NCLAT Upholds Liability of Directors for Non-Deposit of Salary Deductions, Holds Personal Gain Not Essential for Fraudulent Trading

April 16, 2026 : The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has affirmed the liability of former directors of Golden Tobacco Limited for failing to deposit amounts deducted from employees’ salaries with a co-operative credit society, holding that such conduct can amount to fraudulent trading under Section 66 of the Insolvency and Bankruptcy Code, 2016 even in the absence of personal gain.

The ruling came in Suniel Dhhandhania & Anr. v. Dr. Vichitra Narayan Pathak, where the appellate tribunal upheld the order of the National Company Law Tribunal (NCLT), Ahmedabad, directing the directors to contribute ₹6.92 lakh along with interest at 12% per annum.

The case arose during the Corporate Insolvency Resolution Process (CIRP) of Golden Tobacco Limited. The Resolution Professional (RP) was informed by the GTC Employees Co-operative Credit Society that a sum of ₹6.33 lakh had been deducted from employees’ salaries between September 2021 and May 2022 towards loan repayments but was not remitted to the Society. The claim was admitted by the RP, who subsequently initiated proceedings under Section 66 alleging fraudulent conduct.

Before the Adjudicating Authority, the directors admitted the deductions but argued that non-payment was due to financial distress and that the funds were used for working capital requirements. They contended that there was no intention to defraud creditors and no personal benefit was derived.

Rejecting these arguments, the Appellate Tribunal held that the continuous non-deposit of deducted amounts over several months could not be treated as an isolated lapse. It observed that once the directors admitted non-remittance, the burden shifted to them to justify the utilisation of funds, which they failed to discharge with credible evidence.

The Tribunal emphasised that amounts deducted from employees’ salaries are held in a fiduciary capacity and must be treated as trust money. Their diversion for any purpose other than remittance to the designated entity constitutes a breach of trust.

Importantly, the Bench clarified that the absence of personal gain does not negate fraudulent intent. Referring to the definition of fraud under Section 447 of the Companies Act, 2013, it held that any act or omission intended to deceive or prejudice creditors would qualify as fraud, irrespective of whether wrongful gain or loss is established.

The Tribunal further noted that the directors, being in control of the company’s affairs, were under a duty to ensure compliance with statutory and fiduciary obligations. Their failure to deposit the deducted amounts over a sustained period demonstrated lack of due diligence and disregard for the interests of employees and creditors.

Finding no infirmity in the NCLT’s order, the NCLAT dismissed the appeal and upheld the direction requiring the directors to contribute ₹6.92 lakh with interest to the assets of the corporate debtor.