Tracking Legal Developments.

Clean Hands Mandatory: Calcutta High Court Upholds Transfer Fee Demand for Resolution Applicant

In a significant ruling regarding the boundaries of the "clean slate" doctrine under the Insolvency and Bankruptcy Code (IBC), the Calcutta High Court has dismissed an appeal by S.S. Natural Resources Pvt Ltd, affirming the liability for transfer fees payable to the state industrial development body. The decision emphasizes that resolution applicants cannot bypass contractual obligations by misleading the court regarding the findings of judicial authorities.

The Genesis of the Dispute

The conflict arose following the insolvency proceedings of Ramsarup Industries Ltd (RIL). Upon the approval of a resolution plan submitted by S.S. Natural Resources, the successful resolution applicant sought to acquire leasehold land in Kharagpur, currently managed by the West Bengal Industrial Development Corporation Limited (WBIDC).

While the resolution plan included a clause seeking a waiver of all transfer fees and penalties associated with the land, the adjudicating authority—the National Company Law Tribunal (NCLT)—explicitly declined to approve this waiver. Instead, the NCLT left the matter open for determination by the appropriate authorities. Despite this, when the WBIDC issued a demand for a transfer fee of approximately Rs. 6.45 crore, the appellants challenged the demand in a writ petition, claiming the levy violated the "clean slate" principle promised under the IBC.

Misrepresentation of Judicial Findings

The High Court’s judgment, delivered by the bench of Justice Madhuresh Prasad and Justice Supratim Bhattacharya, focused heavily on the conduct of the petitioners. The Court found that the appellants had attempted to mislead the writ court by presenting their own submissions before the NCLAT as if they were official judicial observations.

By disguising their own arguments as court-held conclusions, the appellants sought to manufacture a legal narrative that the NCLAT had already declared the WBIDC claim as "barred by estoppel." The Court found this to be a deliberate and willful misrepresentation of material facts.

Legal Analysis

The Court addressed several core issues:

• The "Clean Hands" Doctrine: Citing precedents such as K.D. Sharma vs. Steel Authority of India Limited , the Court reiterated that the extraordinary equitable jurisdiction under Article 226 of the Constitution is reserved for those who approach the bench with complete transparency. Suppression of facts is, by itself, grounds for dismissal.
• Finality of the Resolution Plan: The Court clarified that since the NCLT had rejected the waiver clause and explicitly left the issue of transfer fees open, the principle of res judicata or finality meant the appellants could not use the writ jurisdiction to essentially "appeal" a decision they had already accepted through the IBC process.
• Distinction of Precedents: The appellants relied on previous cases to argue that shareholding changes do not constitute a transfer of assets. However, the Court distinguished the present matter, noting that the resolution plan itself specifically facilitated the transfer of leasehold interests, making the underlying policy of the state government applicable.

Key Observations

The judgment serves as a stern reminder of the rigors of legal proceedings. Key passages include:

> "Once it is found that a party has approached the extraordinary discretionary equitable writ jurisdiction by resorting to willful and deliberate suppression and misrepresentation of material facts, such party would not be entitled to any relief by the writ Court, and a writ petition is liable to be dismissed on this ground alone."

> "The rights and liabilities have to be considered with reference to the order of the NCLT and not with reference to any submissions advanced during pendency of the proceedings."

> "As noted above, the said clause has been approved by the NCLT in its order dated 04.09.2019. But the claim for exemption for payment... was not approved and it has been left open for determination by the appropriate authorities."

Conclusion and Future Implications

The Calcutta High Court dismissed the appeal and subsequently rejected the prayer for a stay. This judgment solidifies the stance that the "clean slate" concept in the IBC is not a catch-all waiver for all statutory or pre-existing contractual obligations, especially those subject to specific adjudication during the resolution process.

For resolution applicants, the ruling serves as a vital caution: the IBC process is not an opening to rewrite past contractual liabilities, and transparency remains the bedrock of seeking justice in higher courts. Parties seeking to challenge regulatory demands are now on notice that distorting the record of lower proceedings will result in the immediate rejection of their claims.