Introduction
In the case of Tahera Iqbal v Vikram Structures (P) Ltd[i], before the National Company Law Tribunal (‘NCLT’), a petition under ss. 213 & 221 of the Companies Act, 2013 (‘Act’) r/w rules 11 & 74 of the NCLT Rules, 2016 sought a direction for an investigation into the affairs of the M/s. Vikram Structures Pvt. Ltd. (‘Company’). The petition alleged that the Company, despite having the rights to sell only a specified portion of land, sold an area of 2,43,037 sq. ft., which it was not entitled to sell, and collected a sum of Rs. 136.5 crores by executing 164 sale deeds or agreement to sale to various buyers.
Brief Facts
The Company was incorporated in 2008 and, in 2013, entered into a joint development agreement (‘JDA’) with the property landowners in Hebbal, Bengaluru. According to the JDA, the Company was to develop a commercial building on the land and, in return, receive 50% of the built-up area.
The Company developed the property, namely VSPL Pinnacle. On 05.02.2015, a supplementary agreement was executed to demarcate the specific shares of the built-up area between the Company and the landowners. Each was allocated 82,216.30 sq. ft.
Despite being entitled to sell 82,216.30 sq. ft., the Company sold a total area of 2,43,037 sq. ft., comprising 164 commercial units, and allegedly collected approximately Rs. 136.5 crores through these transactions.
The Company and its directors faced accusations of fraudulent practices, including executing multiple sale deeds for non-existent properties, misleading buyers with fictitious lease agreements, and unlawfully diverting funds.
The petitioners, consisting of defrauded buyers, sought an investigation into the Company's affairs and an injunction to freeze its assets. The Company was under the corporate insolvency resolution process (CIRP) and subsequently under liquidation, which led to a moratorium on all proceedings against the Company under s. 14 of the Insolvency and Bankruptcy Code, 2016 (IBC).
Held
The NCLT observed that the significant discrepancies in property sales and alleged fraudulent activities necessitated a thorough examination of the Company’s financial dealings and operational practices. It acknowledged the severity of the allegations, including fraudulent sale deeds and misleading lease agreements.
The NCLT concluded that an investigation under s. 213 of the Act could proceed even though the Company was undergoing liquidation. Consequently, the NCLT issued several directives:
i. Instructed the counsel for the petitioners to send all relevant documents related to this case to the central government within three weeks of receiving the certified copy of the order. A copy of the order was to be provided to all concerned parties, ensuring adherence to the principles of natural justice.
ii. Directed the central government to follow the procedure outlined in s. 213(b) of the Act. This included appointing inspectors to conduct a detailed investigation into the affairs of the Company and related parties.
iii. The Company liquidator was to assist the petitioners by providing the necessary documents related to the Company.
iv. Tasked the NCLT’s Registry with forwarding a copy of the order to the Secretary and Joint Secretary of the Ministry of Corporate Affairs for further action and follow-up.
Our Analysis
The NCLT judgment highlights the importance of enforcing compliance with contractual agreements and the necessity of accurate and honest disclosure in property sales. It aims to protect the interests of defrauded buyers and ensure that the Company’s assets are not misappropriated or concealed, which is critical in safeguarding the rights of stakeholders during insolvency situations.
The judgement further provides a legal framework under s. 213 of the Act to investigate the affairs of the Company while the liquidation process is underway. It affirms that the Company committed fraudulent acts with the intent to cause wrongful loss to the buyer by obtaining money from him through illegal means.
End Note
[i] [2024] 163 taxmann.com 431 (NCLT- Beng.) (SB) [07-12-2023].
Authored by Manmohan Bhola, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.