NCLAT Directs Former Directors Of Varsha Corporation To Pay ₹16.78 Crore For Fraudulent Gold Sales During Insolvency
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi has upheld the finding that suspended directors of Varsha Corporation Ltd, a gold bullion trading company, engaged in fraudulent trading while the insolvency petition against the corporate debtor was pending, and must personally contribute more than ₹16.78 crore to the company’s estate. The tribunal dismissed the appeal challenging the NCLT Mumbai order dated March 12, 2025, which had directed contribution under Section 66 of the Insolvency and Bankruptcy Code (IBC).
A Bench comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Naresh Salecha (Technical Member) was hearing an appeal filed by three suspended directors — Shantilal Javerchand Jain, Indra Shantilal Jain and Shirish Shantilal Jain — who argued that the gold sales in question were ordinary business transactions undertaken in good faith and that non-recovery of outstanding amounts could not be equated with fraud. The directors contended that the liquidator relied on an incomplete audit report and that commercial losses were being wrongly interpreted as fraudulent conduct.
The dispute arose from a sequence of gold sales made during the pendency of a Section 7 application filed in October 2019 against the corporate debtor. Between 11 and 17 August 2020, Varsha Corporation sold 29.885 kilograms of gold worth ₹16.09 crore to Swastik Diamonds on 100% credit without securing payment. Only ₹24 lakh was recovered in 2020 and ₹42.10 lakh in 2021–22, leaving a massive outstanding amount. Despite this, the company again sold gold worth ₹1.0567 crore to the same buyer on June 6, 2022, just four days before commencement of the Corporate Insolvency Resolution Process (CIRP). The company also sold gold worth ₹30.09 lakh to Maa Kali Jewellers in March 2022, of which only ₹43,826 was ever recovered.
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Rejecting the directors’ plea that these sales were undertaken in the hope of improving the company’s financial position, the tribunal held that the transactions were commercially irrational, timed to defeat creditor claims, and executed despite knowledge of impending insolvency. It noted that 98% of the revenue for the financial year came from five credit sales to a single buyer, and that bullion trading ordinarily operates on spot payment rather than large unsecured credit. It also took note of the transaction auditor’s observation that “no Director in charge of the Company would make a legitimate commercial decision of sale of 31.885 kg of gold of ₹17.15 crores on credit to any party,” concluding that the sales were executed “with malafide intentions to keep the inventory of gold out of reach of financial creditors”.
On the basis of the evidence and the statutory ingredients of Section 66, the tribunal found no merit in the claim that the liquidator failed to prove dishonesty. It held that the transactions were carried out when insolvency proceedings were already in contemplation and that the directors failed to exercise due diligence to minimise loss to creditors. The appellate tribunal therefore agreed that the requirements for both fraudulent trading and wrongful trading stood satisfied.
Concluding that the transactions were deliberately structured to siphon assets outside the reach of creditors, the NCLAT dismissed the appeal and affirmed the NCLT Mumbai order requiring the suspended directors to contribute ₹16,49,32,520 and ₹29,65,464 along with 12% annual interest until payment. The tribunal held that no interference was warranted and disposed of all pending applications with no order as to costs.
Appearance
For Appellant: Advocate Ashish Raghuvanshi
For Respondent: Advocate Disha Shah for Vinodkumar P Ambavat.
Cause Title: Shantilal Javerchand Jain and Ors. V. Vinodkumar Pukhraj Ambavat & Ors.
Case No: Company Appeal (AT) (Insolvency) No. 629 of 2025
Coram: Judicial Member Justice Mohd Faiz Alam Khan, Technical Member Naresh Salecha
