NCLAT Upholds NCLT's Order: Directors Ordered to Refund Rs. 91 Lakh for Wrongful Trading

Directors Held Liable for Violation of Moratorium and Dissipation of Assets During Insolvency Proceedings

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has upheld the decision of the National Company Law Tribunal (NCLT), Mumbai Bench, ordering the erstwhile directors of Satra Properties (India) Ltd. to refund Rs. 91 lakh to the corporate debtor. This decision, dated November 27, 2025, comes in response to allegations of wrongful trading and asset dissipation in violation of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The case, titled "Praful Satra v. Ms. Vaishali Patrikar," involved the directors of the corporate debtor being directed to jointly and severally refund Rs. 91 lakh, along with interest, due to their actions that were found to have knowingly dissipated the company’s assets during the Corporate Insolvency Resolution Process (CIRP). The judgment emphasized that the directors were aware of the impending insolvency proceedings and yet issued cheques amounting to Rs. 91 lakh, which were encashed after the commencement of the CIRP, thereby violating the statutory moratorium.

The NCLAT's decision clarifies the distinct and independent nature of Sections 66(1) and 66(2) of the IBC, indicating that directors' liability under Section 66(2) does not require proof of fraudulent intent as under Section 66(1). Instead, it is sufficient to demonstrate that the directors failed to exercise due diligence to minimize creditor losses once they knew that the CIRP was unavoidable.

The appellant directors had contended that the payments were part of a bona fide pre-CIRP commercial arrangement under a Memorandum of Understanding (MOU) with Shreeniwas Developers, aimed at protecting creditor value and completing a redevelopment project. However, the tribunal found no legitimate business purpose behind the transactions, especially given the financial distress of the corporate debtor and the lack of due diligence demonstrated by the directors.

The NCLAT further dismissed the appellants’ argument that Section 66 does not authorize the imposition of interest on the refunded amount, noting that the adjudicating authority is empowered to include interest as part of contributions to the corporate debtor’s assets.

This ruling underscores the rigorous application of the IBC's provisions to prevent wrongful trading and protect the interests of creditors during insolvency proceedings, reinforcing the accountability of directors in managing corporate affairs amidst financial distress.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Section 66(2) - Directors found liable for wrongful trading due to dissipation of corporate debtor's assets during CIRP, with full knowledge of impending insolvency, in violation of moratorium under Section 14 of the Code.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 14, 66(1), 66(2), 95, 96

Praful Satra v. Ms. Vaishali Patrikar, (NCLAT)(Principal Bench)(New Delhi) : Law Finder Doc Id # 2813985