NCLT Clarifies Requirements For Proving Fraudulent Transactions Under Section 66 Of IBC

NCLT Clarifies Requirements For Proving Fraudulent Transactions Under Section 66 Of IBC

Introduction

The National Company Law Tribunal (NCLT) Hyderabad Bench has considered an application filed under Section 66 of the Insolvency and Bankruptcy Code (IBC), alleging fraudulent transactions by the Corporate Debtor, Tirumala Hills Asphalt Pvt. Ltd.

Factual Background

The Applicant alleged that certain transactions were carried out with the intent to defraud creditors. The Respondent argued that the application was not maintainable due to non-compliance with the timelines specified in Regulation 35A of the CIRP Regulations, 2016.

Procedural Background

The Tribunal considered the maintainability of the application and the merits of the allegations of fraudulent transactions. The Tribunal relied on judgments of NCLAT and Supreme Court to determine the requirements for establishing a case under Section 66 of the IBC.

Issues Involved

1. Timelines for Filing Application: Whether the timelines specified in Regulation 35A of the CIRP Regulations, 2016 are mandatory or directory.

2. Fraudulent Transactions: Whether the Applicant has provided sufficient evidence to establish a case under Section 66 of the IBC.

Contentions of the Parties

Applicant's Contentions: The Applicant argued that the Respondents had carried out transactions with the intent to defraud creditors and that the application was maintainable despite non-compliance with the timelines.

Respondent's Contentions: The Respondents contended that the application was not maintainable due to non-compliance with the timelines and that the Applicant had not provided sufficient evidence to establish a case under Section 66.

Reasoning and Analysis

The Tribunal considered the judgments of NCLAT and Supreme Court, concluding as follows:-

• Timelines are Directory: The timelines specified in Regulation 35A are directory and not mandatory, and the Tribunal can consider applications filed beyond the specified timelines if there are sufficient and legitimate reasons.
• Requirements for Section 66: To establish a case under Section 66, the Applicant must demonstrate that the business of the Corporate Debtor was carried on with the intent to defraud creditors, and provide tangible evidence to substantiate the claim.

Final Decision

A bench of Justice Rajeev Bhardwaj and Technical Member Shri Sanjay Puri held that the Applicant must provide sufficient evidence to establish a case under Section 66 of the IBC and that the timelines specified in Regulation 35A are directory in nature.

Implications

This decision signifies the importance of providing sufficient evidence to establish a case under Section 66 of the IBC and the flexibility in applying the timelines specified in Regulation 35A. Furthermore, one can observe the need for parties to carefully consider the requirements for establishing fraudulent transactions.

In this case the applicant was represented by Mr. Adinarayana Babjikota, Advocate.