Transactions under Section 66 of the IBC must be demonstrably linked to fraudulent intent; absent credible evidence, related-party transactions can risk being deemed fraudulent.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 61 and Section 66 - Appeal against disallowance of application for refund of funds due to fraudulent transactions - Findings of forensic audit identified transactions as suspicious lacking commercial justification - Court found lack of credible documentation and unregistered agreements indicating fraudulent intent - (Paras 1, 8, 13, 41, 53)

(B) Definition of fraudulent transactions under IBC - Transactions must be established as performed with fraudulent intent, factoring examination of directors' conduct - (Paras 10, 51)

(C) Burden of proof regarding fraudulent intent - The Resolution Professional must substantiate claims with credible evidence, shifting the burden to Respondents if prima facie suspicion established - (Paras 12, 51)

Facts of the case:
The Appellants, as financial creditors, contested the Adjudicating Authority's order disallowing their application seeking refund of amounts on transactions deemed fraudulent. Specific transactions with Respondent Nos. 7 and 8 involved unregistered and unenforceable agreements lacking clear justification, allegedly executed to defraud creditors.

Findings of Court:
The Tribunal concluded that both contested transactions fell within the ambit of fraudulent actions under Section 66, reversing the lower court's order.

Issues: Key issues addressed included whether transactions constituted fraudulent activities under Section 66 and if Appellants retained locus standi in filing the appeal.

Ratio Decidendi: The Tribunal underscored the necessity of transparency in corporate transactions, emphasizing that unsubstantiated actions by directors leading to fiduciary breaches justified appellate intervention under IBC provisions.

Result: Appeal successful; the order of the Adjudicating Authority was set aside concerning the contested transactions.

Table of Content
1. challenging transactions under section 66 of the ibc. (Para 1 , 4 , 5 , 12)
2. examining the enforceability of the mou. (Para 6 , 10 , 22)
3. fraud allegations involving financial arrangements. (Para 7 , 8 , 9)
4. documentation requirements for valid financial transactions. (Para 11 , 14 , 36)
5. defining ordinary course of business transactions. (Para 18 , 19 , 20)
6. limitations on third-party liability under section 66. (Para 30 , 31 , 34)
7. court's evaluation of fraudulent intent in transactions. (Para 41 , 42 , 43 , 44)
8. restoration of petitions involving fraudulent transactions. (Para 50 , 51 , 53)

JUDGEMENT

(03 .07.2025)

NARESH SALECHA, MEMBER (TECHNICAL)

1. This appeal Company Appeal (AT) (Ins) No. 1043 of 2024 has been filed by the Appellants i.e. Financial Creditors of the Corporate Debtor, under Section 61 of the Insolvency and Bankruptcy Code, 2016 (“Code”), challenging the Impugned Order dated 02.04.2024 passed by the National Company Law Tribunal, Mumbai Bench-I (“Adjudicating Authority”) in I.A. 1626 of 2023 filed in C.P. (IB) No. 1632/MB/2019, wherein the Adjudicating Authority has disallowed the application of the Resolution Professional under Section 66 of the Code for refund of amount in respect of transactions entered into between the suspended management and Respondent No. 7 & 8 aggregating to Rs. 32,59,00,000/- alongwith interest.

2. Satra Properties (India) Ltd., which is the Corporate Debtor, is the Respondent No. 1 herein.

3. The Suspended Management (Respondents No. 2–6), M/s Dev Land & Housing Pvt. Ltd. (Respondent No. 7) and M/s C. Bhansali Developers Pvt. Ltd. (Respondent No. 8) are the other Respondents herein.

4. The Appellants submitted that the Corporate Insolvency Resolution Process (CIRP) was initiated against Respondent No. 1 (Corporate Debtor) on 03.08.2020 vide order in CP(IB) No. 1632/MB/2019. The Appellants contended that the Forensic Audit Report dated 15.11.2021 by M/s BDO India LLP commissioned by the erstwhile Resolution Professional, conclusively identified suspicious and fraudulent transactions involving the suspended management and third parties, including Respondents No. 7 and 8.

5. The Appellants submitted that the Resolution Professional based on his independent analysis and the Forensic Audit Report preferred an application being IA No. 1626/2023 in CP(IB) No. 1632/MB/2019 under section 66 of the Code seeking refund for compensation of loss suffered to the creditors of the Corporate Debtor in respect of four transactions. The Appellants contended that the Adjudicating Authority erred in disallowing the application in respect of transactions with Respondents No. 7 and 8, despite compelling evidence of fraud.

6. The Appellants further submitted that the lack of credible documentation or justification reinforces the fraudulent nature of the transactions.

7. The Appellants submitted that an advance of Rs. 29.35 Crore was paid by the Corporate Debtor to Respondent No. 7 between 10.08.2015 and 31.03.2016, purportedly for a property purchase, but was entirely written off on 31.03.2020. The Appellants contended that no evidence exists of any property being acquired, indicating that the advance was siphoned off in connivance with the suspended management to defraud creditors.

8. The Appellants submitted that the alleged Memorandum of Understanding (‘MoU’) dated 18.08.2015 is unenforceable and suspect, as it is printed on a Rs. 100 stamp paper, neither registered nor notarized, despite involving a property transaction valued at Rs. 75 Crore. The Appellants contended that the MoU’s forfeiture clause (Clause 9), allowing Respondent No. 7 to retain Rs. 29.35 Crore, is arbitrary and one-sided, designed to facilitate fraudulent transfer of funds. The Appellants further submitted that under Section 54 of the Transfer of Property Act, 1882, agreements for the sale of immovable property worth Rs. 100 or more must be registered, rendering the MoU legally deficient.

9. The Appellants submit

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