Tribunal finds payments to related parties without documentary proof amid financial distress as wrongful; other alleged fraudulent transactions dismissed due to lack of evidence
In a significant judgment dated October 12, 2026, the National Company Law Tribunal (NCLT), Mumbai Bench, in the matter of Mr. CA Kshitiz Gupta v. Chaitanya Rajnish Savant and Others, has partly allowed an application under Section 66 of the Insolvency and Bankruptcy Code, 2016 ("IBC") relating to fraudulent and wrongful trading by directors of Viztar International Private Limited ("Corporate Debtor"). The application was filed by the erstwhile Resolution Professional, Mr. Kshitiz Gupta, seeking to hold the directors liable for certain transactions alleged to have been fraudulent or preferential.
The Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP) in February 2025, following default on loan repayments. An audit was conducted by appointed Transactional Auditor Pradeep Patankar & Co., which identified eight impugned transactions occurring mainly during FY 2022-23 and FY 2023-24. These transactions were challenged on grounds of fraudulent intent and wrongful trading under Section 66 of the IBC.
The Tribunal meticulously examined each transaction:
1. Write-Off of Bad Debts (Rs. 1.52 Crore): The Tribunal held that mere accounting write-offs do not establish fraudulent intent unless underlying transactions are shown to be fraudulent or receivables were concealed. The write-offs were deemed internal accounting decisions without evidence of intent to defraud creditors.
2. Adjustment of TDS Receivables Against Salary Payables (Rs. 2.85 Crore): The Tribunal observed that such adjustments are common accounting practices and, absent proof of fictitious liabilities or fraudulent intent, cannot be held as wrongful.
3. Non-Disclosure and Reconciliation Issues of HDFC Bank Account: The differences between the bank statements and books of account were attributed to timing and reconciliation issues. No evidence of siphoning or diversion of funds was found.
4. Payments to Subsidiary Company Viztar Business Solutions Pvt. Ltd. (Rs. 52.28 Lakh): Payments were justified as reimbursements for shared operational costs. Mere increase in debit balance to a related party without proof of misuse did not satisfy the criteria for fraudulent trading.
5. Payments to Sundry Creditors and Vendors (Rs. 15.24 Lakh): Payments were through banking channels and supported by invoices or prior period expenses. Lack of documentary proof was considered insufficient to establish fraud.
6. Misclassification Under "Opening Balance Difference": This was clarified as a ledger classification issue, with no concealment of assets or receivables proven.
7. Payments to Related Persons Without Documentary Proof (Rs. 54.40 Lakh): This transaction was partly established as wrongful trading. The Tribunal found that payments were made to related parties, including Mrs. Tejaswini Adhikari, Ms. Monishka Adhikari, and Mr. Sachin Adhikari, without supporting invoices or agreements. The Corporate Debtor's financial position had deteriorated, and the management was aware of liabilities but failed to exercise due diligence to protect creditor interests. Consequently, the whole-time director, Respondent No. 2, was directed to contribute Rs. 51.8 lakh to the Corporate Debtor's assets within 30 days, with interest payable thereafter.
8. Alleged Missing Cash of Rs. 10 Lakh: The Tribunal found no substantive proof of missing cash, considering the cash book and operational expenses explanations.
The Tribunal also addressed procedural objections concerning delays and non-compliance with CIRP regulations, affirming that the timelines under Regulation 35A are directory, not mandatory, and the application was maintainable.
The judgment underscored that for Section 66 to be invoked, material evidence must show fraudulent intent, diversion of assets, or failure to minimize creditor losses. Mere accounting discrepancies or lack of documentary evidence without further inquiry do not suffice. The ruling distinguished between honest business decisions and fraudulent trading, emphasizing the need for concrete proof.
This order clarifies the scope of Section 66 of the IBC, reinforcing that directors and management must exercise due diligence and transparency, especially when the company faces financial distress. It also highlights the Tribunal's balanced approach, holding individuals accountable only where wrongful conduct is established beyond mere suspicion.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 66 Mere accounting discrepancies, write-offs, reconciliation issues or absence of complete supporting documents do not by themselves establish fraudulent or wrongful trading - For attracting Section 66, there must be material showing fraudulent intent, diversion/siphoning of assets, or failure of director to exercise due diligence to minimise loss to creditors - Payments made to related persons without documentary proof, at a time when financial position had already deteriorated, justified contribution order against the concerned whole-time director under Section 66(2).
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 66
Mr. CA Kshitiz Gupta v. Chaitanya Rajnish Savant, (NCLT)(Mumbai Bench) : Law Finder Doc Id # 2995957
