NCLT can treat a Section 66 IBC application as a composite one under Sections 45 & 49 to reverse fraudulent undervalued transactions with related parties: NCLT Mumbai - 2025-09-07

NCLT Uncovers Collusion, Orders Reversal of Fraudulent Parking Space Transfer in Sharon Bio-Medicine Case

Mumbai, India – In a significant ruling, the National Company Law Tribunal (NCLT), Mumbai Bench, has declared the transfer of 20 valuable parking spaces from Sharon Bio-Medicine Ltd. to a related entity, Enki Life Science Ltd., as a fraudulent transaction intended to defraud creditors. The bench, comprising Hon’ble Members Shri Prabhat Kumar (Technical) and Shri Sushil Mahadeorao Kochey (Judicial), invoked its powers under the Insolvency and Bankruptcy Code (IBC) to reverse the transaction, directing that the parking spaces be returned to the corporate debtor or their market value be paid by the colluding directors and the beneficiary company.

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Background of the Case

The application was filed by Mr. Pulkit Gupta, the Resolution Professional (RP) for Sharon Bio-Medicine Ltd., which is undergoing a Corporate Insolvency Resolution Process (CIRP). The RP discovered that 20 parking spaces in Satra Plaza, Navi Mumbai, which were initially allotted to Sharon Bio-Medicine on January 31, 2012, were mysteriously cancelled and re-allotted just a week later, on February 7, 2012, to Sharon Bio-Tech Ltd. (now Enki Life Science Ltd.).

The RP alleged that this was a fraudulent act orchestrated by the common management of both companies to siphon assets away from Sharon Bio-Medicine and its creditors. Notably, these parking spaces had been offered as security to a consortium of lenders led by the State Bank of India (SBI) under a Master Restructuring Agreement in 2015, long after their purported cancellation. SBI was later substituted as the applicant in the case.

Arguments from Both Sides

Applicant's Stance (Resolution Professional/SBI):

- The transfer was a fraudulent transaction under Section 66 of the IBC, designed to benefit a related party.

- Sharon Bio-Medicine and Enki Life Science were deeply connected through common directors (Respondents 1-3), shared office spaces, and familial ties (a director of Enki is the sister of a director of Sharon Bio-Medicine).

- The cancellation and re-allotment letters dated February 7, 2012, were likely backdated, created to legitimize the fraudulent transfer.

- The Corporate Debtor’s directors were aware of the allotment when they offered the parking spaces as security to lenders in 2015, proving their fraudulent intent.

Respondents' Defense (Former Directors & Enki Life Science):

- The application was severely delayed, filed years after the CIRP began.

- The allotment was cancelled because Sharon Bio-Medicine failed to pay consideration for the parking spaces.

- An application under Section 66 of the IBC cannot be brought against third parties like Enki Life Science, citing the Supreme Court's decision in Gluckrich Capital Pvt. Ltd.

- The directors of Enki Life Science at the time of the legal proceedings were not involved in the 2012 transaction.

Tribunal's Analysis and Key Findings

The NCLT meticulously dissected the evidence and arguments, arriving at a conclusion of clear collusion and fraud.

1. Treatment as a Composite Application: While the application was filed under Section 66 (Fraudulent Trading), the NCLT noted that the relief sought—reversal of the transaction—was more aligned with Sections 45 (Undervalued Transactions) and 49 (Transactions to Defraud Creditors). Citing the Supreme Court's ruling in Piramal Capital , the Tribunal held it could treat the filing as a composite application and grant relief under the most appropriate section.

2. Finding of Fraudulent Intent: The Tribunal found the respondents' defense unconvincing. It highlighted several "telltale signs of fraud":

   • Related Party Relationship: The NCLT established that Enki Life Science was a related party to Sharon Bio-Medicine due to common directors and significant shareholding by one director.
   • Suspicious Timing: Two common directors resigned from Enki Life Science's board just weeks before the transaction, a move the Tribunal found suspicious.
   • Backdated Documents: The fact that the directors of Sharon Bio-Medicine offered the "cancelled" parking spaces as security to banks in 2015 strongly indicated that the 2012 cancellation letters were fabricated later. The Tribunal noted, "This further suggests that the Letter(s) dated 7.2.2012 are back dated communications, created to siphon the rights in Parking Space(s) vested in the Corporate Debtor."

3. Dismissal of Procedural Objections: The Tribunal dismissed the argument of delay, reaffirming the NCLAT's position that timelines for filing such applications are directory, not mandatory. It also distinguished the Gluckrich Capital case, noting that action could be taken against related parties who are not mere third parties.

Final Order and Implications

Based on its findings, the NCLT concluded that the transaction was deliberately structured to keep valuable assets beyond the reach of creditors, satisfying the conditions of Section 49 of the IBC.

The Tribunal ordered:

- The purported cancellation and re-allotment letters dated February 7, 2012, are to be set aside.

- The Satra Plaza Co-operative Society is directed to hand over exclusive possession and enjoyment of the 20 parking spaces to Sharon Bio-Medicine.

- In the alternative , if the parking spaces have been sold to third parties, the former directors (Respondents 1-3) and Enki Life Science Ltd. are directed to jointly and severally pay the fair market value of the parking spaces to the corporate debtor. The value is to be determined by a registered valuer appointed by SBI.

This judgment serves as a stern warning against the use of collusive arrangements and related-party transactions to defraud creditors and reinforces the NCLT's authority to look beyond the form of a transaction to uncover its true substance.