial) and Shri Atul Chaturvedi (Member-Technical), has held that merely entering into internal arrangements between group companies cannot absolve a corporate debtor of its obligation towards third-party creditors. The Tribunal made this observation while admitting a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, against M/s Al Dua Food Processing Pvt. Ltd.
In the present case, the operational creditor, M/s Ashu Agencies, engaged in the trade of Kraft paper reels, supplied goods to the corporate debtor against oral purchase orders. The total consideration amounted to ₹5 crores, out of which ₹2.48 crores remained unpaid. Despite repeated demands, the corporate debtor failed to clear the dues, prompting the operational creditor to issue a demand notice under Section 8 of the IBC and later file a CIRP petition under Section 9.
The corporate debtor, however, contended that the liability had been transferred to its erstwhile holding company, M.K. Overseas Pvt. Ltd., pursuant to a share purchase agreement executed in 2018, and that the operational creditor had consented to such transfer through a letter dated June 30, 2018. It was also claimed that after the transfer of shareholding, the liability to repay the outstanding dues no longer rested with the corporate debtor but with its holding company, now under insolvency proceedings.
Rejecting this contention, the Bench observed that the corporate debtor’s argument regarding the transfer of liability itself amounts to an admission of debt. It held that there was no valid tripartite agreement releasing the corporate debtor from its liability and that the so-called “consent letter” was disputed and unsupported by evidence. The Tribunal emphasized that internal arrangements between related entities cannot override obligations owed to independent creditors.
The Bench further found that the corporate debtor, in connivance with its holding company, had devised the arrangement with a fraudulent intent to defeat legitimate creditor claims. It noted that while assets and receivables were transferred to the new management, the liabilities were shifted to M.K. Overseas Pvt. Ltd., which was already facing liquidation. The Tribunal described this as a “sham and collusive transaction” designed to defraud creditors and observed that the directors of both entities could be proceeded against under relevant criminal provisions.
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Finding that the operational creditor had established the existence of a valid operational debt and default, the NCLT admitted the Section 9 petition and initiated the Corporate Insolvency Resolution Process (CIRP) against M/s Al Dua Food Processing Pvt. Ltd. Mr. Pawan Kumar Goyal was appointed as the Interim Resolution Professional (IRP), and a moratorium under Section 14 of the IBC was declared, prohibiting any suits, recoveries, or enforcement actions against the corporate debtor.
Appearance
For Applicant: Mr. Abhinav Prakash, Mr. Himanshu Singh, Advs.
For Respondent: Mr. S. A. Saud, Mr. Mohd. Shohib, Advs.
Cause Title: Ashu Agencies Vs. Al-Dua Food Processing Pvt. Ltd.
Case No: I.A. NO. 5208 OF 2024 & Restored Company Petition (IBC) /15/ND/2024 (Old Case C.P. (IB)/2405/ND/2019)
Coram: Shri Manni Sankariah Shanmugha Sundaram (Member-Judicial), Shri Atul Chaturvedi (Member-Technical)
