NCLAT Upholds NCLT's Ruling on Fraudulent Transactions by Axiomata Elevators' Directors

Appellate Tribunal Dismisses Appeal, Confirms Rs. 1.2 Crore Repayment Order for Misappropriated Funds

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) in Chennai upheld a decision by the National Company Law Tribunal (NCLT), ordering the directors of the now-insolvent Axiomata Elevators Pvt. Ltd. to repay Rs. 1,20,81,752 to the liquidation estate. The decision was rendered on September 23, 2025, by the bench comprising Justice Sharad Kumar Sharma and Jatindranath Swain. The judgment aligns with the stringent provisions under Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016, addressing fraudulent transactions.

The appeal was filed by Anish Lawrence and others, directors of Axiomata Elevators, challenging the NCLT's order which found them liable for engaging in fraudulent transactions intended to deplete the company’s assets. The transactions in question included unexplained bank withdrawals, diversion of funds into unauthorized accounts, and the misrepresentation concerning the sale of a company vehicle.

The NCLT had initially ordered the directors to repay the defrauded amount within a month, failing which an interest of 12% per annum would accrue. The directors had argued that the transactions were part of regular business activities and not fraudulent, citing a lack of opportunity to present additional evidence and alleging a violation of natural justice.

However, the NCLAT dismissed these claims, emphasizing that the appellants failed to provide contrary evidence during the NCLT proceedings or justify the transactions. The Tribunal noted that the directors had opened unauthorized bank accounts using the company’s PAN but with false addresses to divert payments from existing customers. Additionally, the purported sale of a company vehicle was falsely reported as scrap, further supporting the findings of fraudulent intent.

The NCLAT also rejected the appellants' plea to introduce new evidence at the appellate stage, citing provisions under Order XLI Rule 27 of the Civil Procedure Code, 1908. It stated that additional evidence is admissible only under exceptional circumstances, which the appellants failed to demonstrate.

Furthermore, the tribunal refuted the appellants’ reliance on the precedent set in the case of Jayesh Sanghrajka v. Divine Investments, clarifying that the requirement for a forensic audit was not a mandatory precondition for establishing fraudulent transactions under the IBC.

The ruling underscores the NCLAT's commitment to upholding the integrity of the insolvency process, ensuring that directors cannot misuse the corporate structure to defraud creditors. It sends a strong message about the accountability of corporate directors and the legal repercussions of fraudulent financial conduct.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Fraudulent transactions under Section 66 - Directors of the Corporate Debtor held liable for indulging in fraudulent transactions and directed to repay the defrauded amount to the liquidation estate.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 66, Civil Procedure Code, 1908 Order XLI Rule 27

Anish Lawrence v. Mr. Renahan Vamakesan, (NCLAT)(Chennai) : Law Finder Doc Id # 2790395