NCLT Mumbai Dismisses RP's Plea Against ₹260 Crore RCIL Receivables Assignment, Finds No Fraud

The National Company Law Tribunal (NCLT) in Mumbai has held that a Rs.260 crore inter-company assignment involving Reliance Communications Infrastructure Ltd (RCIL) was not fraudulent, as it caused no loss to creditors. The tribunal dismissed a plea filed by the company's Resolution Professional

A Bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar was dealing with the application, in which the Resolution Professional alleged that the assignment of receivables from Reliance Communications Ltd. (RCOM) to RCIL (the corporate debtor) inflated its books and imposed a corresponding liability, thereby defrauding creditors.

Relying on the NCLAT ruling in Renuka Devi Rangaswamy, the tribunal held that fraudulent intent must be assessed based on its actual effect on creditors, and found that the Resolution Professional failed to demonstrate any real loss or prejudice caused to them. It held that the essential ingredients to establish a fraudulent transaction under Section 66 of the Insolvency and Bankruptcy Code were not satisfied.

“As held in the Renuka Devi Rangaswamy (Supra), the intent to defraud', is to be judged, by its effect' on a Person', who is the object of conduct', in question. Accordingly, the assignment can not held to be carried out with intent to defraud creditors of the corporate debtor when such transaction had no effect on their position or status. In view of aforesaid discussion, we are of considered view that the transaction impugned in the present application does not satisfy the ingredient of section 66 of IBC, hence, the prayers as sought can not be allowed,” the tribunal said.

RCIL, a group company of Anil Ambani-led Reliance Communications, was admitted into the corporate insolvency resolution process on September 25, 2019, on a petition filed by State Bank of India due to default in repayment of financial debt.

The transaction in question, dated March 31, 2015, involved the assignment of Rs.260 crore receivables from RCOM to RCIL, with a corresponding liability, through journal entries among group entities including Reliance Communications Tamil Nadu Ltd (RCTNL), all forming part of the same group structure.

The Resolution Professional, relying on audit reports dated September 24, 2020 and February 18, 2021, argued that RCTNL had negligible operations and that recovery was doubtful, making the transaction detrimental to creditors.

However, the tribunal noted that the assignment was effected through book entries without any cash outflow and was duly reflected in the books of accounts and disclosed as a related party transaction, making creditors aware of the intra-group arrangement.

It further observed that the assets of RCIL were insufficient to meet secured creditors' claims, leaving unsecured creditors with no recovery. In this context, the assignment, even if involving doubtful receivables, did not worsen the position of creditors.

“If the allegation of the applicant is considered in this factual context, it can be noted that even if corporate debtor received a receivable, realization from which was doubtful, owning of such liability to RCOM cannot said to detrimental to the interest of its other creditors in such situation,” the tribunal said.

The tribunal also noted that the Resolution Professional had failed to demonstrate how the transaction caused any loss to creditors or involved persons knowingly carrying on business with intent to defraud and had not established the necessary ingredients of Section 66, including lack of due diligence by the directors.

Accordingly, the tribunal held that the ingredients of Section 66 were not satisfied and dismissed the application.