2026 (3) TMI 1080 - AT - IBC

Forensic audit reports cannot alone establish director liability; corroborative evidence or criminal investigation is required.

A lone, incomplete forensic audit report that expressly records non-cooperation and lacks contemporaneous supporting documents cannot alone establish ... Fraudulent and wrongful trading with the Corporate Debtor's assets - Forensic audit report insufficiency - Requirement of supporting evidence to invoke Section 66 - non- cooperation of the Suspended Board. Whether an inconclusive forensic audit report alone can sustain an application under Section 66 of the I&B Code for fraudulent or wrongful trading - HELD THAT: - The Tribunal correctly held that the forensic audit report was inconclusive and lacked the documentary support necessary to classify the impugned transactions as fraudulent or wrongful trading. The Appellate Tribunal applied the legal principle that an application under Section 66 requires evidence establishing the alleged fraudulent conduct on its own merits, and an incomplete forensic report-produced without supporting documents or corroborative material-cannot be the sole basis for directing contribution by suspended directors. The court further noted that non-cooperation by the suspended management, which impeded completion of the forensic audit, does not convert an inconclusive audit into admissible proof; where supporting evidence is unavailable due to such non-cooperation, the appropriate course is investigation by competent criminal authorities (as occurred by filing of a complaint with the CBI), rather than granting civil relief under Section 66 on the basis of the incomplete report. [Paras 10, 11, 12] The rejection of the Section 66 application was justified because the forensic audit report was incomplete and unsupported by requisite evidence, and the matter was properly left to criminal investigation rather than being decided on the basis of the report alone. Final Conclusion: The Appellate Tribunal found no error warranting interference: the impugned order rejecting the Section 66 application was upheld because the forensic audit report was inconclusive and unsupported by necessary evidence; the appeal is dismissed. Issues: Whether the Adjudicating Authority erred in rejecting IA No.1100/2022 filed under Section 66 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016, on the ground that the forensic audit report relied upon was inconclusive and unsupported by corroborative evidence.Analysis: The Court examined whether a standalone forensic audit report, which the report itself characterises as incomplete due to non-cooperation of the management and which lacks supporting documents and verification, can form the sole basis for imposing liability on suspended directors under Section 66 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016. The Court noted that where supporting evidence is absent because of non-cooperation, the resolution lies in criminal investigation to unearth evidentiary material and that an incomplete forensic report cannot substitute for contemporaneous corroborative documents or proof required to establish fraudulent or wrongful trading for the purposes of Section 66.Conclusion: The rejection of IA No.1100/2022 by the Adjudicating Authority on the ground that the forensic audit report was inconclusive and unsupported by necessary evidence was legally sustainable; the appeal is dismissed and no interference with the Impugned Order is warranted.