Sale of Land by Suspended Director to Defeat Rights of Other Creditors Was Avoidable Transaction Hit By Sec. 43 | NCLT

Case Details: Amazon Enterprises (P.) Ltd., In re - [2023] 156 taxmann.com 544 (NCLT - Hyd.)

Judiciary and Counsel Details

• • Rajeev Bhardwaj, Judicial Member & Sanjay Puri, Technical Member
  • Ram Murthy Kommera for the For the Applicant.

Facts of the Case

In the instant case, CIRP was initiated against the corporate debtor by NCLT and, the applicant was appointed as a RP. During CIRP, the applicant came to know that the R1-suspended director of the corporate debtor raised a loan at an exorbitant rate of interest from R3-GPA holder, which was 5 % per month i.e., 60 % per annum and, R3 as GPA of R1 sold the land for a sale consideration of Rs.3,60 lakhs in favour of R4.

In order to assess the market value of the property sold to R4, RP appointed two mechanical valuers and financial valuers. However till date they had not submitted their reports and, the applicant and financial valuer-auditors had not been given access by R1 to relevant documents despite many requests.

The RP on basis of suppression of material documents, filed an application before NCLT within ambit of sections 43, 45 and 50 for setting aside Sale Deed.

NCLT Held

The NCLT noted that in sale deed, total sale consideration for land was claimed to be undervalued. It was further noted that all respondents except R1 had not turned up to explain their position and even nobody represented R1 after the filing of reply which was also not supported by any documentary proof.

It was held that when R1 had taken a plea of taking loan at a particular rate of interest from R3, terms and conditions of the transaction were to be proved by R1 or R3 or R4 as they had knowledge of taking a loan and its disbursement.

Further it the NCLT observed that when R1 had failed to place documents, it showed the intention of the corporate debtor to give undue advantage to R3 and, thus, sale-cum-GPA was executed just to defeat the rights of other creditors so that R3 could be put in a beneficiary position and, therefore, said the transaction was avoidable transaction hit by section 43. Therefore, Sale Deed dated 18-9-2018 was canceled and the property in question would vest back in R1 and, it would be part of the corporate debtor’s asset in CIRP.