NCLAT upholds ₹36.53 Crore Liability against Former Directors in Fraudulent Trading Case [Read Order]
The Tribunal rejected arguments about time limitations, noting that the legislature intentionally provided no look-back period for fraudulent transactions
The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has dismissed an appeal filed by former directors of Chamber Construction Pvt. Ltd. challenging an order that directed them to contribute ₹36.53 crores to the corporate debtor's assets for alleged fraudulent trading under Section 66 of the Insolvency and Bankruptcy Code.
The dispute centred on a 2011 transaction where Chamber Construction acquired a debt from Mafatlal Engineering (in liquidation since 1999) through Invent Assets Securitization and Reconstruction Pvt. Ltd. The corporate debtor paid approximately ₹38.19 crore for a debt with an admitted value of only ₹16.68 crore. The Resolution Professional alleged this was a fraudulent transaction designed to siphon funds from the company.
The appellants argued that the transaction was a legitimate commercial arrangement and that Section 66 couldn't apply to a transaction from 2011 when the IBC wasn't in force. They also contended that the NCLT exceeded its jurisdiction by declaring the MOU void.
The NCLAT bench, comprising Justice Mohd. Faiz Alam Khan (Member Judicial) and Naresh Salecha (Member Technical), found the transaction highly unusual and against commercial wisdom. They noted that the payment schedule required 99% payment before the seller even acquired the debt from Kotak Mahindra Bank, indicating a pre-arranged mechanism to siphon funds from the corporate debtor.
The Tribunal rejected arguments about time limitations, noting that the legislature intentionally provided no look-back period for fraudulent transactions. They clarified that the NCLT had jurisdiction to consider the validity of the MOU as it was central to determining whether fraudulent trading had occurred.
The NCLAT concluded that the business was carried on with intent to defraud creditors, upholding the NCLT order directing the former directors to contribute ₹36.53 crores to the corporate debtor's assets.
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