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NCLT Mumbai Directs Former Directors and Kyata Advisors to Pay ₹344.58 Crore for Fraudulent Diversion
In a significant ruling under the Insolvency and Bankruptcy Code (IBC), the has directed two former directors of and to contribute ₹344.58 crore to the assets of the . The order, delivered on by a bench comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar, found that a project loan from was fraudulently diverted to purchase equity shares instead of being used for the sanctioned real estate development.
Case Background: From Project Loan to Share Purchase
The corporate insolvency resolution process (CIRP) against Notion Real Estate commenced on . The appointed by the tribunal, , engaged forensic auditors to examine the company’s financial transactions. Their report, submitted on , revealed a troubling pattern: of the ₹359.99 crore disbursed by DHFL under a project loan agreement dated , an overwhelming ₹344.58 crore was transferred to Kyata Advisors (formerly ) within two days for the purported acquisition of equity shares of .
The loan, sanctioned for developing free sale area in Vile Parle, Mumbai, came with explicit conditions barring diversion of funds to third parties without prior written approval. Yet the — which had declared no operating revenue since incorporation — used almost the entire loan amount for an equity purchase that lacked , valuation reports, share purchase agreements, or any commercial justification.
Arguments and Analysis: A Classic Case of
The argued that the transactions fell squarely within Section 66 of the IBC, which addresses fraudulent and . The forensic report highlighted the complete absence of project-related expenditure — no amounts were spent on construction, material procurement, or mobilization. The only significant payments were the share purchase to Kyata, interest payments to DHFL, and nominal bank charges.
The respondents, despite service of notice, failed to appear before the tribunal and were proceeded against . This left the ’s allegations unrebutted.
In its legal analysis, the NCLT noted that the was used as a to channel DHFL loan proceeds to a group entity for purchasing shares of Darshan Developers — itself closely linked to DHFL and , which had assigned the development rights to the just three days before the loan disbursement. “It is a ,” the bench observed, pointing to the complicity of multiple entities.
Key Observations: Established
The tribunal made several pointed observations in its order:
“It is hereby declared that the diversion and utilisation of the loan amount sanctioned by DHFL for the specific purpose of development of the project, for purchase of equity shares, constituted the conduct falling within the ambit of under .”
The bench further noted that the had failed to produce any , , or . The transactions were “unsupported by agreements, lacking beneficial outcome and conducted without requisite approval,” clearly establishing an creditors.
“These facts clearly demonstrate that the complicity of DHFL in these transactions cannot lead to a conclusion that the said transaction was carried out with an Creditors of the in the Business affairs of the , however, it can certainly be said that these transactions were carried out in a Fraudulent Manner.”
The tribunal identified respondent nos. 3 and 4 — Vimal Mahavir Mishra and Satish Rajaram Pol — as the directors in charge at the time of the transactions, along with respondent no. 9, Kyata Advisors, as the recipient of the diverted funds.
The Final Decision: Recovery with 12% Interest
The NCLT allowed the ’s application under Section 66 and directed the three respondents to contribute ₹344.58 crore to the ’s assets. The amount must be deposited with the within 30 days, and will carry interest at 12% per annum from the date of disbursement until realization.
“The diversion of Funds for purchasing the Equity Shares of some Group Company which is nothing but a planned modus to by using as a ,” the bench wrote, characterizing it as “a classic case of .”
The tribunal refrained from passing orders against DHFL, noting that it is already undergoing its own CIRP. The has been directed to take all necessary steps for recovery and utilization of the amount in accordance with the IBC.
This ruling reinforces the tribunal’s willingness to pierce through complex corporate structures and hold directors and related entities accountable for under the guise of legitimate business transactions. It serves as a strong deterrent against the misuse of project finance and the exploitation of corporate vehicles for circular fund diversions.
