NCLAT Affirms NCLT Order on Fraudulent Round‑Tripping and Director Contribution Under Insolvency and Bankruptcy Code

Background of the Insolvency Proceedings

The matter in Yashwant Lalchand Sangla Vs Manish Baldeva (NCLAT Delhi) arose from liquidation proceedings of Linkson International Ltd., a corporate debtor that had entered the Corporate Insolvency Resolution Process (CIRP) on the basis of a petition filed by Punjab National Bank under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code).

Pursuant to the admission of the CIRP:

• Mr. Manish Baldeva was first appointed as Interim Resolution Professional (IRP).
• He was later confirmed as Resolution Professional (RP).
• Subsequently, by order dated 20.07.2018, he was appointed as the liquidator of the corporate debtor.

In exercise of powers under Section 35 of the Code, the liquidator took charge of the assets and accounts of the corporate debtor and decided to conduct an in‑depth investigation into the financial affairs of the entity, particularly certain real estate transactions and cash expenses that appeared questionable.

For this purpose, by letter dated 25.07.2019, the liquidator engaged ADB and Associates, Chartered Accountants to undertake a forensic audit focusing on:

• Status and title of immovable properties,
• Flow of funds in connection with property purchases,
• Large‑value cash expenses and their supporting documents,
• Overall integrity of books of account and bank records.

The forensic auditors furnished their report on 04.10.2019. Relying on this report, the liquidator filed IA No. 1568 of 2020 before the National Company Law Tribunal, Mumbai Bench (Adjudicating Authority) under Section 60(5) read with Sections 35, 36, 66, 68 to 72 of the Code.

Key Allegations Based on Forensic Audit

The liquidator’s application highlighted serious irregularities and alleged fraudulent conduct by the suspended directors and related parties, including:

• Siphoning and misappropriation of funds aggregating to about ₹527.06 lakhs, mainly derived from loans granted by Nagpur Nagrik Sahkari Bank.
• Unsubstantiated and fictitious cash expenses amounting to ₹103.15 lakhs, booked under five broad expense heads without genuine supporting documentation.
• Non‑cooperation by the erstwhile management – including non‑production of several bank statements and incomplete or unreliable books of account.
• Suspected round‑tripping/ accommodation transactions concerning immovable properties in Shri Gopal Complex and Megh Complex, Nagpur, whereby bank‑funded purchase consideration appeared to flow back to the corporate debtor and its related entities.

Transactions in Shri Gopal Complex

The corporate debtor is stated to have purchased the following under a registered sale deed dated 30.03.2013:

• 6 flats (Flat Nos. 201–206) on the second floor of Shri Gopal Complex,
• 6 flats (Flat Nos. 301–306) on the third floor (stated as unconstructed in the forensic audit),
• Along with 38.62% undivided proportionate share and interest in plot no. 25 (part of land bearing Khasra No. 58/23) at MIDC T-point, Ward No. 1, Mauza & village Wadi, Nagpur.

Key forensic findings:

• Consideration reflected in the sale deed was ₹3,50,00,000.
• A down‑payment of ₹1.05 crores was allegedly paid in cash; no receipts or acknowledgments were available.
• Remaining ₹2.45 crores was funded through a housing loan from Nagpur Nagrik Sahkari Bank, with the amount credited to the vendor Mr. Sudhir Hiranwar (and others) on 30.03.2013, the very date of execution.
• Stamp duty of ₹19,25,000 was paid on the stated purchase price of ₹3,50,00,000, while the ready reckoner/market value was only about ₹1,50,23,000, indicating significant overvaluation vis‑à‑vis stamp‑duty value.
• Despite the sale deed, Sub‑Registrar records as on 26.08.2019 still showed the vendors as owners; no mutation in favour of the corporate debtor was carried out.
• Physical inspection showed that:
  • The flats on the second floor were in possession of tenants,
  • A tenant informally confirmed treating vendor Mr. Sudhir Hiranwar as the landlord,
  • Rent was being collected by the vendors, not by the corporate debtor.
• Funds trail from vendor’s bank account indicated onward transfers as follows:
  • ₹99 lakhs (via 11 pay orders of ₹9 lakhs each) and a ₹1 lakh demand draft paid to Linkson Ispat and Energy Private Limited (a related party with common director Mr. Yashwant Sangla), deposited in its Punjab National Bank account.
  • ₹14 lakhs and ₹90,000 moved into the vendor’s savings account, followed by:
    • ₹10 lakhs via RTGS to Linkson Coal and Minerals Private Limited (another related party of the corporate debtor with common directors),
    • ₹6 lakhs transferred back to the corporate debtor, Linkson International Limited.

The forensic report further noted that six flats on the third floor (301–306) were not yet constructed, even though they were purportedly sold under the sale deed, and that a later bank valuation (07.02.2015) recorded that the third floor was yet to be built.

Transactions in Megh Complex

The corporate debtor is stated to have acquired, via separate sale deeds dated 07.06.2013 (registered on 10.06.2013):

• 12 godowns on the ground floor (Godown Nos. 6–17) of Megh Complex, MIDC T‑point, Ward No. 1, Mauza Wadi near Wadi, Nagpur, and
• 6 flats (Flat Nos. 107, 108, 112, 202, 203, 204) on the first and second floors of the same building.

Key aspects identified by the forensic auditors:

• Total consideration for 12 godowns: ₹2,41,39,500/-, paid as:
  • ₹12,50,000/- by cheque,
  • ₹59,91,888/- by cheque,
  • ₹1,68,97,650/- through loan from Nagpur Nagrik Sahkari Bank.
• For the six flats:
  • Total sale consideration: ₹1,61,56,000,
  • Payment included ₹12,50,000/- and ₹35,50,000/- via cheques, and ₹1,13,09,200/- funded through a bank loan.
• Ready reckoner market value versus recorded consideration:
  • For godowns: market value for stamp duty ₹122.33 lakhs, while sale deed value was substantially higher (₹241,39,500).
  • For flats: ready reckoner value ₹85.77 lakhs, as against sale deed value **₹161.56 lakhs`.
• Entire **plot no.