NCLAT Upholds Fraud Finding Against Former Director: Orders ₹3.18 Cr Contribution for Sham Transactions [Read Order]

The National Company Law Appellate Tribunal (NCLAT) has upheld the NCLT’s order directing former director Mr. Gopal Kalra to contribute ₹3.18 crore to the assets of Easytech Global Pvt. Ltd. The Tribunal found that Kalra was knowingly involved in fraudule Sham Transactions: NCLAT Orders Former Director to Contribute ₹3.18 Cr to Debtor’s Estatent trading, including bogus LED bulb transactions with fictitious entities, causing actual financial loss to the company and its creditors.

The appeal was filed under Section 61 of the IBC against an order of the NCLT, New Delhi Bench, which held Kalra liable under Section 66(1) for entering into sham business transactions that served no commercial purpose and were designed to siphon off funds.

Easytech Global Pvt. Ltd. went into liquidation on April 3, 2019. During the liquidation, a forensic audit was conducted, which uncovered a series of suspicious transactions related to LED bulb trading, undertaken during FY 2016–17, when Mr. Kalra was in charge. The forensic audit, backed by field investigations, revealed that the entities supposedly involved in the transactions, such as Satyam Traders, Garg Sales Corporation, SP Trading & Co., and B.S. Enterprise, were either non-existent or operated unrelated businesses. Invoices and addresses did not match, and no physical trace of goods or genuine trade could be established.

Despite showing ₹9.33 crore in purchases and ₹9.88 crore in sales in company books, debit and credit notes were used to negate these figures, resulting in zero net sales. Actual payments were made, ₹3.43 crore to the fake suppliers, with a ₹0.52 crore shortfall in customer recoveries. The combined cash loss, after accounting adjustments, stood at ₹3.18 crore.

The former director argued that the transactions were part of a genuine effort to revive the company and termed the losses “notional.” He claimed that the pricing adjustments through debit/credit notes reflected commercial judgment, not fraud. According to him, the business yielded inflows in earlier years, and at most, it was a case of poor business decisions, not criminal intent.

He relied on the precedent Regen Powertech Pvt. Ltd. v. Wind Construction Pvt. Ltd., where the Appellate Tribunal had held that directors acting in good faith could not be faulted merely because of commercial failure. The NCLAT found these arguments unconvincing. It said using accounting entries to fabricate turnover while simultaneously draining funds was a deliberate scheme.

Referring to the Supreme Court’s judgment in Anuj Jain v. Axis Bank Ltd., the NCLAT observed that fraud under IBC can be inferred from circumstantial patterns, especially where the transactions are fictitious in both form and substance. It held that the standard under Section 66(1) was met when the ex-director knowingly carried on business to defraud creditors.

The Tribunal emphasised that a ₹3.18 crore loss was not notional. It was a “real cash outflow,” traceable through bank transfers and unaccounted vendor payments. Kalra failed to produce any invoices, stock, or explanation for the missing funds.

The NCLAT also upheld the NCLT’s direction under Section 66(1), which allows adjudicating authorities to order persons responsible for fraudulent trading to contribute to the debtor’s estate. It found the ₹3.18 crore liability to be reasonable, directly proportionate to the established loss, and supported by forensic accounting evidence.

The appellate bench, comprising JusticeRakesh Kumar Jain (Judicial member), Naresh Salecha (technical member), and Indevar Pandey (technical member), held that siphoning off funds under fabricated transactions, regardless of whether money was pocketed personally, amounts to financial misconduct under the Code. As a result, the appeal was dismissed, and the NCLAT directed that the ₹3.18 crore order for contribution to the corporate debtor’s estate will stand.

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