NCLAT Affirms NCLT’s Direction to Restore ₹3.18 Cr Lost Through Fraudulent LED Transactions Under Section 66 IBC
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member), has affirmed the NCLT’s order passed under Section 66(1) of the Insolvency and Bankruptcy Code, 2016, directing a former director of the Corporate Debtor to contribute ₹3.18 crore towards its assets. The Tribunal held that once transactions are found to be fraudulent, the Adjudicating Authority is empowered to order restitution of the loss caused to the Corporate Debtor’s estate. The appeal was filed by Mr. Gopal Kalra, erstwhile Director of Easytech Global Private Limited, challenging the NCLT’s order dated 11.01.2024, which held him responsible for engaging in fraudulent transactions and directed him to restore ₹3.18 crore to the company’s CIRP account.
Background
The Corporate Debtor was admitted to CIRP in October 2018, and later liquidation was ordered in April 2019. A forensic audit, commissioned during the liquidation process, covered the period between October 2016 and October 2018. The audit revealed suspicious LED bulb transactions involving several fictitious vendors and customers, which led to a significant financial loss to the Corporate Debtor.
The Liquidator, acting upon the audit findings, filed an interlocutory application before the NCLT, seeking recovery of the losses. After examining the audit report, financial statements, and on-ground verification, the NCLT held that the transactions amounted to fraudulent trading within the meaning of Section 66(1) of the IBC.
Appellant’s Submissions
The Appellant contended that while the LED bulb transactions might have reflected poor business decisions, they did not constitute fraud. He claimed that the goods were purchased on credit and payment was contingent on their sale, so no actual loss occurred. It was further argued that the transactions were undertaken as part of a business revival strategy, and that the forensic audit itself used the phrase "notional loss", which negated any claim of tangible financial damage.
He also invoked prior NCLAT rulings, including Regen Powertech Pvt. Ltd. v. Wind Construction Pvt. Ltd [Company Appeal (AT)(Ins) No.349 of 2022], asserting that poor judgment or commercial failure should not be equated with fraudulent intent. He maintained that he derived no personal gain from the transactions and there was no siphoning of funds.
Respondent’s Response and Audit Findings
Contrary to the Appellant's claims, the Liquidator pointed out that the forensic audit and subsequent field investigations established that the entities involved in the LED bulb business were fictitious. These included names such as Satyam Traders, Garg Sales Corporation, B.S. Enterprises, and SP Trading & Co., none of which were found operating at the declared addresses.
The audit identified significant irregularities:
Purchases of ₹9.33 crore and sales of ₹9.88 crore were recorded.
These were later nullified through issuance of debit notes worth ₹6.28 crore and credit notes worth ₹10.06 crore.
Despite the offsetting of accounts, actual payments worth ₹3.43 crore were made to non-existent suppliers.
Additionally, ₹0.52 crore remained unrecovered from fictitious customers.
The net loss to the Corporate Debtor was thus calculated at ₹3.18 crore, comprising ₹2.67 crore of excess payments and ₹0.52 crore in unrecouped receivables.
The Respondent submitted that this structure of transactions—unsupported by delivery records, invoices, or existing stock—clearly indicated a scheme aimed at artificially inflating the company's turnover and misleading creditors. The intent, as stated, was to create a façade of business activity and secure financial advantages from creditors and banks under false pretenses.
NCLAT’s Observations and Ruling
After hearing both sides and analyzing the records, the NCLAT upheld the NCLT’s conclusion that the transactions were fraudulent under Section 66(1) of the IBC. The Tribunal held that: “Mere assertions of commercial intent or revival strategy cannot stand against proven evidence that no genuine trade occurred.”
It was noted that:
The entities involved were fictitious and did not exist at the claimed business locations.
No stock or delivery of goods was established.
The use of credit and debit notes was an artificial construct to erase the transactions on paper, while actual funds exited the Corporate Debtor's accounts.
The Tribunal emphasized that business decisions made in good faith do not attract liability under Section 66. However, the transactions in question displayed a deliberate and calculated attempt to mislead stakeholders.
On the issue of quantification, the Appellate Tribunal found the ₹3.18 crore amount to be accurate, clearly backed by audit data and financial records. The amount was not speculative but reflected actual outflow of funds without return of goods or receivables. “The direction to contribute ₹3.18 crores is not punitive—it is remedial and meant to restore the financial estate of the Corporate Debtor.”
Finding no merit in the appeal, the NCLAT dismissed it and upheld the Adjudicating Authority’s order. The Tribunal held that the Appellant, having knowingly participated in fraudulent transactions with fictitious parties, was liable to compensate the Corporate Debtor’s estate for the demonstrated loss. Accordingly, the appeal was dismissed. No order was passed as to costs.
Appearance
For Appellant: Mr. Rahul Kumar, Advocate. Mr.
For Respondent: Varun Sharma, Ms. Vanshika Gupta & Ms. Vaishnavi Gupta, Advocates. Mr. Akhliesh Kumar Gupta, (Liquidator in-person).
Cause Title: Mr. Gopal Kalra V. Mr. Akhilesh Kumar Gupta
Case No: Company Appeal (AT) (Ins.) No. 567 of 2024
Coram: Justice Rakesh Kumar Jain [Judicial Member], Mr. Naresh Salecha [Technical Member], Mr. Indevar Pandey [Technical Member]
