Fraudulent trading requires cogent evidence; ordinary-course managerial withdrawals largely not recoverable, limited refunds ordered as applied.

The article addresses whether managerial remuneration withdrawals by suspended management constitute fraudulent or wrongful trading under insolvency law. It applies a high evidentiary threshold, requiring cogent proof of deliberate intent to defraud; where ledger entries, admitted claims, transaction audit and bank records show payments before CIRP commencement and no falsification, withdrawals are not characterised as fraudulent and are upheld for the appellants. The tribunal distinguished transactions cleared post-CIRP and conceded recoveries, directing restoration of specific post-admission amounts while leaving pre-CIRP ordinary-course payments intact.

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Issues: (i) Whether payments drawn by the suspended management towards managerial remuneration for FY 2019-2020 constitute wrongful or fraudulent trading under Section 66 of the Insolvency and Bankruptcy Code, 2016; (ii) If so, whether the amounts withdrawn ought to be refunded to the corporate debtor.

Issue (i): Whether payments drawn by the suspended management towards managerial remuneration for FY 2019-2020 constitute wrongful or fraudulent trading under Section 66 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The Tribunal examined documentary evidence including ledger entries, claim admissions on the IBBI claims portal, the Transaction Audit Report and bank statements. It applied the high evidentiary threshold applicable to Section 66, requiring cogent proof of intent to defraud beyond suspicion or presumption. The records showed admitted remuneration claims for the appellants, corresponding ledger entries and withdrawals dated substantially before the commencement of CIRP. There was no pleading or evidence of falsification of records or conclusive proof linking the withdrawals to an intent to defraud creditors. Proximity of withdrawal dates to CIRP was factually disproved for the principal withdrawals and routing through a sister concern was found to be a standard business practice absent specific proof of siphoning.

Conclusion: The Tribunal concluded that the withdrawals of managerial remuneration for FY 2019-2020, except as noted separately, do not satisfy the requirements of Section 66 and cannot be characterised as wrongful or fraudulent trading. This conclusion is in favour of the appellants.

Issue (ii): Whether the amounts withdrawn ought to be refunded to the corporate debtor.

Analysis: The Tribunal distinguished between the different withdrawal dates and transactions. While most withdrawals were supported by ledger entries and occurred well before CIRP commencement, one cheque for Rs. 2,00,000 was drawn on 30.06.2022 and was cleared after CIRP admission, and the appellants conceded recovery of Rs. 2.78 lakhs relating to a post-CIRP transaction. Given the timing and the appellants' knowledge of imminent insolvency as to the 30.06.2022 cheque and the admitted ineligibility of the Rs. 2.78 lakhs, the Tribunal found that those specific amounts should be restored to the corporate debtor.

Conclusion: The Tribunal directed restoration of Rs. 2,00,000 (cheque dated 30.06.2022) and Rs. 2.78 lakhs (amount agreed to be restored) to the corporate debtor. This disposition is partly against the appellants for the specified sums and partly in their favour for the remainder.

Final Conclusion: The impugned order holding the managerial remuneration withdrawals for FY 2019-2020 to be vitiated by fraud under Section 66 is set aside, except that specified sums (Rs. 2,00,000 and Rs. 2.78 lakhs) are to be restored to the corporate debtor; the appeal is disposed of accordingly.

Ratio Decidendi: Section 66 of the Insolvency and Bankruptcy Code, 2016 can be invoked only on cogent and unimpeachable evidence demonstrating deliberate intent to defraud creditors; payments made in the ordinary course with admitted claims and supporting ledger entries, and occurring prior to CIRP commencement, do not attract Section 66 absent specific proof of fraudulent intent.

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