NCLAT (2026.01.28) in Worldwide Online Services Pvt. Ltd. Vs. Nandkishor Vishnupant Deshpande (RP) and Ors. [(2026) ibclaw.in 129 NCLAT, Company Appeal (AT) (Ins) No. 510 of 2021] held that;
Section 66(1) of IBC, 2016 deals with ‘Fraudulent Trading’ and Section 66(2) of IBC, 2016 deals with ‘Wrongful Trading’. Section 66(1) of IBC, 2016 imposes liability on ‘any person’ who were knowingly parties to the carrying on the business with a dishonest intention to defraud the creditors, to make contribution to the assets of the Corporate Debtor. Therefore to qualify under Section 66(1) of IBC, 2016, the transaction should be knowingly transacted with a dishonest intention to defraud the creditors of the CD,
while under Section 66(2) of IBC, 2016 , which deals with ‘Wrongful Trading’, Liability can only be fixed upon only ‘Director’ or ‘Partner’ and for a transaction to qualify under this Sub Section it must be shown that the parties to such transaction knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvency proceedings and they did not take due diligence with a view to minimizing the potential loss to the creditors of the company.
No need to say that the facts alleged and evidence produced must satisfy the ingredients of this section and the facts from which the intention to defraud may be deduced must be proved to satisfy of the conscience of the ‘Tribunal’ certainly on the scale of ‘preponderance of probability’.
Thirdly section 66 (1) also restricts the power of NCLT subject to being satisfy with pre-requisite that any business of the corporate debtor has been carried on with intent to defraud creditors or the corporate debtors or for any fraudulent purpose and if satisfied it powers to pass an order is only against such person who are responsible for the conduct of such fraudulent business of the corporate debtor with mens rea to make them personally liable to make such contributions to the assets of the corporate debtor as it may deem fit.”
Blogger’s Comments; Hon’ble Appellate Authority has observed as under;
# 56. . . . . . . . . Thus, it is a crystal clear case where false entries have been made in the financial statements of the CD in collaboration with the Appellant and in this background the financial accounts of the appellant and CD, which appears to have been made subsequently may not be given much weightage and appears to be only paper work.
With the above observations, Hon’ble Appellate Authority, restored the trade receivables of Rs. 98.97 Crs. from the appellant towards CD, treating the post May, 2019 credit entries only a paper work.
However, in the present case, when there are neither any pleadings/evidence nor there are any findings of NCLT/NCLAT that trade receivables of Rs. 98.97 Crs. are fraudulent transactions, orders for recovery of trade receivables of Rs. 98.97, Crs., under section 66(1) are not justified.
Excerpts of the Order;
The instant Appeal has been preferred by the Appellant under Section 61 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) read with Rule 19 of the NCLAT Rules, 2016 assailing the impugned order dated 29.01.2021 passed by the NCLT, Mumbai (in short ‘Adjudicating Authority’) in IA No. 1624 of 2020 in CP No. 2556/IB/MB/2019 under Section 66 of the Code read with Section 26 of the Code whereby the application moved by the resolution professional has been allowed and the appellant who was respondent no. 1 before the Adjudicating Authority has been directed to pay Rs. 98,96,82,438/- to the CD.
# 2. Brief facts necessary for the disposal of the instant appeal are that Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor vide order dated 13.11.2019 moved by the operational creditor under Section 9 of the Code against the corporate debtor i.e Royal Refinery Private Limited and the respondent no. 1 i.e. Mr. Nandkishor Vishnupant Deshpande was appointed as an Interim Resolution Professional (IRP) who was later on confirmed by the CoC of the CD as RP vide resolution passed in the first CoC meeting held on 17.12.2019. It is stated that corporate debtor i.e Royal Refinery Private Limited (RRPL) was engaged in the business of trading in bullion i.e importing gold and then exporting the same after performing manufacturing activity over the imported gold. The corporate debtor was also engaged in sale, purchase of gold in the local market.
# 3. It is in May, 2019 RRPL and its associated concerns and other entities including persons were searched by the Department of Revenue Intelligence (DRI) and it is stated that the business operation of the corporate debtor had virtually come to a standstill since May, 2019.
# 4. It is further reflected that during the course of the resolution of the CD an IA No. 1624 of 2020 was filed by the Resolution Professional under Section 66 read with Section 26 of the Code before the Adjudicating Authority and it was submitted that the transaction of Rs. 98,96,82,438/- between the corporate debtor and the appellant – Worldwide Online Services Private Limited (WOSPL) are covered under the provisions of Section 66 of the Code and the Adjudicating Authority was requested to pass necessary directions to the respondents to make good the potential loss suffered by the other creditors of the value of Rs. 98,96,82,438/-. The Adjudicating Authority gave a finding and direction requiring the appellant herein to return to the corporate debtor’s accounts sum of Rs. 98,96,82,438/- vide impugned order dated 29.01.2021.
# 5. The Adjudicating Authority noted in the judgment that as per the documents seized by the DRI and provided to the Resolution Professional, there was a balance of Rs. 98.97 Cr. which was receivable from the appellant herein to the corporate debtor i.e RRPL.
# 6. It was also noted by the Learned Adjudicating Authority that as per the documents seized by the DRI and provided to the RP, there were three ledger accounts of the appellant maintained by the CD as reflected in the books of accounts of the corporate debtor and these accounts were up to May, 2019 and is still the date of search of the DRI.
# 7. Since the Adjudicating Authority has noted the ledger copies as shared by the DRI to the Resolution Professional, we also reproduce the same for convenience: – . . . . .
# 8. The Adjudicating Authority has also noted that respondent no. 2 and 3 vide their replies submitted an unaudited amended tally data, whereby the entire outstanding receivable of Rs. 98.97 Cr. is stood reversed and no sum remained payable by respondent no. 1 to the CD. It is highlighted by the Adjudicating Authority that in the copy of the ledger provided by the respondents no. 1, 2 and 3 unilateral purchase entries were passed in a debtor customer account amounting to approximately Rs. 54.37 Cr. and unilateral sales entries (four in numbers) were deleted from the ledger aggregating approximately to Rs. 35.41 Cr. and these entries were available and could be seen in the accounts of the CD as seized by the DRI and therefore, the remaining balance is stood nullified by passing unilateral journal entries of approximately Rs. 14.31 Cr. It is thus emphasized by Learned Adjudicating Authority that the entire balance of Rs. 98.97 Cr. which was receivable by the appellant was wiped out and on the other hand, the appellant claimed that Rs. 1.27 lakh are now payable to it by the corporate debtor. The ledger statement as filed by suspended directors of the CD has been extracted by the Adjudicating Authority in the impugned judgment and we also reproduce the same as under: – . . . . .
# 9. The Adjudicating Authority also noted that in the replies filed by the respondent no. 2 and 3 (suspended directors of the CD) in IA No. 1212 of 2020 which was moved by RP seeking cooperation from the erstwhile directors under Section 19(2) of the Code also annexed the copies of the unaudited balance sheet for the period from 1st April 2018 to 31st March 2019 and 1st April 2019 to 13th November 2019. These unaudited balance sheets evidenced that an outstanding balance of Rupees 57.72 Cr. was receivable from respondent no. 1 (appellant).
# 10. The Adjudicating Authority further stated that the unaudited balance sheet shows certain purchase entries in the customer ledger accounts and there was no explanation regarding the invoices, description of goods and purchase orders being no reference to any purchase orders. The ledger account only goes to show that goods to the value of Rs. 54.37 Cr. were purchased from the respondent no. 1 and there is no physical inventory to corroborate such purchase entries. Thus, in the opinion of the Adjudicating Authority this is a clear plain case of apparent falsification of the books, ledgers and accounts of the corporate debtor.
# 11. The Adjudicating Authority has also stated that no record pertaining to the payment of the GST etc. has been produced towards the sale as at that point of time when the matter was before the Adjudicating Authority the appellant has not produced any invoice or invoices of the GST and the same has been produced at the appellate stage before us and we will deal this aspect of the matter at an appropriate place in the judgment.
# 12. The Adjudicating Authority was further of the view and stated that in view of the transactions the same were carried on by the erstwhile directors of the CD with the intention to defraud the creditors of the corporate debtor, and the parties were well aware of the fact that no goods were purchased by the corporate debtor and simply entries were created in the books of accounts to clear the liability of any fraudulent transaction between the appellant and suspended directors of the CD.
# 13. The Adjudicating Authority thereafter discussing the scope of Section 66 came to a conclusion that the transactions impugned before it were only an eyewash and has been recorded in the books of the accounts by doing paper work only and goes on to conclude that these were fraudulent transactions, and ultimately, direction was given in para 33 to 36 of the impugned judgment, which are being reproduced as under: –
“33. Upon perusal of the unaudited balance sheets for the year 1st April 2018 to 31st March, 2019 and 1st April, 2019 to 13th November, 2019 as produced in IA 1212/2020 filed by the Resolution Professional and copies of unaudited balance sheets for the same year, as produced/filed in the present IA, it can be said that, both the unaudited balance sheets relates to the same year, but contains different data, it is evident that there has been a clear falsification/fabrication of accounts of the corporate debtor. These unaudited balance sheet, evidenced that an outstanding balance of Rs. 57.72 crores was receivable from Respondent No. 1. In order to escape the wrath of provisions of Section 66 r/w 69, 70, 71 and 72 of the Code, the Respondent Nos. 2 and 3 created new book entries and hence the tally data shows that the entire outstanding receivable of Rs. 98.97 Crores stood reversed”.
34. The mere purchase entries in the ledger accounts without description of invoices and purchase orders does not substantiate the claim of purchase made by and between Respondent No. 1 and Respondent No. 2 and 3 herein. Further no record is produced to show payment of GST towards the said sales. Hence it is concluded that the above transactions are fraudulent in nature and there has been no sale of gold by Respondent No. 2 and 3 to Respondent No. 1 and therefore Respondent No. 1 is liable to refund the monies outstanding in the books of accounts of the corporate debtor.
35. This is the serious offence committed by the Respondent No. 1, Respondent No. 2 and Respondent No. 3 and the Respondent No. 1 being beneficiary of falsification of documents.
36. This Tribunal doth orders as follows:
a)The Respondent No. 1 is directed to refund Rs. 98,96,82,438/- immediately forthwith.
b)The IA is allowed and disposed off with the above direction”.
# 14. Ld. Counsel for the appellants submits that the Adjudicating Authority has committed manifest illegality in passing the impugned judgment and the whole judgment has been passed on the basis of the unaudited financial statements of the corporate debtor and the statements being not audited, no weightage could be given to them.
# 15. It is further submitted that unaudited financial statements cannot be used by the RP to form the basis of opinion / determination, as required under Regulation 35A of the CIRP Regulations, 2016.
# 16. After drawing our attention towards the Section 66 of the Code and Regulation 35A of the CIRP Regulations, 2016 it is vehemently submitted by Learned Counsel for the appellant that Section 66(1) uses the word knowingly, which attributes intention or mens rea to the parties to indulge in defrauding of creditors. However, in the present case, the Adjudicating Authority has incorrectly held that there was no requirement for proving of intention or mens rea.
# 17. It is further submitted that the intention to defraud the creditors has to be based upon some substantial evidence whereas the Adjudicating Authority has only relied on unaudited financial statements of the corporate debtor. Further, the appellant had enclosed his own statutory auditor’s report before the Learned Tribunal but the same was ignored and not appreciated in right perspective.
# 18. It is further submitted that in the case pertaining to the DRI, still the charges have not been framed and this aspect of the matter has also not been considered by Learned Adjudicating Authority and in any case, if anything which has been received by the DRI is to be considered, the DRI must have been impleaded as a party by the Adjudicating Authority.
# 19. It is further submitted that the casual approach with which the issue has been taken by the RP as well as by Learned Adjudicating Authority is not commensurate with the scheme of the Code especially when the matter is pertaining to the huge amount and directions are being given for return of the same. It is further submitted that a wrong fact has been recorded by the NCLT, that only unaudited daily data has been produced by the appellant while in fact the appellant has produced audited financial statement of itself before the Adjudicating Authority.
# 20. It is further submitted that the IRP has also not performed his statutory duties under Section 25 read with Section 29 of the Code and therefore it was the duty of the RP to prepare the information memorandum and to appoint accountants and legal professionals or transaction auditors in order to ascertain the correct financial position of the corporate debtor as well as the impugned transactions but this exercise has not been done by the IRP or the RP.
# 21. It is further submitted that despite the correct facts placed before the Adjudicating Authority the matter has not been adjudicated in right aspect and therefore, the judgment is liable to be set aside.
# 22. Here we state for the purpose of keeping it on record that while concluding submissions we have granted liberty to learned counsel for the parties to file the written submissions and since the respondent no. 5/liquidator of CD has filed his written submissions, no written submissions have been filed by the appellant in pursuance of our order within the time stipulated and it was after the expiry of the period, despite permission to file the written submission was not given by us, the written submissions have been filed by the Counsel for the Appellant. The judgment at that point of time was prepared, however we have also considered the written submissions filed by the Appellant.
# 23. Learned counsel for the respondent no. 5 i.e liquidator of the CD submits that the RP had confirmed after physical verification that the CD’s operations stood suspended from 23.05.2019 after the raids done by the DRI, and the CD had no employees and the details of the raids conducted by the DRI at the CD’s premises are contained in the show cause notices issued by the DRI, which are on record.
# 24. It is further submitted that the contention of Resolution Professionals’ regarding absence of any relevant assets or inventory with the CD has been affirmed by this Appellate Tribunal in Royal India Corporation Limited versus Nand Kishore Deshpande reported in 2024 SCC Online NCLAT 640 in paragraph nos. 10.1 and 10.5 and also the appellant had in fact admitted that DRI had seized all the records of the CD and even the business premises and arrested the directors of the CD. Reference in this regard may be taken to paragraph no. 16(a) of the rejoinder affidavit filed by the appellant.
# 25. It is further submitted that it is also admitted to the directors of the CD, that the affairs of the CD were affected due to the raids conducted by the DRI and it may be taken that when the business activities have come to a halt, there was no room left for the CD to carry its import export activity of gold.
# 26. It is further submitted that the transactions impugned herein held between the appellant and the CD may be divided into three categories and one of the category is with regard to the transactions held prior to the month of May, 2019 and another category is pertaining to the transactions which have been held by CD with the appellant in May, 2019 and the third category is of the purported transactions of sale between Appellant and CD after May, 2019 between July to October,2019.
# 27. It is submitted that the appellant has not challenged or refuted any entry in the account of the CDs as obtained from the DRI for the period prior to May, 2019 and in this regard, the ledgers produced before the Adjudicating Authority by the appellant in reply and ledgers produced by the suspended directors of the CD reflect the same closing balances as on 31.03.2019 as has been shown in the ledgers provided by the DRI.
# 28. It is further submitted that there are four transactions of sale with the CD as seller and the appellant as purchaser in the RP’s ledger from 07.05.2019 to 20.05.2019 for a total value of Rs. 35.41 Cr. However, these transactions have been fraudulently removed in the ledgers produced by the appellant and the suspended directors. Similarly, another transaction for sale dated 02.05.2019 for Rs. 7.09 Cr. in the RP’s ledger do not feature in the ledgers submitted by the appellant or the suspended directors of the CD deliberately to shield this transaction.
# 29. It is further submitted that it is the case of the Appellant that the outstanding owed to CD were squared off on account of purported sale of gold by the Appellant to the CD for Rs. 56.45 Cr. for a quantity of 153.68 Kg. of gold between 26.07.2019 to 25.09.2019, however, these purported sale transactions are not supported from the fact that the CD had ceased its operation after the Raid of the DRI in May 2019 and the RP did not find any inventory of gold or physical verification at the site or any of the premises of the CD despite increase on paper and there are no similar transactions of sale occurred between the appellant as seller and the CD as a buyer for the relevant period between 01.04.2018 to 20.05.2019. Therefore, the purported sale from July, 2019 onwards is fictitious and a sham transaction.
# 30. It is further submitted that there is no proof of actual delivery of gold by the appellant to the CD and no corresponding inventory of gold was found with the CD and these facts clearly establish that these transactions recorded in the statements submitted by the appellant and suspended directors of the CD are fictitious and false.
# 31. It is further submitted that similar fraudulent conduct on the part of the CD and its suspended directors pertaining to the gold is also the subject matter of proceeding under Customs Act 1962 and the findings in the customs penalty order dated 04.02.2021 also noted that the CD was used as a front company to fraudulently and illegally obtained duty-free gold under the CD’s gold import Authorization. In this regard, the para 62 to 64 of the custom penalty order may be perused.
# 32. It is further submitted that the appellant has filed certain documents with the additional affidavit. However, the same could not be taken on record for the reason that ample opportunity was provided to the appellant to produce these documents by the Adjudicating Authority and despite ample time given, he did not file any document before the Adjudicating Authority and no documents in the shape of additional evidence could be permitted to be filed only to fill the lacuna of the case of the appellant.
# 33. It is further submitted that Regulation 35A of the Regulations, 2016 has been complied and followed by the resolution professional and moreover, it is a settled law that the Regulation 35A requirement is directory in nature and is not mandatory. In this regard, the law laid down by the Hon’ble Supreme Court in Aditya Kumar Tibrewal vs Om Prakash Pandey, [(2022) ibclaw.in 278 NCLAT] : 2022 SCC Online NCLAT 142 may be referred and the law laid down by this Appellate Tribunal in the case of the same CD reported in Shri Baiju Trading and Investment Private Limited versus Arihant Nenawati, 2023 SCC Online NCLAT 845 may be recalled. It is further submitted that directions under Section 66(1) of the Code can be issued against third parties also. In this regard, the law laid down by this Appellate Tribunal in Tridhaatu Kirti Developers LLP versus Arihant Nenawati [(2023) ibclaw.in 27 NCLAT] may be recalled and so far as the order in Glukrich Capital Private Limited versus State of West Bengal, [(2023) ibclaw.in 84 SC] : 2023 SCC Online SC 1187 is concerned, the same is confined to its own facts and in this regard, the law laid down in Mohandas Issardas versus A. N. Sattanathan, reported in ILR (1955) 55 Bombay 318 may be referred.
# 34. Ld. Counsel for the respondent/ liquidator has also relied on the law laid down by this Appellate Tribunal in the case emerging from the same corporate debtor i.e Royal India Corporation Limited versus Nandkishor Deshpande, [(2024) ibclaw.in 304 NCLAT] : 2024 SCC Online NCLAT 640 as also on the law laid down in Sangeeta Jitender Mehta versus Kailash Shah, RP of New Empire Textile Processor Private Limited, [(2025) ibclaw.in 284 NCLAT] : 2025 SCC Online NCLAT 795 and Vistara (ITCL) India Limited versus Satara Properties India Limited, [(2025) ibclaw.in 467 NCLAT] : 2025 SCC Online NCLAT 1116 as well as on the law in Anubhav Anil Kumar Agarwal versus Rajinder Kumar Giradhar, [(2025) ibclaw.in 964 NCLAT] : 2025 SCC Online NCLAT 1953.
# 35. It is submitted that the Adjudicating Authority has given ample reasons and findings after considering all the evidence/ material available on record and therefore, the same may not be interfered with.
# 36. So far as the invoices of some GST payment has been filed by Learned Counsel for the appellant along with the Appeal, no permission with regard to the same has been taken. It is vehemently submitted that the fraud may also be committed while paying the requisite GST and as by paying the GST with regard to few lakhs, huge amount of crores of rupees may be siphoned and misappropriated. Therefore, the submission of the GST invoices may not be of any help to the appellant.
# 37. It is further submitted that with regard to the identical corporate debtor earlier few appeals have been decided by this Appellate Tribunal and one of such appeal Tridhaatu (Supra) has travelled up to the Honourable Supreme Court and the Honourable Supreme Court has decided the appeal while rejecting the appeal preferred by the appellant and the order of this appellate tribunal has been affirmed whereby the impugned transactions were directed to be repaid to the corporate debtor.
# 38. It is further submitted that there is no illegality or to say any infirmity so far as the impugned order is concerned and therefore, no interference is required therein.
# 39. Having heard Ld. Counsel for the parties and having perused the record it is reflected that by passing the impugned order on an application moved by the Resolution Professional under Section 66 of the Code, Ld. Adjudicating Authority has directed the Appellant to pay Rs. 98,96,82,438/- to the CD as the transactions of Rs. 98,96,82,438/- held between the CD and the appellant- World Wide online Services Pvt. Ltd. (WWOSPL) were found fraudulent and covered under Section 66 of the Code.
# 40. Amongst other Ld. Counsel for the appellant had highlighted Regulation 35A of the CIRP Regulations, 2016 in order to show that there was no material with the RP to have formed an opinion with regard to the impugned transactions being fraudulent. We notice that in the application moved by the Resolution Professional before Ld. Adjudicating Authority it was categorically stated that the management of the CD was totally non-cooperative with the RP and whatever documents the RP could collect were perused by him and he found that the CD is a company which is engaged in the business of importing and exporting gold as well as also indulged in sale/purchase of the Gold in local market and generally no credit is offered to the purchaser of the gold items and keeping in view the critical evaluation of data and desktop searches he observed certain creditors, appellant being one of them, to whom fraudulent preference has been given in business transactions and thus labelled certain transactions as fraudulent.
# 41. We also notice that the CD was keeping three ledger accounts of the Appellant in the name of World Wide Online Services Pvt. Ltd. (purchase ledger), World Wide Online Services Pvt. Ltd. (Jewellery) and World Wide Online Services Pvt. Ltd. (Sales) and the entries in these ledgers pertaining to the period 01.04.2015 to 20.05.2019 were assessed which shows that about Rs. 98,96,82,438/- were outstanding for more than two years which is not a normal practice of the trade. It is also noticed that there were invoices of unpaid amounts found with regard to these transactions and these invoices were also placed before the Ld. Adjudicating Authority and thereafter several emails are stated to have been written by the Resolution Professional (RP) to the Suspended Management of the CD however no response has been received and when the matter was followed up no satisfying answer was given with regard to these entries and ultimately the RP managed to get some information from the Director of Revenue Intelligence (DRI), including financial statements of the CD which were siezed by the DRI at the time of the raids conducted at the premises of the CD and its directors.
# 42. It is also to be recalled that Respondent No. 4 was appointed as the Statutory Auditor of the CD from 07.12.2019 to 13.02.2020 but he also failed to provide any detail as well as the audited financial statements for the period ending 31.03.2019 and he ultimately resigned and on the basis of the material collected and being satisfied by the same an application was moved.
# 43. We notice and also highlighted by the Adjudicating Authority that in the replies filed by the Suspended Directors of the CD before Ld. Adjudicating Authority financial statements were enclosed, wherein the entire outstanding receivable of Rs. 98.97 Crores were reversed and no sum payable by the appellant to the CD, remained. Glaring discrepancies have been found by Ld. Adjudicating Authority in the financial accounts provided by the DRI and those submitted by the Suspended Directors of the CD with their replies, which shows that unilateral purchase entries were passed amounting to Rs. 54.37 Crores and the sales entries of Rs. 35.41 Crores, which were existing in the financial statements provided by the DRI have been deleted and the rest of the balance of Rs. 14.31 Crores has been nullified by passing unilateral journal entries and therefore the entire balance of Rs. 98.97 crores which was receivable by Respondent No. 1 was wiped out by doing fraudulent paper work.
# 44. So much so the Adjudicating Authority further noticed that in the replies filed by the suspended director of the CD with regard to IA No. 1212 of 2020 which was moved by the RP for seeking cooperation from the erstwhile Directors under Section 19 (2) of the Code, the copies of the unaudited balance sheets for the period from 01.04.2018-31.03.2019 and 01.04.2019 to 13.11.2019 were filed and these Balance Sheets shows an outstanding balance of Rs. 57.72 crores receivable from Respondent No. 1 and thus it has been rightly held by Ld. Adjudicating Authority that fraudulent new book entries have been made in the financial statements of the CD to clear the balances which otherwise were payable by Appellant No. 1 to CD.
# 45. It is also to be recalled that the premises of the CD were raided by the DRI in the month of May, 2019 and thereafter the RP has not found any inventory of gold etc. which was also discussed in the meeting of the COC and after the DRI raids the business of the CD was almost shut down and thus there was no reason for the appellant to have entered into any transaction with the CD.
# 46. In a case relied on by Ld. Counsel for Respondent No. 5 namely Royal India Corporation Ltd. vs. Nand Kishor Vishnupant Pandey and Ors., CA (AT) (Ins) No. 137 of 2021 which is an appeal concerning the transaction mode with the same CD, this tribunal has noted the order dated 04.02.2021 passed by the Joint Commissioner of Customs as under:
“3. I find from the instigation conducted by DRI and the statements of the Directors and employees of RRPL, that the RRPL was a front company run by Shri Manojkumar Babulal Punamiya. Shri Manojkumar Babulal Punamiya appears to have arranged finances for the company and recruited directors like Shri Vishal Harish Choudhary and Shri Gaurav Dilipraj Panwar. Both the directors acted under his instructions on front end and he was behind the curtain. Under the directions of Shri Manojkumar Babulal Punamiya both the above directors had planned to import duty-free gold bars under Advance Authorisation and divert the same to domestic market and further planned to fulfill export obligation by showing export of non-gold jewellery of alloys of copper and nickel, as gold jewellery”.
# 47. Various submissions have been raised by the suspended directors of the CD as well as by the Appellant pertaining to the sufficiency of material with the RP for moving an application before the Adjudicating Authority and it is argued that on the basis of unaudited financial accounts the application for declaring certain transaction as fraudulent may not succeed.
# 48. We are not in agreement with the submissions made by Ld. Counsel for the Appellant and are of the considered view that a decision pertaining to the impugned transactions was required to be taken by Ld. Adjudicating Authority on the basis of the evidence and material made available to it. The financial accounts seized by the DRI and provided to the RP cannot be brushed aside lightly and in absence of any purchase orders and also in view that there was no inventory at all with the CD, as its Directors were in Jail, the entries in the financial accounts relied on by the appellant and suspended Directors of the CD may not have much substance and it is evident that by making false entries in the accounts book the receivable of respondent no. 1 have been wiped out to defraud the other creditors of the CD.
# 49. We do not want to go in the question of presence of mens rea with the appellant or suspended directors of the CD as it is very difficult for the RP to have proved the same by tendering any direct and cogent evidence. The mental state of a person may be gathered by his act and in this case having regard to the impugned transactions found in the financial statements submitted by the suspended directors of the CD before the adjudicating authority and the documents given by the DRI to the RP clearly suggests that fraudulent entries have been made with the intention to defraud the genuine creditors of the CD and for the benefit of the Appellant. Thus the fraudulent mental state of the appellant and directors of the CD is apparent.
# 50. So far as the contention of the appellant pertaining to the fact that there are GST invoices filed on the record of this appellate tribunal with regard to the impugned transaction, is concerned, we are in agreement with the submissions made by Ld. Counsel for the Respondent No. 5/liquidator in terms that the fraud may be committed even by raising GST invoices as by spending few lakhs in GST invoices, Crores of Rupees have been siphoned. It may be recalled that some of these transactions are shown to have been executed just after the raids of the DRI at the premises of the CD and the CIRP of the CD was very much in contemplation. It also appears that application under Section 9 of the IBC was filed by the operational creditor for initiation of the CIRP of CD on 12.06.2019 and order has been passed by Ld. Adjudicating Authority on 13.11.2019. It is also to be recalled that we are in an era where the conspiracies are hatched in isolation and executed with precision and when some fraudulent transactions are made with planning and prior homework, direct evidence of the same is seldom available. It is evident in this case that, certain entries were deleted and added in the financial accounts by CD whereby the appellant was benefitted to the tune of Rs. 98,96,82,438/-would itself clearly established that by making fraudulent entries the receivable by the appellant has been wiped out.
# 51. The other submission of Ld. Counsel for the appellant is pertaining to the fact that no direction under Section 66 of the Code to contribute to the account of CD may be given to a third party and reliance has been placed on Gluckrich Capital Pvt. Ltd. vs. The State of West Bengal and Ors., [(2023) ibclaw.in 75 SC] : (2023) SCC online SC 1187. The issue is now no more res integra and has been settled by catena of judgments passed by this Appellate Tribunal. A plain reading of Section 66 of the Code would demonstrate that under Section 66(1) if during the corporate insolvency resolution process or a liquidation process it is found that the business of the CD has been carried on with the intent to defraud creditors of the CD or for any fraudulent purpose the adjudicating authority on an application moved by the resolution professional may pass an order directing any persons who were knowingly parties to the carrying of the business in such manner to make contributions to the asset of the CD as the tribunal may deem fit. Sub-Section 2 of Section 66 also provides that on an application made by the RP during corporate insolvency resolution process the Adjudicating Authority may by an order direct that a director or partner of the CD shall be liable to make such contribution to the assets of the CD if, before the insolvency commencement date such director or partner knew or ought to have known that there was no reasonable prospect of avoiding the commencement of CIRP and they did not exercise due diligence in minimising the potential loss to the creditors of the CD.
# 52. In Renuka Devi Rangaswamy v. Mr. Madhusudan Khemka Suspended Director of M/s. Regen Infrastructure and Services Pvt. Ltd. [(2023) ibclaw.in 384 NCLAT] [Company Appeal (AT)(CH)(Ins) No. 356 of 2022], this appellate tribunal held in paragraph No.37 as under; –
“Para 37 `Dishonesty’, is an essential ingredient of `Fraudulent Trading’. The `Aspect of Dishonesty’, is to be established and it cannot be inferred in any manner. Whether a `Director’, had exercised his skill, experience and general knowledge, to be expected of a person, in carrying out the `duties of his functions’, is to be determined for a `Liability’, in the considered opinion of this `Tribunal’.”
# 53. In Piramal Capital and Housing Finance Limited v. Moons Technologies Ltd. & Ors. [(2025) ibclaw.in 120 SC] : [2025 SCC Online SC 690], observations made by the Hon’ble Supreme Court are reproduced as under: –
“56. Thus, there is a clear distinction between the Avoidance Applications that may be filed by the Resolution Professional in view of Section 25(2)(j), for avoidance of transactions in accordance with Chapter III of the Code, and the Applications that may be filed by the Resolution Professional in respect of the Fraudulent trading or Wrongful trading under Section 66, which falls under Chapter VI of the Code. The legislature has consciously kept the Applications in respect of Fraudulent trading or Wrongful trading falling in Chapter VI, outside the purview of Section 25(2), which requires the Resolution Professional to undertake the actions and file applications for the avoidance of transactions in accordance with Chapter III. Both, the Avoidance Applications under Chapter III and the Applications in respect of Fraudulent trading or Wrongful trading under Chapter VI, operate in different situations. The powers of the Adjudicating Authority in respect of the Avoidance Applications filed under Chapter III and the powers of the Adjudicating Authority in respect of the Applications pertaining to the Fraudulent and Wrongful trading filed under Chapter VI, have also been separately circumscribed.
60. However, in cases of “Fraudulent or Wrongful trading” in respect of the business of the CD as contemplated Civil Appeal Nos. 1632-1634 of 2022 Page 94 of 145 in Section 66, the properties and the persons involved may or may not be ascertainable and therefore the Adjudicating Authority is not empowered to pass orders to avoid or set aside such transactions, but is empowered to pass orders to the effect that any persons, who were knowingly parties to the carrying on of business in such manner, shall be liable to make such contributions to the assets of the CD, as it may deem fit. The Adjudicating Authority in such applications may also direct that the Director of the CD shall be liable to make such contribution to the assets of the CD as it may deem fit, as contemplated in Section 66(2). In case of Fraudulent trading or Wrongful trading, it would be a matter of inquiry to be made by the Adjudicating Authority as to whether the business of CD was carried on with intent to defraud creditors of the CD or was carried on for any fraudulent purpose.
61. In view of the above, the Applications filed in respect of “Fraudulent and Wrongful trading” carried on by the CD, could not be termed as “Avoidance Applications” used for the Applications filed under Sections 43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate Civil Appeal Nos. 1632-1634 of 2022 Page 95 of 145 transactions, as the case may be. There is clear demarcation of powers of the Adjudicating Authority to pass orders in the Avoidance Applications filed by the Resolution Professional under Section 43, 45 and 50 falling under Chapter III and the Applications filed by the Resolution Professional in respect of the Fraudulent and Wrongful trading of CD, under Section 66 falling under Chapter VI of the IBC. If the Resolution Professional has filed common applications under Sections 43, 45, 50 and also under Section 66, the Adjudicating Authority shall have to distinguish the same and decide as to which provision would be attracted to which of the Applications, and then shall exercise the powers and pass the orders in terms of the provisions of IBC.”
# 54. This appellate tribunal in Swapan Kumar Saha v. Ashok Kumar Agarwal, (2025) ibclaw.in 911 NCLAT, while considering various cases on the subject held as under:
“28……b. Can Section 66(1) of the Code be interpreted or invoked or made operational without recourse to Section 66(2) of the Code? Do they operate independent of each other or jointly?”
44. We further note that the next subsection 66(2) relates to specific provisions for a Director or partner of the CD for which CIRP is going on. This subsection provides that if before the insolvency commencement date, a director or partner knew or ought to have known that CIRP could not have been avoided and failed to exercise due diligence in minimising potential loss to the creditors, AA may direct the erring director or partner to be liable and make such contributions to the assets of the CD as it may deem fit. We observe that the first provision (section 66(1)) is very broad but not the second one (Section 66(2)) ….
45. From a bare reading of Section 66(1) and Section 66(2) of the IBC we find that both have self-contained provisions, with clear mechanisms for their invocation during a CIRP. Further, a perfunctory glance at Section 67 of the IBC will make it abundantly clear that the draftsmen and legislators clearly intended for Sec 66(1) and Section 66(2) to operate independently, as the opening line of Section 67(1) and 67(2) of the IBC would reflect, ……..”
Thus the above placed cases would sufficiently lay down the proposition that Section 66 of the IBC, 2016 deals with two different situations. Section 66(1) of IBC, 2016 deals with ‘Fraudulent Trading’ and Section 66(2) of IBC, 2016 deals with ‘Wrongful Trading’. Section 66(1) of IBC, 2016 imposes liability on ‘any person’ who were knowingly parties to the carrying on the business with a dishonest intention to defraud the creditors, to make contribution to the assets of the Corporate Debtor. Therefore to qualify under Section 66(1) of IBC, 2016, the transaction should be knowingly transacted with a dishonest intention to defraud the creditors of the CD, while under Section 66(2) of IBC, 2016 , which deals with ‘Wrongful Trading’, Liability can only be fixed upon only ‘Director’ or ‘Partner’ and for a transaction to qualify under this Sub Section it must be shown that the parties to such transaction knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvency proceedings and they did not take due diligence with a view to minimizing the potential loss to the creditors of the company. Thus both these sub sections of Section 66 of the Code takes care of two different situations and also the scope of sub – section (1) and (2) of Section 66 of IBC, 2016 is different. No need to say that the facts alleged and evidence produced must satisfy the ingredients of this section and the facts from which the intention to defraud may be deduced must be proved to satisfy of the conscience of the ‘Tribunal’ certainly on the scale of ‘preponderance of probability’. However, no strait jacket formula can be formulated to fit in all factual situations and it will depend on the facts and evidence placed in each case to asses as to whether the particular transaction may be treated as fraudulent or not.
# 55. What is also evident from the record is that during the search action conducted by DRI in May 2019, on the premises of the CD and its Directors various documents/financial accounts were seized the DRI and on the request of RP, were made available to him, which shows that the appellant owed Rs. 98,96,82,438/- to the CD and it is established by the material placed on record that the CD was almost closed since May, 2019 and was not doing any business, because of the raids conducted by the DRI.
# 56. It is also established and has also not been challenged by the Appellant that in the financial statements seized by the DRI, outstanding amount of Rs. 98,96,82,438/- of the appellant was reflected but through entries made subsequently the outstanding amount was brought down to Nil. In this regard the contention of the statutory auditor may also be recalled when he stated that he was not provided any financial statements. It is also evident that RP had also reported to the CoC of the CD that no inventory corresponding to the transactions shown by the Appellant was found by the RP at the premise of the CD. Thus, it is a crystal clear case where false entries have been made in the financial statements of the CD in collaboration with the Appellant and in this background the financial accounts of the appellant and CD, which appears to have been made subsequently may not be given much weightage and appears to be only paper work.
# 57. In Royal India Corporation Limites vs Mr NandKishor Vishnupant Pande (RP of RRPL) [(2024) ibclaw.in 304 NCLAT], dated 06.05.2024 passed in Company Appeal (AT) (Insolvency) No. 137/2021, wherein the same set of CD and Directors were parties and the transaction was similar, a coordinate Bench of this Appellate Tribunal opined as under: –
“10.3 The Appellant had relied on the judgment of the Hon’ble Supreme Court in the matter of Gluckrich Capital Pvt. Ltd. vs. State of West Bengal & Ors.- 2023 SCC OnLine SC 1187 and in the case Usha Ananthasubramanian vs. Union of India- (2020) 4 SCC 132. On perusal of the judgment of the Hon’ble Supreme Court in the case of Gluckrich Capital Pvt. Ltd. vs. State of West Bengal & Ors.- 2023 SCC OnLine SC 1187 quoted by the Appellant it is seen that the application seeking clarification of Judgment and order dated 24.02.2023 passed by the Hon’ble Supreme Court in SLP (Crl.), diary no. 6723/23, filed by Applicant was dismissed and the said judgment related to transit anticipatory bail in a criminal case.
10.4 The judgment of the Hon’ble Supreme Court, relied upon by the Appellant in the case Usha Ananthasubramanian vs. Union of India; (2020) 4 SCC 132 the facts were entirely different. The said appeal was filed by Usha Ananthasubramanian, former MD & CEO, Punjab National Bank wherein the judgment of NCLT and NCLAT was set aside. In this case, the allegation was that the Appellant had failed to take preventive steps to prevent fraud perpetuated by Mr. Nirav Modi and thereby committed mischief and conspiracy with the other accused person. …………
10.5 The facts of the present case are different and distinguishable from the cases cited by the Appellant. In the present case, there is a finding that Manoj Punamia was running several companies in its business of gold refinery. The finding of the Customs Department was that both the Appellant Company (RICL) and Corporate Debtor (RRPL) were being managed by Mr. Manoj Punamia. Mr. Manoj Punamia and his wife were said to be shareholders of the Appellant Company. In these circumstances, the appellant cannot be said to be a third party, as both RICL and RRPL are under the control of same person. “
# 58. This Appellate Tribunal in Company Appeal (AT) (Insolvency) No.104 of 2024, Sangeeta Jatinder Mehta & Anr. vs Kailash Shah RP of New Empire Textile Processor Pvt. Ltd., [(2025) ibclaw.in 284 NCLAT] : 2025 SCC OnLine NCLAT 795 held as under: –
“8. The judgment, which has been relied by learned Counsel for the Respondent in Royal India Corporation Ltd. (supra) of this Tribunal supports the submission of Respondent that action under Section 66, sub-section (1) can be taken against any person. The judgment of this Tribunal in Tridhaatu Kirti Developers LLP also supports the submission of learned Counsel for the Respondent. We, thus, do not find any error in the judgment of Adjudicating Authority insofar as it has held that transaction of payment of consultancy charges to Appellant Nos.1 and 2 were not bona-fide transaction.
9. The judgment of Tripura High Court in Smt. Sudipa Nath vs Union Of India, 2023, SCC OnLine Tri 79 has been relied by the Appellant. In paragraph 19 of the judgment, following was laid down: “(19) Therefore, in legislature wisdom and as apparent from the text of 66(1) it is clear that firstly it confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful. Secondly section 66(1) contemplates an application thereunder only by the resolution professional and by none other. Thirdly section 66 (1) also restricts the power of NCLT subject to being satisfy with pre-requisite that any business of the corporate debtor has been carried on with intent to defraud creditors or the corporate debtors or for any fraudulent purpose and if satisfied it powers to pass an order is only against such person who are responsible for the conduct of such fraudulent business of the corporate debtor with mens rea to make them personally liable to make such contributions to the assets of the corporate debtor as it may deem fit.”
10. learned Counsel for the Appellants has also relied on the judgment of Hon’ble Supreme Court in Gluckrich Capital Pvt. Ltd. (supra), which proceedings arose out of interim order dated 30.11.2022 passed by Delhi High Court in Criminal M.C. No.6408 of 2022 extending the transit anticipatory bail granted to the Respondent, who were stated to be Suspended Directors of CD. Vide judgment dated 24.02.2023, Special Leave Petition (Criminal) filed by the Applicant was rejected holding that it has no locus, it being neither the informant nor a party to the proceedings. Subsequently, an Application for clarification was filed, which ultimately was rejected. In paragraph-7 of the judgment, the Hon’ble Supreme Court in Gluckrich Capital Pvt. Ltd. laid down following:
“7. In our considered opinion, in the name of seeking a clarification, the endeavor of the applicant herein is to indirectly get over with the judgment and order dated 18.01.2023 in WP(C) (PIL) 04 of 2023 passed by Tripura High Court. Such an endeavor, in the guise of a clarification, cannot be permitted.”
In result, we partly allow the Appeal and set-aside the direction of the Adjudicating Authority in the impugned order, insofar as it declared the transfer of Flats by CD in favour of the Appellants, void. We, however, uphold the direction of the Adjudicating Authority with respect to consultancy charges of Rs.13.74 lakhs with respect to Appellant No.1 and Rs.13.80 lakhs with respect to Appellant No.2. We direct Appellant Nos.1 and 2 to deposit the aforesaid amount in the account of CD within a period of 30 days from today. (Emphasis Ours)
# 59. We also notice that on identical facts with regard to the same CD and same Directors, in the case of Baiju Trading and investment Pvt. Ltd. vs. Mr. Arihant Nenawati (liquidator for RRPL & Ors.) [(2023) ibclaw.in 216 NCLAT] the orders passed by the NCLT under Section 66 of the IBC, was upheld by this Appellate Tribunal vide order dated 29.03.2023, and similarly in case of Tridhaatu Kriti Developers LLP vs. Arihant Nenawati (liquidator for RRPL & Ors.) [(2023) ibclaw.in 27 NCLAT] : (2023) SCC online NCLAT 1583 against the same Respondents the order of NCLT passed under Section 66 of the Code was affirmed and the order of this Appellate Tribunal was challenged before the Hon’ble Supreme Court by filling Civil Appeal No. 914 of 2023 and the order of this Appellate Tribunal was upheld by the Hon’ble Supreme Court.
# 60. Therefore, keeping in view all the facts and circumstances of the case and for the reasons given herein before we are not having any iota of doubt in our mind that simply by making fraudulent entries in the accounts books and statements the receivables to the appellant to an amount of Rs. 98,96,82,438/- has been wiped out and in this way the genuine creditors of the CD has been defrauded without any actual sale of gold. Thus, we do not find any good ground on the basis of which any interference in the impugned judgment may be made.
# 61. Resultantly, the appeal lacks merit and is hereby dismissed. No order as to costs.
# 62. Pending IA’s if any, are hereby closed.
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