March 04, 2026 : The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has held that remuneration paid to directors for managerial services cannot be treated as fraudulent or wrongful trading under Section 66 of the Insolvency and Bankruptcy Code (IBC) unless there is clear and unimpeachable evidence demonstrating an intent to defraud creditors.

Setting aside an order of the National Company Law Tribunal (NCLT), Ahmedabad Bench, the appellate tribunal ruled that mere suspicion or presumption of fraud is insufficient to invoke the provisions of Section 66. The bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) delivered the judgment while allowing an appeal filed by Rakshit Dhirajlal Doshi and Ashit Doshi, suspended directors of Doshion Water Umbrella (Cuddalore) Pvt. Ltd.

The appeal arose from an NCLT order directing the directors to refund ₹26.42 lakh to the account of the corporate debtor during the Corporate Insolvency Resolution Process (CIRP). The CIRP had commenced on July 1, 2022, after which the Resolution Professional appointed a transaction auditor to examine past financial dealings. The audit report flagged certain payments, including ₹23.64 lakh paid to the directors as managerial remuneration and another transaction of ₹2.78 lakh, as potentially fraudulent under Section 66 of the IBC.

Acting on the audit findings, the Resolution Professional sought explanations from the suspended management and later filed an application alleging fraudulent or wrongful trading. The NCLT accepted the plea and concluded that the withdrawals made under the guise of managerial remuneration were fraudulent transactions, directing the directors to refund the total amount.

Challenging this finding before the appellate tribunal, the directors argued that the payments were legitimate remuneration for managerial and technical services rendered to keep the company functioning as a going concern. They pointed out that remuneration claims for later periods had been admitted by the Resolution Professional, which acknowledged that they had indeed rendered professional services to the company.

They also submitted that the company’s records clearly reflected outstanding remuneration dues for the financial year 2019–2020 and that the payments were properly recorded in the books of accounts. According to the appellants, the withdrawals had been made well before the commencement of the CIRP and therefore could not be treated as suspicious transactions linked to insolvency proceedings.

After examining the records and arguments, the NCLAT emphasized that invoking Section 66 requires a high standard of proof. The tribunal observed that fraudulent trading can be established only when there is clear and cogent evidence showing that the business was carried on with the intention of defrauding creditors. Mere suspicion, presumption, or circumstantial allegations cannot meet the legal threshold required to sustain such a finding.

The appellate tribunal noted that the records demonstrated that managerial services had been rendered by the appellants and that their remuneration claims for subsequent periods had been admitted by the Resolution Professional. Ledger entries and other accounting records also showed that the remuneration payments corresponded with the dues recorded in the company’s books.

The bench further observed that the payments had been made for legitimate services rendered in the ordinary course of business and that the accounts of the corporate debtor had been maintained transparently. In such circumstances, the essential element required to invoke Section 66—namely, an intent to defraud creditors—was not established.

However, the tribunal noted that one cheque for ₹2 lakh drawn on June 30, 2022 had been cleared after the commencement of the CIRP. Since the moratorium under the IBC comes into effect upon initiation of insolvency proceedings, the tribunal held that this amount could not be retained by the appellants and must be returned to the corporate debtor. The bench also recorded that the appellants had agreed to restore ₹2.78 lakh recovered after the CIRP initiation date.

Accordingly, the NCLAT set aside the NCLT’s finding that the remuneration payments constituted fraudulent trading under Section 66 of the IBC. At the same time, it directed the appellants to restore ₹2 lakh withdrawn through the cheque dated June 30, 2022, along with ₹2.78 lakh, to the account of the corporate debtor. With these directions, the appellate tribunal disposed of the appeal.

Case Title: Rakshit Dhirajlal Doshi & Ashit Doshi v. Chirag Shah
Case Number: Company Appeal (AT) (Insolvency) No. 1855 of 202517