NCLT Mumbai Rejects Resolution Professional's Two Fraudulent Transaction Pleas In RCIL Insolvency

The Mumbai bench of the National Company Law Tribunal has dismissed two applications filed by the Resolution Professional of Reliance Communications Infrastructure Ltd (RCIL), which alleged fraudulent transactions involving Netizen Engineering Pvt Ltd (NEPL) and RCIL's wholly owned subsidiary, Worldtel Tamil Nadu Pvt Ltd (WTPL).

The tribunal found that the transactions did not increase the corporate debtor's liabilities.

It also found that the assignment of receivables to WTPL did not reduce the corporate debtor's economic value or prejudice creditors.

The orders were passed by a bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar on July 15.

The applications arose from an addendum to a transaction audit report dated February 18, 2021. The Resolution Professional filed them on March 18, 2021.

In one matter, the Resolution Professional challenged RCIL's purchase of Optical Fibre Cable Right of Way from NEPL on May 28, 2017. He alleged that the asset had been acquired at an inflated price.

He also questioned write-offs and impairment provisions aggregating around ₹2,527 crore relating to receivables from NEPL.

In the connected matter, the Resolution Professional challenged RCIL's assignment of receivables worth ₹560 crore due from NEPL and Macronet Mercantile Pvt Ltd (MMPL) to WTPL for ₹100 crore. According to the application, the transaction resulted in a loss of ₹460 crore.

After examining the ledger entries, the tribunal held that the Resolution Professional's own analysis did not substantiate the allegation that the transactions had increased RCIL's liabilities.

It also held that impairment provisions are accounting entries and do not extinguish the corporate debtor's right to recover amounts due from NEPL. The tribunal therefore concluded that the Resolution Professional could not seek recovery of impairment provisions and write-offs merely by characterising the ledger adjustments as fraudulent transactions.

The tribunal further held that the impugned transactions did not satisfy the requirements of Section 66 of the Insolvency and Bankruptcy Code. Referring to decisions of the National Company Law Appellate Tribunal, it observed that an intent to defraud must be judged by the effect of the conduct on the affected person.

While examining the assignment of receivables to WTPL, the tribunal held that even if the receivables had been transferred for less than their fair value, assigning them to a wholly owned subsidiary did not reduce the corporate debtor's economic value. It observed that any benefit flowing to the subsidiary would be reflected in the value of the shares held by RCIL.

The Resolution Professional also argued that the consideration remained interest-free and that WTPL had no business operations. The tribunal rejected both contentions. It held that the original receivables from NEPL and MMPL were also non-interest bearing. It further held that WTPL's non-operational status did not indicate diversion of funds.

Accordingly, the tribunal dismissed both applications

For Applicant: Advocates Anushka Bharadwaj, Rishabh Jaisani and Kriti Kalyani

For Respondents: Advocates Rohit Gupta along with Advocates Bhakti Chandan and Ayaan Zariwala

Click Here To Read/Download NCLT Mumbai Order