Tribunal finds no fraudulent intent in transactions scrutinized under Insolvency and Bankruptcy Code, 2016
Mumbai, July 15, 2026 - The National Company Law Tribunal (NCLT), Mumbai Bench, has dismissed an application filed by Anish Niranjan Nanavaty, the Resolution Professional (RP) of Reliance Communications Infrastructure Limited (RCIL), alleging fraudulent transactions by Netizen Engineering Pvt. Ltd. (NEPL) under Section 66 of the Insolvency and Bankruptcy Code, 2016 (IBC). The application sought to declare two specific transactions as fraudulent, claiming they increased RCIL's liabilities and were detrimental to its creditors.
The RP accused NEPL of engaging in fraudulent transactions, including the purchase and resale of Optical Fibre Cable Right of Way for an inflated price, which allegedly resulted in a loss of INR 2.70 crores to RCIL. Additionally, the RP claimed that substantial receivables from NEPL were unjustifiably written off, aggregating to INR 2526.58 crores, which he argued constituted a fraudulent transaction.
However, the Tribunal, led by Shri Prabhat Kumar, Member (Technical), and Shri Sushil Mahadeorao Kochey, Member (Judicial), found that the evidence presented failed to meet the necessary criteria under Section 66 of the IBC to establish fraudulent intent. The judgment emphasized that merely showing accounting entries such as impairments or write-offs without proving the intent to defraud creditors is insufficient to substantiate allegations of fraudulent trading.
In their order, the Tribunal highlighted the necessity of demonstrating a high degree of proof to establish fraudulent intent, a standard that was not met by the RP's submissions. Citing precedents from cases like "Regen Powertech Pvt Ltd vs M/s. Wind Construction Private Limited" and "Renuka Devi Rangaswamy vs Mr. Madhusudan Khemka," the Tribunal reiterated that the intent to defraud must be judged by its effect on the parties involved and requires a preponderance of probability.
The Tribunal also noted that the impairment provisions and the write-offs in RCIL's accounts were considered accounting entries and did not imply a loss of the right to recover the amounts from NEPL. Consequently, the transactions in question did not meet the legal criteria for fraudulent trading as per the IBC.
The dismissal of the application underscores the rigorous standards required to prove fraudulent intent under the IBC, reinforcing the principle that directors acting in good faith, believing their company can recover from financial difficulties, should not be held liable for fraudulent trading.
Bottom line:-
Insolvency and Bankruptcy Code, Section 66 - Fraudulent transactions under the Corporate Insolvency Resolution Process must meet specific criteria, including the intent to defraud creditors and proof on a preponderance of probability. Mere accounting entries, such as impairment provisions, do not suffice to establish fraudulent intent or increase in liability.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 66
