NCLT Ahmedabad Holds Kanoovi Foods Directors, Third Parties Liable for ₹58.27 Crore Fraudulent Trading Under IBC

April 20, 2026 : The Ahmedabad Bench of the National Company Law Tribunal (NCLT) has held the promoters, directors, and certain third-party entities of Kanoovi Foods Private Limited liable for fraudulent and wrongful trading under Section 66 of the Insolvency and Bankruptcy Code, 2016, directing them to contribute ₹58.27 crore to the assets of the corporate debtor.

The order was delivered on April 20, 2026, by a Bench comprising Judicial Member Shammi Khan and Technical Member Sanjeev Sharma in an application filed under Section 66(1) of the Code. The proceedings were originally initiated by the liquidator and later pursued by HDFC Bank Ltd., which was substituted as the applicant to continue the action on behalf of creditors.

The case arises from the Corporate Insolvency Resolution Process (CIRP) of Kanoovi Foods Pvt. Ltd., admitted in July 2019. Following failure of resolution, the company was ordered into liquidation in January 2021. During the CIRP, a forensic audit was commissioned to examine the company’s financial affairs and detect any fraudulent or preferential transactions.

The forensic audit conducted by D.G. Thakarar & Associates uncovered extensive financial irregularities. It revealed that promoters and directors siphoned off ₹44.43 crore, along with additional fraudulent transactions of ₹2.63 crore. The audit traced diversion of funds through advances to suppliers, routing of funds to related entities, fictitious receivables, and unsecured loans.

Among the key findings were unpaid fabric sales worth over ₹11.20 crore to Ruchita Chemicals LLP and dubious import transactions involving a Hong Kong entity, where discrepancies in documentation raised serious concerns about genuineness. The audit further highlighted large unrecovered receivables, including ₹18.70 crore from Gahena Enterprises Pvt. Ltd. and other amounts routed through intermediary entities without commercial justification.

The Tribunal noted that most respondents failed to appear or produce records to counter the allegations despite adequate opportunity. This led the Bench to draw adverse inferences, observing that the absence of documentary evidence strengthened the case of fraudulent conduct.

While examining Section 66 of the IBC, the Tribunal reiterated that fraudulent trading requires clear evidence of intent to defraud creditors, whereas wrongful trading arises when directors continue business despite knowing insolvency is unavoidable and fail to minimise losses. Relying on judicial precedents, the Bench emphasised that such liability must be established on cogent evidence and surrounding circumstances.

Applying these principles, the Tribunal found that the forensic audit findings, coupled with lack of rebuttal and systematic diversion of funds, established a deliberate pattern of fraudulent conduct. It held that the directors knowingly carried on business with intent to defraud creditors and failed to exercise due diligence once insolvency became apparent.

Accordingly, Respondents 5 to 10, comprising directors and promoters, were held jointly and severally liable under Sections 66(1) and 66(2) of the Code.

The Tribunal also examined the role of third-party entities, including Terlin Engineerings OPC Pvt. Ltd., Ruchita Chemicals LLP, Craigmore Trading DMCC, and Gahena Enterprises Pvt. Ltd. It ruled that Section 66(1) extends to any person who knowingly participates in fraudulent trading. Based on fund flow analysis and lack of commercial substance, these entities were found to be conduits for diversion of funds rather than genuine business counterparties.

Rejecting the defence of Ruchita Chemicals LLP regarding an alleged prior settlement, the Tribunal observed that no supporting bank records or valid documentation were produced. It held that private arrangements cannot override statutory liability under Section 66, which is aimed at protecting creditors’ interests.

In conclusion, the Tribunal quantified the total liability at ₹58.27 crore and directed the responsible parties to contribute the amount to the corporate debtor’s assets for equitable distribution among creditors. The application was accordingly allowed.

Cause Title: HDFC Bank Ltd. v. Terlin Engineerings OPC Pvt. Ltd. & Ors.
Case No.: IA/101(AHM)/2022 in CP(IB) 377 of 2018
Coram: Shammi Khan (Judicial Member) & Sanjeev Sharma (Technical Member)