NCLT Mumbai: Independent Directors Cannot Evade Liability For Fraudulent Acts Under IBC Merely Due To Their Designation
Pranav B Prem
The National Company Law Tribunal (NCLT), Mumbai Bench, has ruled that independent directors and non-executive directors cannot automatically escape liability for alleged fraudulent transactions under Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016. A Bench comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar observed that merely holding the position of an independent or non-executive director does not exempt a person from scrutiny if there is evidence suggesting their awareness of irregularities in the company’s affairs.
The order was passed on October 31, 2025, in a set of applications filed by Anuradha Kapur, B. Lugani, Yogesh Kapur, Ankita Wadhawan, and Vivek Kumar Agarwal, all former independent or non-executive directors of Metalyst Forgings Limited, seeking deletion of their names from an ongoing proceeding initiated by the Resolution Professional (RP) under Section 66 of the IBC. The RP had alleged that the company’s affairs during the review period involved fraudulent and preferential transactions, including irregular advances, dubious inter-party adjustments, capital work misstatements, and misuse of bank funds.
The applicants contended that they were not involved in the day-to-day management of the company and had no knowledge of the alleged irregularities. They also relied on the Ministry of Corporate Affairs (MCA) Circular No. 1 of 2020, which clarifies that independent and non-executive directors should not be prosecuted unless there is specific evidence of their involvement.
However, the Tribunal rejected the plea, stating that Section 66 of the IBC does not distinguish between independent and executive directors. The Bench clarified that what matters is whether the directors, through reasonable diligence, could have detected or prevented the alleged fraudulent conduct. The Tribunal observed, “We do not find any merit in the contention that being independent directors, they cannot be alleged to have knowledge of what was transpiring in the Corporate Debtor. The question before us is whether they could have with reasonable diligence flagged the wrongdoings, which they have failed to.”
It further held that the MCA circular issued under the Companies Act, 2013, cannot override the provisions of the IBC, which is a complete code in itself. The circular, the Tribunal said, applies to prosecution under the Companies Act and not to proceedings under insolvency law. The Bench noted that Metalyst Forgings Limited was a listed company and that its financial statements and audit reports were regularly placed before the Board for approval. Thus, the independent directors were in a position to identify irregularities had they exercised due diligence. The order stated, “Section 66(1) of the Code makes any person who was knowingly a party to the carrying on of business liable to make contributions. Further, Section 66(2) makes a director liable who has failed to exercise due diligence in minimizing potential loss to creditors when he ought to have known of the company’s insolvency.”
Rejecting the applications for deletion, the Tribunal concluded that at this preliminary stage, it could not determine whether the directors were unaware of or uninvolved in the fraudulent transactions. It held that they may still argue their case on merits when the matter is fully heard. Accordingly, all five applications — IA 5629/2024, IA 5630/2024, IA 3/2025, IA 4/2025, and IA 600/2025 — were dismissed.
Appearance
For Applicant: Advocate Raishabh Jaisani along with Advocate Siddhant Marathe.
For Respondents: Advocates Alok Dhir along with Advocate Kanishk Khetan, Janhavi and Princi Jaiswal.
Cause Title: Anuradha Kapur v. Dinkar T. Venkatasubramanian, erstwhile Resolution Professional, Metalyst Forgings Limited
Case No: Company Petition No 1555 of 2017
Coram: Judicial Member Sushil Mahadeorao Kochey, Technical Member Prabhat Kumar
