INDIA Law and Practice Contributed by: Vijayendra Pratap Singh, Asif Ahmed, Bhanu Jindal and Jitesh Lakra, AZB & Partners
The Insolvency and Bankruptcy Code, 2016 (IBC) The IBC provides for various mechanisms to claw back or disgorge any undue benefit received by any creditor or related party of a corporate debtor. Section 66 provides that during the liquidation or corporate insolvency resolution process, where any resolution professional (RP) or liquidator finds that the corporate debtor conducted their business with intent to defraud creditors or for any fraudulent purpose, the adjudicat - ing authority may direct any persons (including direc - tors or partners) knowingly involved in it to contribute to the assets of the corporate debtor. The RP is also obligated to claw back such preferential transactions (if they qualify for the conditions in Sec - tion 43) or undervalued transactions (if they qualify for the conditions in Section 46) by filling an application under Section 44 or 45 of the IBC, respectively. These processes restore the transactions to the corporate debtor rather than to an individual claimant. Any per - son seeking such reversal will be entitled to proceeds from such transactions only in accordance with the resolution plan or the distribution scheme under Sec - tion 53 of the IBC. It has recently been held that such avoidance applications by the RP will be unaffected by the approval of the resolution plan or conclusion of the corporate insolvency resolution process (CIRP). The Insolvency and Bankruptcy Board of India (IBBI) is also empowered to direct “any person” who has made an unlawful gain or averted losses by contra - vening the IBC to disgorge an amount equivalent to such unlawful gain. The IBBI may also take steps to restitute losses suffered by identifiable persons where such loss is directly attributable to the contravention. Pertinently, under Section 32A of the IBC, a new right has been conferred on the successful resolution appli - cant, whereby any prior attachment, seizure, retention or confiscation of property of the corporate debtor, in relation to offences committed before the commence - ment of the CIRP, shall stand released and made avail - able free from encumbrances to the resolution appli - cant if such property is covered under the approved resolution plan.
as cheating and dishonestly inducing delivery of prop - erty (punishable with up to seven years’ imprisonment) or forgery of a valuable security or a will (punishable with up to ten years’ imprisonment) may be filed at any time. Civil Proceedings For civil claims, the limitation period is prescribed under the Schedule to the Limitation Act and var - ies depending on the causes of action. However, as stated above, the cause of action commences when the fraud is discovered or could reasonably have been discovered. The Supreme Court in Daliben Valjibai and Others v Prajajpati Kodarbhai Kachrabhai and Anoth- er , 2024 INSC 1049, decided on 11 December 2024, reiterated that in cases pertaining to fraud a limitation period of three years begins from the date of knowl - edge of the fraud. 1.5 Proprietary Claims Against Property The Contract Act Under the Contract Act, where an agreement is deemed to be void or voidable on account of fraud, the person who has received an undue advantage under such agreement is bound to restore it. However, where restoration is not possible due to conversion of the proceeds of fraud, the claimant is still entitled to compensation for the loss suffered. In such cases, the principles under Section 65 of the Contract Act may apply, which provide that any person who has received any advantage under such agreement or contract is bound to restore it or make compensa - tion to the person from whom it was received. The term “received any advantage” ensures restitution of an innocent party to such position as though they had not entered into the contract. Further, the Specific Relief Act, 1963 provides that a person entitled to possession of specific mov - able property may recover it as per the procedure prescribed under the Code of Civil Procedure, 1908 (CPC). Accordingly, once the contract is declared void, a party may institute a civil suit seeking declara - tory relief regarding the title to the property, along with possession thereof.
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