JSA successfully represented Mr. Bhrugesh Amin (“RP”), Resolution Professional of Smaaash Entertainment Private Limited (“Corporate Debtor”), before the Hon’ble National Company Law Tribunal, Mumbai (“NCLT”), in obtaining an order of fraudulent and wrongful trading under the Insolvency and Bankruptcy Code, 2016 (“IBC”).
The application was filed against a transaction wherein the suspended directors of the Corporate Debtor sold fixed assets of the Corporate Debtor to its alter-ego Fun Gateway Arena Private Limited (“FGAPL”) and further provided consultancy services to FGAPL for Rs. 10.38 crores but only received Rs. 1.96 crores. The RP filed an application under Section 66 of the IBC seeking declaration that the transaction was fraudulent and sought a direction against the respondents, including FGAPL and the suspended directors of the Corporate Debtor, to contribute Rs. 8.42 crores to the assets of the Corporate Debtor.
The NCLT, after considering the submissions advanced, declared the transaction as fraudulent and wrongful under Section 66(1) & (2) of the IBC, and also held that:
- The timelines provided under Regulation 35A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for filing applications under Section 66 of the IBC are directory and only procedural in nature and non-compliance of the same does not render an application to be invalid.
- The suspended directors were well aware of the financial position of both Respondent No.1 as well as the Corporate Debtor. The transaction had been entered into between the Corporate Debtor and FGAPL at a time when the Corporate Debtor was already undergoing financial hardships.
- The suspended directors of the Corporate Debtor have disposed of the assets of the Corporate Debtor despite being aware about the possibility of initiation of insolvency process against the Corporate Debtor and also have failed to exercise due diligence while carrying out the impugned transaction. Furthermore, there has been no attempt by the directors to recover the outstanding dues from Respondent No.1.
- The transaction was carried out by FGAPL and the suspended directors of the Corporate Debtor, with a fraudulent intent to take away the valuable assets of the Corporate Debtor and transfer the same to FGAPL, which is an alter-ego of the suspended directors of the Corporate Debtor.
- FGAPL, being the beneficiary of the transaction, and the suspended directors of the Corporate Debtor who carried out the impugned transaction, are liable to make contribution to the assets of the Corporate Debtor; and therefore, directed the respondents, including FGAPL and the suspended directors of the Corporate Debtor, to contribute Rs. 8.42 crores to the assets of the Corporate Debtor.
Our disputes team comprised: Lead Partner – Varghese Thomas, Partners – Kunal Kaul and Fatema Kachwalla, and Associate – Virgil Braganza.
Fatema’s core practice area is Dispute Resolution. She mainly practices in High Court(s), City Civil Court(s) various benches of the National Company Law Tribunal and the National Company Law Appellate Tribunal.