Directors, including independent and non-executive directors, are liable for fraudulent conduct of business

NCLT Dismisses Applications for Deletion of Directors in Metalyst Forgings Case. Independent and Non-Executive Directors Remain Liable for Alleged Fraudulent Transactions under Insolvency and Bankruptcy Code

Mumbai, October 31, 2025 – In a significant ruling, the Mumbai Bench-I of the National Company Law Tribunal (NCLT) has dismissed applications filed by several directors of Metalyst Forgings Limited, including Anuradha Kapur, seeking their deletion from proceedings under Section 66 of the Insolvency and Bankruptcy Code, 2016. The decision, delivered by Members Shri Prabhat Kumar and Shri Sushil Mahadeorao Kochey, underscores the potential liability of directors, including independent and non-executive directors, in cases of alleged fraudulent conduct of business.

The applications, filed by Anuradha Kapur and others, contended that they were improperly impleaded in the case, arguing that as independent and non-executive directors, they had no involvement in the day-to-day affairs of the Corporate Debtor and lacked knowledge of the alleged fraudulent transactions. The applicants further cited previous removal from proceedings under the Companies Act, 2013, asserting that similar relief should be granted in the current insolvency proceedings.

However, the NCLT held that liability under Section 66 of the Insolvency and Bankruptcy Code extends to directors who knowingly participated in fraudulent business conduct or failed to exercise due diligence to minimize potential loss to creditors. The Tribunal emphasized that knowledge of fraudulent transactions or failure to act diligently is a key criterion for determining liability. The court noted that the directors' roles and responsibilities during the relevant period required detailed examination to ascertain their knowledge or involvement in the alleged fraudulent activities.

The ruling also clarified that the Ministry of Corporate Affairs Circular No. 1 of 2020 does not negate the liability of independent or non-executive directors under the Insolvency and Bankruptcy Code. The NCLT stated that the circular, issued under the Companies Act, 2013, is not applicable to proceedings under the Insolvency and Bankruptcy Code, which is a comprehensive legislation with distinct provisions.

Furthermore, the Tribunal rejected the argument that deletion from proceedings under the Companies Act automatically exonerates directors in applications under Section 66 of the Insolvency and Bankruptcy Code. The liability under this section requires specific framing of opinion by the Resolution Professional and detailed examination by the Tribunal.

The decision leaves the directors, including Anuradha Kapur, B. Lugani, Yogesh Kapur, Ankita Wadhawan, and Vivek Kumar Agarwal, to face further scrutiny regarding their roles during the period when alleged fraudulent transactions occurred. The Tribunal's order affirms the necessity for directors to exercise due diligence and remain informed about the company's affairs, highlighting the stringent standards of accountability under the Insolvency and Bankruptcy Code.

Bottom Line:

Under Section 66 of the Insolvency and Bankruptcy Code, 2016, directors, including independent and non-executive directors, may be held liable for fraudulent conduct of business if it is proven that they had knowledge of such transactions or failed to act diligently to minimize potential loss to creditors.

Statutory provision(s):  

• Insolvency and Bankruptcy Code, 2016 - Section 66  
• Companies Act, 2013 - Sections 241, 242, 339  
• National Company Law Tribunal Rules, 2016 - Rule 11, 34, 51  
• Code of Civil Procedure, 1908 - Order I Rule 10

Anuradha Kapur v. Dinkar T. Venkatasubramanian Erst. Resolution Professional Metalyst Forgings Limited, (NCLT)(Mumbai Bench-I) : Law Finder Doc Id # 2804196