Transaction Had No Effect on Creditor Status u/s 66 IBC: NCLT Rejects Fraud Claim on Reliance’s ₹260 Cr Intra‑Group Adjustment [Read Order]

In a recent ruling, the National Company Law Tribunal (NCLT), Mumbai Bench, has rejected allegations of fraudulent trading under Section 66 of the Insolvency and Bankruptcy Code (IBC) against Reliance Communications group entities, holding that the ₹260 crore intra‑group adjustment had no adverse effect on creditor status.

The petitioner, Anish Niranjan Nanavaty, Resolution Professional of Reliance Communications Infrastructure Ltd. (RCIL), challenged the transaction whereby receivables worth ₹260 crore due from Reliance Communications Tamil Nadu Ltd. (RCTNL) to Reliance Communications Ltd. (RCOM) were assigned to RCIL. He argued that the assignment inflated RCIL’s books, created liabilities without benefit, and was carried out without a duly executed agreement.

The petitioner contended that RCTNL had negligible operations and revenue at the time, ₹20,000 in FY 2014-15 and ₹25,000 in FY 2013-14, making recovery highly doubtful. He submitted that the transaction was detrimental to RCIL’s creditors and amounted to fraudulent trading under Section 66.

On the other hand, the respondents, Reliance Communications, argued that the assignment was a legitimate inter-company adjustment within the Reliance borrower group. They stated that no cash outflow occurred, the transaction was reflected in the books of all entities, and lenders were aware of the group’s integrated financing framework under the Master Security Trustee Agreement (MSTA) of 2011.

They maintained that the absence of a signed assignment letter did not make the transaction fraudulent and that the Resolution Professional failed to prove intent to defraud or actual loss to creditors.

After hearing both sides, the Tribunal observed that Section 66 requires proof of intent to defraud creditors, which was not established. The bench noted that RCIL and RCTNL were wholly owned subsidiaries of RCOM, forming part of a single economic entity. The assignment was effected through journal entries, disclosed as related-party transactions, and did not alter creditor positions.

The Tribunal held that the Resolution Professional had not demonstrated how directors failed to exercise due diligence or how creditors suffered loss. Citing the NCLAT’s decision in Renuka Devi Rangaswamy v. Madhusudan Khemka, the bench, comprising Prabhat Kumar(Technical member), Sushil Mahadeorao Kochey (judicial member), observed that fraudulent trading requires clear evidence of dishonest intent and adverse impact on creditors.

The bench observed that “Accordingly, the assignment can not held to be carried out with intent to defraud creditors of the corporate debtor when such transaction had no effect on their position or status.

In view of aforesaid discussion, we are of considered view that the transaction impugned in the present application does not satisfy the ingredient of section 66 of IBC, hence, the prayers as sought can not be allowed.”

Accordingly, the NCLT concluded that the transaction did not satisfy the ingredients of Section 66 of the IBC and dismissed IA 941 of 2021.

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