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The National Company Law Tribunal, Kolkata (“NCLT”), in its order dated May 30, 2022, in the matter of Star India Private Limited v. Advance Multisystem Broadband Communications Limited (I.A. No. 841/KB/2020) combined with Shri Kuldeep Verma, Resolution Professional of Advance Multisystem Broadband Communications Limited v. IndusInd Media and Communications Limited and Others (I.A. No. 1288/KB/2020) 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 Sections 45/46/47 (Avoidance of undervalued transactions and application by creditor in cases of undervalued transactions) and Section 66 (Fraudulent trading or wrongful trading) of the Insolvency and Bankruptcy Code, 2016 (“Code”).


Advance Multisystem Broadband Communications Limited (“AMBC/ Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) through an order of the NCLT dated September 30, 2019. Mr. Kuldeep Verma (“Applicant”) was appointed as the resolution professional. IndusInd Media and Communications Limited (“Respondent No. 1”) invested in AMBC through a Shareholder’s Agreement dated May 18, 2012 (“SHA”) and held 59.61% of the paid up and issued share capital of AMBC. The remaining percentage of the share capital was held by the operating shareholders (local cable operators). Respondent No. 1 sold its shareholding when the business of AMBC was transferred to a competitor in an allegedly fraudulent manner.

The Applicant filed an application under Section 60(5) (which empowers NCLT to dispose of the matters related to the insolvency concerning the corporate debtor) and Section 25(2)(j) (which empowers a resolution professional to file an application for avoidance of transactions in accordance with Chapter III, if any) of the Code against the Respondent No. 1 seeking imposition of vicarious liability, piercing of corporate veil, declaring the share transfer to be preferential, undervalued, fraudulent and void ab initio, directions for forensic audit of AMBC and the Respondent No. 1, and initiation of investigation for money laundering.


Whether the sale of its shareholding by the Respondent No. 1 is a preferential, fraudulent or avoidable transaction.


Contentions raised by the Applicant:

The Applicant submitted that AMBC had availed credit facilities from Allahabad Bank (“Bank”) vide sanction letter dated November 16, 2017 (“Letter”). The Letter mentioned a condition that the shares of AMBC cannot be transferred without the consent of the Bank. The Applicant contended that the Respondent No. 1 is a promoter and holding company of AMBC and by selling its shareholding, it has violated the terms and conditions of the Letter.

The core of Applicant’s contention was that the Respondent No. 1 has not provided any documents and has not cooperated with the Applicant while he was functioning in the capacity of a resolution professional. In addition to this, Respondent No. 1 has entered into vulnerable transactions like inter-se sale of the shares of AMBC, as preferential, undervalued and fraudulent, and that forensic audit of the so-called holding company and subsidiary company be directed to be held.

Contentions raised by the Respondent No. 1:

The Respondent No. 1 submitted that since the shares are not the property of the Corporate Debtor, therefore, there was no restriction on the sale of shares held by it in the Corporate Debtor. Consequently, the question of the transaction being preferential, undervalued or fraudulent does not arise. The Respondent No. 1 denied being the promoter of AMBC as it was never in control of the board of AMBC which could be proved from the annual returns and the SHA. The Respondent No. 1 submitted that the reason behind selling of its shares was the illegalities committed by the promoters and directors of the Corporate Debtor and that it had even filed a complaint before the Registrar of Companies against it.

The Respondent No. 1 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 the Respondent No. 1 was not subject to the conditions laid down in the Letter.

Observations of the NCLT

The NCLT observed that the Applicant himself was not sure whether the impugned transactions were wrong as alleged, since he sought for a forensic audit in the prayer. The NCLT was of the view that a resolution professional can file an application under Section 25(2)(j) of the Code only after being satisfied about the particular transaction being avoidable, fraudulent or undervalued. Similarly, in terms of Section 25(2)(d), it is 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 transaction being avoidable.

The NCLT relied upon the judgement of the Hon’ble Supreme Court in Anuj Jain v. Axis Bank Limited and Others [(2020) 8 SCC 401] (“Anuj Jain Case”), wherein it was held that the scheme of the Code, the parameters and the requisite enquiries as well as the consequences in relation to Sections 43, 45 and 66 of the Code are different and it is explicit in the provisions. Enquiry of an undervalued transaction is different than that of a preferential transaction and it is the responsibility of any resolution professional to fulfil the requirements set out in the applicable provisions before making an application. It was also held in the same case that “Specific material facts are required to be pleaded if a transaction is sought to be brought under the mischief sought to be remedied by Sections 45/46/47 or Section 66 of the Code. As noticed, the scope of enquiry in relation to the questions as to whether a transaction is of giving preference at a relevant time, is entirely different. Hence, it would be expected of any resolution professional to keep such requirements in view while making a motion to the Adjudicating Authority.”

The NCLT observed that the Applicant has not met the requirements set out in the Anuj Jain Case and a composite application has been made without conducting enquiry or setting out specific material facts for the transactions to be covered under Sections 45, 46, 47 and 66 of the Code. It was observed that the Applicant has vaguely asserted the facts and generalised the provisions of the Code against the Respondent No. 1.

Decision of the NCLT

The NCLT held that there was no illegal or fraudulent transaction done by the Respondent No. 1 stating that “When according to the Applicant himself there was no asset of the corporate debtor, and the company had gone into losses and was left with no debtors, the applicant should have performed his duties assigned to him in the Code instead of flogging a dead horse.”. The NCLT dismissed the composite application.

VA View:

This order of the NCLT, Kolkata is in consonance with the Code as well as the previous judgment of the Hon’ble Supreme Court in the Anuj Jain Case. The NCLT has rightly pointed out that when the resolution professional makes an application to declare a transaction as undervalued, preferential or fraudulent, he must comply with the requirements provided in the Code beforehand. It was held in the Anuj Jain case that the scope of enquiry in relation to the questions as to whether a transaction is preferential is entirely different from that of a transaction being undervalued and it would be expected of any resolution professional to keep such requirements, as provided in Sections 43 and 45 of the Code, in view while making a motion to the Adjudicating Authority.

The order reaffirms the authority of the Code and the importance of understanding the intent of the legislature. If it is required under the law that an enquiry by relevant experts has to be conducted and material facts have to be specified to cover the transactions under the relevant section, then it is the responsibility of the resolution professional to comply with the said requirements. In such cases, the resolution professional has to ensure that, in terms of procedure, the provisions of the Code and judicial precedents are being followed prior to the application being filed before the concerned Tribunal.

For any query, please write to Mr. Bomi Daruwala at [email protected]