NCLT Dismissess Liquidator’s ₹30 Lakh Fraud Plea: Non‑reflection in books not enough under IBC Sec. 66(1) [Read Order]

In a recent ruling, the National Company Law Tribunal ( NCLT ), Kochi Bench, dismissed an application filed by the liquidator of a corporate debtor seeking recovery of ₹30 lakh under Section 66(1) of the Insolvency and Bankruptcy Code (IBC), 2016.

The liquidator alleged that the suspended managing director had siphoned off part of a ₹50 lakh advance received under an agreement for the sale of a mortgaged property. While ₹20 lakh was reflected in the company’s books, the remaining ₹30 lakh was not accounted for, prompting the liquidator to claim fraudulent diversion.

The applicant, Kizhakkekara kuriakose jose alleged that ₹30 lakh received under a sale agreement was not reflected in the corporate debtor’s books and was siphoned off by the suspended managing director and the property was mortgaged to KSIDC, and any sale agreement without KSIDC’s consent was illegal. The liquidator argued that the respondent had no authority to execute such agreements.

It was also stated that respondent failed to provide documents or respond to queries, allegedly obstructing the liquidation process.The liquidator argued that fraud under Section 66(1) has no limitation period and that the application was timely upon discovery.

On the other hand, the respondent, however, contended that all amounts were credited to the company’s account and used for legitimate business purposes. He argued that the application was speculative, lacked independent evidence, and was filed with mala fide intent.

After reviewing pleadings, bank records, and submissions, the Tribunal noted that the disputed ₹30 lakh was paid through cheques in the name of the corporate debtor and credited to its account.

The bench Justice Vinay Goel, noted that the liquidator, being custodian of the company’s records, failed to produce cogent evidence showing diversion to the respondent’s personal account.

It further held, “Mere allegations based on hearsay or hypothetical assumptions, without any concrete evidence tracing the movement of funds or establishing wrongful gain, cannot form the basis for granting the relief as sought in the present Application.”

The Tribunal further held that the liquidator’s position was inconsistent,challenging the validity of the sale agreement while simultaneously relying on it to claim recovery. Such contradictory stands, it said, were legally impermissible.

The bench also concluded that mere non-reflection of the amount in the books was insufficient to establish fraudulent intent under Section 66(1). In the absence of clear proof of siphoning, the application was found untenable and dismissed.

Accordingly, the Interlocutory application was dismissed.

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