LI Network
Published on: February 4, 2024 at 11:32 IST
The Mumbai bench of the National Company Law Tribunal (NCLT) has recently ruled that, for the provisions of Section 66 of the Insolvency and Bankruptcy Code (IBC) to be applicable, the applicant must substantiate that the corporate debtor’s business was conducted with the intention to defraud its creditors or for any fraudulent purpose.
The decision, delivered by the bench comprising Anu Jagmohan Singh Kishore (Technical Member) and Vemulapalli (Judicial), drew inspiration from a precedent set by a coordinate bench in the case of Ashish Rathi vs. Ind-Bharat Power.
In that case, the adjudicating authority had emphasized the need for conclusive evidence to make a finding under Section 66 of the IBC. Mere opinions or prima facie evidence were deemed insufficient, and the resolution professional was required to present evidence demonstrating that, before the Insolvency Commencement date, the directors had reason to believe that the corporate debtor could not avoid the initiation of Corporate Insolvency Resolution Process (CIRP) or that there was no reasonable prospect of averting CIRP.
In the recent case before the Mumbai NCLT bench, it was determined that the transaction in question did not fall within the purview of Section 66 of the Code.