Case Note & Summary
The National Company Law Appellate Tribunal addressed two appeals arising from the same order of the National Company Law Tribunal, Mumbai, concerning allegations of fraudulent transactions under the Insolvency and Bankruptcy Code, 2016. The appellant FINVIN Investor Pvt. Ltd. challenged the rejection of their application under Section 43, 66, 67, and 70, while Orix Leasing and Financial Services India Ltd. contested findings against them. The core issue revolved around a Master Lease Agreement executed between Orix Leasing and the corporate debtor, JSK Marketing Ltd., which allegedly involved fraudulent activities to defraud creditors. The tribunal noted that Orix Leasing had financed equipment purchases and claimed substantial amounts due to defaults by the corporate debtor. The IRP's application highlighted missing assets and questioned the legitimacy of the transactions, suggesting they were designed to defraud creditors. The NCLT found that the transactions were fraudulent but ruled that recovery could not be ordered against Orix Leasing as a third party under Section 66, referencing the Supreme Court's precedent. The tribunal ultimately upheld the NCLT's decision, emphasizing the need for direct involvement in management for liability under Section 66, while also recognizing the assignment of claims to FINVIN, allowing them to pursue recovery actions. The appeals were dismissed, affirming the NCLT's findings and procedural rulings.
Headnote
A) Insolvency Law - Fraudulent Transactions - Liability of Third Parties - Insolvency and Bankruptcy Code, 2016, Section 66 - The court held that third parties cannot be held liable under Section 66 for fraudulent trading unless they are directly involved in the management of the corporate debtor. The application against the third party was deemed not maintainable as per the Supreme Court's ruling in Gluckrich Investment Private Limited vs. State of West Bengal (Paras 22-24). B) Insolvency Law - Preferential Transactions - Recovery of Amounts - Insolvency and Bankruptcy Code, 2016, Section 43 - The court found that the transaction did not fall within the ambit of Section 43, thus no recovery order could be passed against the third party, despite acknowledging the fraudulent nature of the transaction (Paras 22-24). C) Insolvency Law - Assignment of Claims - Standing of Assignee - Insolvency and Bankruptcy Code, 2016, Regulation 37A - The court recognized the assignment of claims to the appellant, allowing them to step into the shoes of the liquidator for pursuing claims against the corporate debtor (Paras 2-2).
Issue of Consideration
Whether the transactions under the Master Lease Agreement were fraudulent and if the third party can be held liable under Section 66 of the Insolvency and Bankruptcy Code, 2016.
Final Decision
The tribunal dismissed both appeals, upholding the NCLT's findings that the transactions were fraudulent but ruled that recovery could not be ordered against Orix Leasing as a third party under Section 66. The tribunal directed the Resolution Professional to ascertain the amounts paid under the Master Lease Agreement for recovery actions.
Law Points
- Insolvency and Bankruptcy Code
- 2016
- fraudulent trading
- wrongful trading
- preferential transactions
- assignment of claims
- corporate debtor
