Tribunal holds that accounting discrepancies and missing land documents insufficient to prove fraudulent intent; final transaction audit report gives clean chit to accused directors.
In a significant ruling dated September 9, 2026, the National Company Law Tribunal (NCLT), Chandigarh Bench, dismissed an application filed by Darshan Singh Anand, Resolution Professional of Vikas WSP Limited, alleging fraudulent trading under Section 66(1) of the Insolvency and Bankruptcy Code (IBC), 2016. The application targeted the erstwhile management and several directors, including Mrs. Bimla Devi Jindal and others, accusing them of carrying on the corporate debtor's business with an intent to defraud creditors.
The case arose in the backdrop of the Corporate Insolvency Resolution Process (CIRP) initiated against Vikas WSP Limited. The Resolution Professional had appointed M/s Mukesh Raj & Co., Chartered Accountants, as transaction auditors to investigate alleged irregularities in the company's financials, especially regarding the disappearance of freehold land valued at over Rs. 423 crore, abnormal raw material consumption, advances to related parties, and other miscellaneous transactions.
The draft transaction audit report initially flagged several suspicious transactions, including unexplained write-offs of inventories, advances to related parties amounting to Rs. 64.56 crore, and missing title deeds of freehold agricultural land acquired between 2007 and 2010. However, after considering explanations and documents furnished by the management, the final transaction audit report gave a clean chit, concluding that no fraudulent, undervalued, or creditor-defrauding transactions had occurred.
The tribunal extensively analyzed the evidence and submissions, emphasizing that Section 66(1) requires proof of fraudulent intent and deliberate design to defraud creditors. It held that mere accounting discrepancies, missing documents, or commercial losses do not suffice to invoke the provision. The absence of conclusive evidence showing deliberate diversion of assets or fraud was fatal to the claim.
The NCLT also clarified that liability under Section 66 is personal and cannot be fastened merely on directors by virtue of their designation or membership in audit and risk committees unless specific evidence of knowing participation in fraudulent trading is established. The tribunal rejected arguments imputing vicarious liability to independent directors and held that suspicion or inference from accounting irregularities is insufficient.
Regarding the alleged disappearance of the freehold land, the tribunal noted that the land continued to appear in the company's financial statements and was audited regularly, with title deeds produced before statutory auditors until just before CIRP commencement. Although the Resolution Professional could not trace the land during CIRP, there was no evidence of its alienation or fraudulent transfer within the relevant period. The tribunal observed that non-availability of title deeds alone cannot justify invoking Section 66.
The court also examined allegations of abnormal raw material consumption and advances to related parties, concluding that these were explained as legitimate business decisions and did not indicate fraudulent intent. Miscellaneous transactions, including vehicle sales and cash salary payments, were also found to lack evidence of fraud.
Consequently, the tribunal dismissed the application, stating that the essential ingredient of fraudulent intent remains unproven. The ruling reiterates the high threshold required to establish fraudulent trading under the IBC and safeguards directors from unwarranted liability based solely on accounting irregularities.
This judgment provides clarity on the applicability of Section 66 of the IBC, underscoring the necessity of cogent evidence for fraudulent intent and protecting corporate governance structures from speculative allegations.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 66 Burden of proof lies on the Resolution Professional to establish fraudulent intent to defraud creditors. Mere accounting discrepancies, missing records, or commercial losses do not automatically attract Section 66 unless supported by cogent evidence.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 66(1)
Darshan Singh Anand v. Bimla Devi Jindal, (NCLT)(Chandigarh Bench) : Law Finder Doc Id # 2975479
