In a significant ruling on corporate insolvency proceedings, the Kochi Bench of the National Company Law Tribunal (NCLT) has dismissed a ₹30 lakh recovery application filed by a company’s liquidator, holding that mere non-reflection of transactions in financial records is not sufficient to establish fraud.
Case Background: Liquidator’s Fraud Allegations Under IBC Section 66(1)
The case pertained to a corporate debtor, where the liquidator alleged that the suspended managing director had misappropriated ₹30 lakh out of an advance amount of ₹50 lakh received by the company. Based on this claim, the liquidator approached the tribunal seeking recovery under Section 66(1) of the Insolvency and Bankruptcy Code (IBC), which deals with fraudulent trading.
Tribunal’s Key Observations on Evidence Standards
However, during the proceedings, the tribunal found that the evidence presented by the liquidator was incomplete and insufficient to substantiate the serious allegation of fraud. In its order, the bench observed that merely demonstrating that a transaction does not appear in the company’s books of accounts does not automatically imply that the amount was siphoned off fraudulently.
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The tribunal emphasised that allegations under Section 66(1) of the IBC are grave in nature and require a high standard of proof. Such claims cannot be sustained on the basis of presumptions, suspicions, or partial documentation. Instead, there must be clear, cogent, and direct evidence linking the accused individual’s actions to fraudulent intent and wrongful gain.
It further clarified that the burden lies squarely on the liquidator to establish that the concerned party knowingly carried out transactions with the intent to defraud creditors or to derive undue benefit at the cost of the company. In the absence of a direct nexus between the alleged act and fraudulent intent, proceedings under Section 66(1) cannot succeed.
Legal Precedent and Implications for Insolvency Cases
Legal experts view the ruling as an important precedent in the domain of insolvency law, reinforcing the principle that serious allegations must be backed by substantive proof. The decision sends a clear message to liquidators and stakeholders that claims of fraudulent trading must be carefully examined and supported by credible evidence before being pursued.
According to legal practitioners, while allegations of fraudulent trading have become increasingly common in insolvency cases under the IBC, tribunals continue to prioritise the quality and reliability of evidence. This ruling reiterates that accounting discrepancies alone cannot be the sole basis for attributing financial misconduct.
The order also offers guidance in cases where financial records of a company are incomplete or ambiguous. The tribunal indicated that in such situations, it is incumbent upon the applicant to gather additional supporting material to establish the claim beyond doubt.
Importantly, the ruling underscores that the insolvency framework under the IBC remains balanced and evidence-driven, ensuring that the severity of allegations is matched by a corresponding standard of proof. This approach is expected to strengthen transparency and accountability in corporate governance.
Overall, the NCLT’s decision not only provides relief in the present case but also lays down a clear legal benchmark for future disputes, making it evident that allegations of fraud must be substantiated with solid and convincing evidence to withstand judicial scrutiny.
About the author – Ayesha Aayat is a law student and contributor covering cybercrime, online frauds, and digital safety concerns. Her writing aims to raise awareness about evolving cyber threats and legal responses.
