Tribunal Orders Directors to Repay Siphoned Funds Amid Allegations of Wrongful Trading During CIRP
In a significant judgment delivered by the National Company Law Appellate Tribunal (NCLAT), the Principal Bench in New Delhi upheld the findings of fraudulent transactions during the Corporate Insolvency Resolution Process (CIRP) of the corporate debtor. The judgment, dated December 11, 2025, addressed the appeal filed by Rana Sarkar, a suspended director, against the order of the National Company Law Tribunal (NCLT) Kolkata Bench, which directed the directors of the corporate debtor to deposit siphoned amounts back into the company’s account.
The case revolved around allegations of fraudulent trading and non-cooperation by the suspended directors during the CIRP. The Resolution Professional (RP) asserted that substantial cash withdrawals and payments to related parties were unexplained, suggesting fraudulent intent. The tribunal, relying on a transactional audit report and bank statements, shifted the burden of proof to the directors, who failed to provide satisfactory explanations or documents to rebut the allegations.
The RP's role was pivotal, as he formed an opinion based on available documents amidst a lack of cooperation from the directors. The tribunal emphasized compliance with the legal provisions and parameters laid down by the Supreme Court, underscoring the RP’s entitlement to appoint a transactional auditor in the absence of proper documentation.
The judgment highlighted various transactions deemed fraudulent, including unexplained cash withdrawals totaling Rs. 10.54 crores over several financial years and payments to related parties without adequate documentation. The tribunal dismissed the appeal, finding no merit in the appellant’s arguments, which included claims of resignation from the directorship and lack of involvement in daily management.
Furthermore, the tribunal observed that the appellant’s explanations, such as cash withdrawals for labor and site expenses, lacked supporting documentation, rendering them untenable. Payments to related parties like DAG Creative Media Pvt. Ltd. and individuals such as Gour Gopal Sarkar and Snigdha Sarkar were scrutinized, revealing excess payments without justification.
The judgment reaffirmed the RP’s findings, citing fraudulent intent and misappropriation to defraud creditors. It concluded that once the burden of proving fraudulent transactions was discharged by the RP, the onus shifted to the directors to justify the transactions as ordinary business. The tribunal’s decision mandated the directors to deposit the siphoned amounts with interest within a month, marking a crucial step in addressing fraudulent practices during insolvency proceedings.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Section 66 - Fraudulent transactions during Corporate Insolvency Resolution Process (CIRP) - Tribunal upheld the findings of fraudulent transactions and wrongful trading, directing directors to deposit siphoned amounts - Burden of proof shifted to directors to justify transactions, once prima facie evidence was presented by the Resolution Professional (RP) through transactional audit and bank statements.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 66
Rana Sarkar v. Mr. Bimal Agarwal, (NCLAT)(Principal Bench: New Delhi) : Law Finder Doc Id # 2821320
