Kochi Bench of NCLT Holds Directors of Thesaurus Projects Pvt. Ltd. Accountable for Fraudulent and Wrongful Trading
In a significant ruling, the National Company Law Tribunal (NCLT), Kochi Bench, has held the directors of Thesaurus Projects Pvt. Ltd. accountable for engaging in fraudulent trading practices. The tribunal, presided over by Shri Vinay Goel, Member (Judicial), directed the directors to jointly and severally contribute Rs. 11.95 crore to restore the corporate debtor's assets.
The case was brought before the tribunal by K.J. Vinod, the Liquidator of Thesaurus Projects Pvt. Ltd., under Section 66 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Liquidator alleged that the directors had engaged in fraudulent transactions, as evidenced by a forensic audit that revealed significant financial discrepancies, including the diversion of funds and non-maintenance of accounts.
The forensic audit, conducted by M/s Grad & Company, highlighted several instances of financial misconduct, including unaccounted cash transactions, undisclosed revenues, and assets kept out of the creditors' reach. The audit report indicated a deliberate attempt to defraud creditors, leading to the tribunal's decision to impose personal liability on the directors.
The tribunal noted that the directors' actions violated Section 66 of the IBC, which pertains to fraudulent and wrongful trading. The tribunal emphasized that the directors had failed to exercise due diligence in managing the company's finances, resulting in substantial losses to creditors.
Furthermore, the tribunal observed that Section 66 does not prescribe a look-back period for fraudulent transactions, thereby ensuring accountability irrespective of when the fraud occurred. The tribunal's decision underscores the principle that fraudulent conduct cannot be legitimized by the mere passage of time.
The NCLT's order authorizes the Liquidator to take necessary steps for the recovery and execution of the amount from the directors. Additionally, the Liquidator has been granted liberty to initiate proceedings under Sections 69, 70, and 71 of the IBC or any other applicable laws to further enforce the order.
This ruling serves as a stern reminder to corporate directors and key personnel to adhere to ethical practices and maintain transparency in financial dealings. The tribunal's decision reinforces the legal framework designed to protect creditors' interests and uphold the integrity of the corporate insolvency process.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Directors of corporate debtor held liable for carrying on business fraudulently and wrongfully under Section 66 - Ordered to restore financial position of the corporate debtor and contribute wrongfully diverted sum to its assets.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 66, 69, 70, 71
K.J. Vinod v. Mukeshbhavan Mukesh Karthikeyan, (NCLT)(Kochi Bench) : Law Finder Doc Id # 2833652
