Land Sold by Third Parties to Corporate Debtor Cannot be Held Liable u/s 66 of IBC: NCLT [Read Order]

The National Company Law Tribunal (NCLT), New Delhi bench has held that third parties who sold land to the Corporate Debtor cannot be said to fall within the ambit of expression “any persons who were knowingly parties to the carrying on the business of the Corporate Debtor” as used in Section 66 of the Insolvency and Bankruptcy Code, 2016 (“Code”).

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The Corporate Insolvency Resolution Process (CIRP) was started by the Tribunal against M/s Three C Universal Developers Private Limited (the "Corporate Debtor") on February 17, 2019. In accordance with Section 66 of the Code, the Respondent/RP filed I.A. No. 3054/ 2021 against the Corporate Debtor's Suspended Management and Promoters. The Applicants were also parties to the aforementioned application.

In the I.A. filed by the Resolution professional ("RP"), the Applicant, Jakson Limited, prayed to have their names removed from the list of Respondents. The Applicant contended that the I.A. was not maintainable against the Applicants in view of the judgment of Supreme Court in Gluckrich Capital Pvt Ltd. vs. The State of West Bengal & Ors. which provides that Section 66 of the Code can only be invoked against persons who were responsible for the conduct of the business of the Corporate Debtor and not against third parties.

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The Respondent/RP argued that the Respondents bought several agricultural land parcels from the Respondents in I.A. at outrageous prices, defrauding the Corporate Debtor's creditors to the tune of Rs. 66.7 crores. The RP further argued that the NCLAT had diluted the ruling in Gluckrich Capital Pvt. Ltd. in Royal India Corporation Limited vs. Mr. Nandkishor Vishnupant Deshpande & Ors., holding that "any persons" may be sued under Section 66 to recover the money involved in the fraudulent transaction.

In an application filed under Section 66 of the Code, the Tribunal was asked to decide whether the Applicants, who allegedly sold the Corporate Debtor various land lots at exorbitant prices, may be named as Respondents.

The bench of Justice Ashok Kumar Bhardwaj (Judicial Member) and Anil Raj Chellan (Technical Member)  held that third persons who sold their land to the Corporate Debtor cannot be said to fall within the ambit of expression “any persons who were knowingly parties to the carrying on the business of the Corporate Debtor” as used in Section 66 of the Code. It observed that an application under the Section may be maintainable against the persons responsible for managing the Corporate Debtor.

The RP's argument that Royal India Corporation Limited had weakened the legislation as established by the Supreme Court in Gluckrich Capital was dismissed by the Tribunal. The Tribunal ruled that a subordinate court or tribunal could not weaken the statute established by the Supreme Court.

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The Tribunal noted that even in Royal India Corporation Limited, the NCLAT had observed that the Appellant Company, against which Section 66 action was being taken, and the Corporate Debtor therein were both managed by the same individual; as a result, the Appellant Company was deemed not to be a "third party."

The Tribunal observed that the RP did not make the argument that the Applicants had any influence over the Corporate Debtor's operations or were involved in its management. The applicant was removed from the list of Respondents after the Tribunal granted the application. It made clear that if it turns out that the transaction was fraudulent, the suspended board, promoters, and directors will still be subject to the Code's Sections 66 and 67.

To Read the full text of the Order CLICK HERE

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M/s Jakson Limited vs M/s Three C Universal Developers Pvt Ltd , 2025 TAXSCAN (NCLT) 121 , IN THE MATTER OF CP(IB) NO. 2582/ND/2019 , 18 March 2025 , Adv. Sumesh Dhawan , Adv. Rakesh Kumar Gupta