Unexplained ₹10.54 Cr Cash Withdrawals Show Intent to Defraud Under S.66 IBC: NCLAT Upholds NCLT Order Against Directors [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, in a recent case has held that the unexplained Rs 10.54 cr withdrawals demonstrated an intent to defraud creditors, attracting Section 66(1) of the IBC.

The appeal was filed by Rana Sarkar, a suspended director of Dagcon (India) Pvt. Ltd.,the Corporate Debtor (CD).

The respondents in the appeal included Mr. Bimal Agarwal, the Resolution Professional (RP) of the corporate debtor (Respondent No. 1), along with Arunendu Sarkar (now deceased), Mrs. Snigdha Sarkar, and DAG Creative Media Pvt. Ltd., all of whom were arrayed as Respondents No. 2 to 4 owing to their roles as suspended directors or related‑party recipients of the impugned transactions.

The CIRP of the CD commenced on 20 November 2019. From the outset, the RP reported persistent non‑cooperation from the suspended management, including failure to hand over statutory records, financial statements, and asset details despite directions from both the NCLT and NCLAT.

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With no access to the company’s books after FY 2011–12, the RP reconstructed the financial trail using bank statements from nearly 20 accounts and appointed Neha B. Agarwal & Co. as the transaction auditor.

The transaction audit report dated 07.06.2021 became the backbone of the RP’s Section 66 application. The audit flagged ₹10.54 crore in cash withdrawals across five financial years: ₹6.93 crore in FY 2011–12, ₹2.03 crore in FY 2012–13, ₹60 lakh in FY 2013–14, ₹9 lakh in FY 2014–15, and ₹89 lakh in FY 2015–16.

No vouchers, ledgers, labour registers, or project‑wise expense records were produced to justify these withdrawals. The auditors noted that “these unusual series of withdrawals and lack of clarifications… create a doubt with respect to the nature of transactions,” concluding that the withdrawals were fraudulent in nature.

In addition to cash siphoning, the RP identified unexplained related‑party payments, including ₹15.20 lakh to DAG Creative Media Pvt. Ltd. (where the appellant was a director), ₹63.50 lakh to Snigdha Sarkar (wife of another suspended director), and ₹1.007 lakh to the appellant’s father, Gour Gopal Sarkar, shown as “consultancy fees” without documentation.

Payments to directors,₹26.56 lakh to Arunendu Sarkar and ₹16.86 lakh to Arabinda Sarkar, were also unsupported by any evidence of supplier advances or reimbursements.

The appellant argued that he was not involved in day‑to‑day management, was not a signatory to bank accounts, and had resigned in 2016.

The two-member bench comprising Mohd. Faiz Alam Khan (Judicial Member) and Naresh Salecha (Technical Member) rejected these claims, noting contradictions in his statements and the absence of any documentary proof of resignation. The tribunal held that mere denial cannot rebut documentary evidence of withdrawals and related‑party transfers.

Relying on the statutory framework of Section 66, the NCLAT reiterated that fraudulent trading is established when business is carried on with the intent to defraud creditors or for a fraudulent purpose.

Once the RP demonstrates suspicious transactions, the onus shifts to directors to prove due diligence, a principle affirmed in Aditya Kumar Tibrewal v. Om Prakash Pandey (NCLAT), Swapan Kumar Saha v. Ashok Kumar Agarwal (NCLAT), and the Supreme Court’s observations in Ramakrishna Forgings Ltd. v. Ravindra Loonkar on director accountability during CIRP.

The tribunal emphasised that the suspended directors failed to produce even basic records to justify the withdrawals. Their non‑cooperation, missing books, and inability to explain related‑party payments created a strong presumption of fraudulent intent.

The NCLAT held that “the pattern of substantial debt recovery followed by unjustified cash withdrawal establishes a clear diversion of funds,” affirming the NCLT’s direction to deposit ₹10.54 crore along with ₹1,00,700 and interest at 8% per annum.

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