Director Diverts Rental Income via Forged Lease Agreements: NCLT Mumbai Orders Refund of Diverted Funds with 12% Interest [Read Order]

The National Company Law Tribunal (NCLT) Mumbai Bench recently adjudicated an application filed by the Resolution Professional (RP) concerning the fraudulent diversion of assets belonging to Barracks Retail India Private Limited. The Corporate Debtor (CD) owned a significant commercial property in Bhiwandi consisting of several units or galas across multiple floors.

The Resolution Professional [RP] discovered that the suspended management had engaged in a calculated scheme to conceal the true nature of the company’s rental income by providing forged and fabricated leave and license agreements. These fraudulent documents were intended to mislead the RP into believing the entire premises were leased to a single entity at rates significantly below the prevailing market value.

However, the investigation revealed that the suspended director Puneet P. Bhatia (Respondent No. 1) had entered into separate agreements with different tenants while holding himself out as the personal owner of the CD’s property. The rental income which should have been directed to the Corporate Debtor’s accounts to satisfy creditors, was instead diverted to the director’s personal accounts or his firm M/s BNT Connections.

Further, during a meeting of the Committee of Creditors (CoC), the suspended management reportedly confessed to these violations admitting to the concealment of the true agreements and the unauthorized withdrawal of funds for personal use in violation of the moratorium under Section 14 of the IBC.

The Respondents argued that the application lacked specific pleadings of fraud and that no prior determination had been made regarding whether the transactions were preferential or undervalued under Sections 43-51 of the IBC.

However, the Applicant maintained that the execution of forged agreements and the diversion of funds constituted clear fraudulent trading under Section 66 and misconduct under Section 70 of the Code.

The two-member Bench comprising Prabhat Kumar (Technical Member) and Sushil Mahadeorao Kochey (Judicial Member) held that the director’s intent to defraud creditors was clearly established by the siphoning of funds and the use of fabricated documentation. Consequently, the NCLT ordered Respondent No. 1 to contribute the diverted amounts, totaling approximately Rs. 50,36,250, back to the assets of the Corporate Debtor within 30 days.

Accordingly, the tribunal held that the refund must include interest at the rate of 12% per annum from the date the funds were originally received. The Bench also referred the matter to the Insolvency and Bankruptcy Board of India (IBBI) for appropriate action against the director for offences committed under Sections 70, 72, 73, and 74 of the IBC.

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