Directors and Related Entities Held Liable to Repay Diverted Funds; Rs. 344.58 Crore to be Deposited within 30 Days for Resolution Process
In a significant ruling dated September 2, 2026, the National Company Law Tribunal (NCLT), Mumbai Bench, has declared the diversion of Rs. 344.58 crore by Notion Real Estate Private Limited as fraudulent trading under Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016. The corporate debtor, which was sanctioned a project loan of nearly Rs. 360 crore by Dewan Housing Finance Limited (DHFL) for real estate development, was found to have misused the funds by diverting them towards purchasing equity shares of a related entity rather than for the approved project development.
The case was initiated by the Resolution Professional (RP) of Notion Real Estate, Incorp Restructuring Services LLP, following a forensic audit conducted by M/s Pipara & Co LLP. The audit revealed a scheme where the corporate debtor acted as a conduit to siphon off loan proceeds to group companies without board approvals, commercial agreements, or fair consideration. The forensic findings exposed that out of the Rs. 359.99 crore disbursed by DHFL, Rs. 344.58 crore was transferred to Respondent No. 9 (Kyata, formerly Wadhawan Realtors Private Limited) for acquiring equity shares of Darshan Developers Private Limited, a group entity related to DHFL.
The Tribunal observed that the corporate debtor had not generated any revenue from project execution since incorporation and failed to provide any documentation such as valuation reports, board resolutions, or share purchase agreements to justify the transaction. The sanctioned loan was explicitly restricted for project-related purposes, and the diversion amounted to a breach of contractual and legal obligations. The respondents, including directors at the relevant time, were held jointly and severally liable to repay the diverted amount with interest at 12% per annum from the date of disbursement.
The NCLT directed Respondent Nos. 3, 4, and 9 to deposit the amount of Rs. 344.58 crore with the Resolution Professional within 30 days to be used for the benefit of the committee of creditors. The tribunal noted the absence of any credible explanation or end-use certificate from the respondents and proceeded ex parte due to their non-appearance.
This judgment reinforces the strict scrutiny over the use of loan funds under the IBC framework and highlights the Tribunal's proactive stance in protecting creditor interests by declaring fraudulent transactions and ensuring recovery from responsible entities. The NCLT underscored that such fraudulent diversion of funds undermines the insolvency resolution process and amounts to wrongful trading.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Fraudulent trading and diversion of funds - Declaration of fraudulent transactions and liability of directors and related entities to contribute to the assets of the Corporate Debtor.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 66, Section 67; National Company Law Tribunal Rules, 2016 Rule 11; Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 Regulation 35A
