Accountability of Director Under the IBC: The Adya Oils and Chemicals Ltd. Case Before NCLT Mumbai Bench

An Analysis of Director Liability and False Representation Provisions in Corporate Insolvency Proceedings

Introduction

The National Company Law Tribunal (NCLT) Mumbai Bench recently issued a significant ruling in the matter concerning Adya Oils and Chemicals Ltd., directing an investigation against the company’s directors under the Insolvency and Bankruptcy Code, 2016 (IBC). The bench comprising Ms. Reeta Kohli (Judicial Member) and Shri Sanjiv Dutt (Technical Member) forwarded the case to the Central Government for investigation and appropriate action against the respondent directors. This decision underscores the growing emphasis on director accountability under the IBC and sets an important precedent for future cases involving allegations of false representations or fraudulent conduct by corporate officers during the corporate insolvency resolution process.

Adya Oils and Chemicals Ltd., incorporated on 7th December 1997 with Corporate Identification Number U15140MH1997PLC111777, was a public company registered with the Registrar of Companies, Mumbai, engaged in the manufacture of vegetable and animal oils and fats [1]. The company had three directors, namely Sudhir Dinanath Chaturvedi, Deepak Balkrishna Chaturvedi, and Sunil Santoshilal Chaturvedi, who came under scrutiny following the initiation of insolvency proceedings. The NCLT’s order has implications not only for the individuals involved but also for the broader framework of corporate governance and director accountability under the IBC.

The National Company Law Tribunal: Jurisdiction and Powers

The National Company Law Tribunal was established under Section 408 of the Companies Act, 2013, and became operational on 1st June 2016. The NCLT serves as a quasi-judicial body with specialized jurisdiction over matters relating to Indian companies, including insolvency proceedings under the IBC [2]. The tribunal was created following the recommendations of the V. Balakrishna Eradi Committee on law relating to insolvency and winding up of companies, with the objective of consolidating corporate jurisdiction that was previously fragmented across multiple forums including the Company Law Board, Board for Industrial and Financial Reconstruction, and High Courts.

The NCLT functions through various benches located across major Indian cities. The Mumbai Bench, situated at the 6th Floor, Fountain Telecom Building No.1, Near Central Telegraph, M.G. Road, Mumbai – 400001, has jurisdiction over the states of Chhattisgarh, Maharashtra, and Goa [3]. Each bench comprises a Judicial Member, typically a serving or retired High Court Judge, and a Technical Member from the Indian Corporate Law Service cadre or with expertise in company law, corporate governance, or related fields.

Under Section 60(1) of the IBC, the NCLT has been designated as the Adjudicating Authority for corporate insolvency resolution and liquidation proceedings, with territorial jurisdiction based on the location of the corporate person’s registered office [4]. The tribunal’s powers extend to various aspects of corporate insolvency, including the admission of insolvency applications, appointment of insolvency professionals, approval of resolution plans, and oversight of liquidation proceedings. The NCLT also possesses the authority to examine and adjudicate matters involving fraudulent or wrongful trading by directors and officers of corporate debtors.

The Insolvency and Bankruptcy Code, 2016: A Transformative Framework

The Insolvency and Bankruptcy Code, 2016, represents a watershed moment in Indian corporate law. Prior to the IBC’s enactment, the legislative framework governing insolvency was scattered across multiple statutes including the Companies Act, the Sick Industrial Companies Act 1985, the Recovery of Debts Due to Banks and Financial Institutions Act 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. This fragmentation led to delays, jurisdictional conflicts, and inefficient debt resolution mechanisms.

The IBC was introduced in the Lok Sabha by Finance Minister Arun Jaitley on 23rd December 2015 and received Presidential assent on 28th May 2016 [5]. The Code consolidates and amends laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. Its primary objective, as articulated by the late Finance Minister, was to enable the “reset” of companies facing financial distress, allowing them to become competitive again through systematic debt restructuring rather than forced liquidation.

The IBC establishes a creditor-driven process that prioritizes value maximization and equitable distribution of assets. For corporate debtors, the Code mandates completion of the Corporate Insolvency Resolution Process (CIRP) within 180 days, extendable by 90 days, with a maximum limit that has been subject to judicial interpretation. The Supreme Court of India has clarified that while timelines are important, the Adjudicating Authority may extend time beyond the prescribed limits in exceptional circumstances to ensure justice and proper resolution.

Section 73 of the IBC: Punishment for False Representations to Creditors

Section 73 of the Insolvency and Bankruptcy Code, 2016, is part of Chapter VII dealing with Offences and Penalties under Part II relating to Insolvency Resolution and Liquidation for Corporate Persons. This provision has been effective from 1st December 2016 and addresses one of the most serious offences that can be committed during insolvency proceedings. The section specifically targets false representations or fraudulent conduct by officers of corporate debtors aimed at obtaining creditor consent during the resolution or liquidation process.

The statutory provision reads: “Where any officer of the corporate debtor— (a) on or after the insolvency commencement date, makes a false representation or commits any fraud for the purpose of obtaining the consent of the creditors of the corporate debtor or any of them to an agreement with reference to the affairs of the corporate debtor, during the corporate insolvency resolution process, or the liquidation process; (b) prior to the insolvency commencement date, has made any false representation, or committed any fraud, for that purpose, he shall be punishable with imprisonment for a term which shall not be less than three years, but may extend to five years or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both” [6].

The provision establishes several critical elements. First, it applies to “any officer” of the corporate debtor, which includes directors, managers, secretaries, and other key managerial personnel who exercise significant control over the company’s affairs. Second, the provision has both prospective and retrospective application, covering false representations made either before or after the insolvency commencement date. Third, the intent requirement focuses on obtaining creditor consent through deceptive means, recognizing that creditor decisions during insolvency proceedings must be based on accurate and truthful information.

The penalties prescribed under Section 73 reflect the seriousness with which the legislature views such offences. The mandatory minimum punishment of three years imprisonment ensures that officers cannot escape with mere monetary penalties for conduct that undermines the entire insolvency framework. The maximum fine of one crore rupees provides additional deterrence, particularly for individuals who might otherwise view imprisonment as an acceptable risk. The provision allows courts to impose both imprisonment and fine simultaneously, ensuring that punishment is proportionate to the gravity of the offence and the harm caused to creditors and the resolution process.

Fraudulent and Wrongful Trading: Section 66 of the IBC

While the original article references Section 73, investigations under IBC proceedings often invoke Section 66, which addresses fraudulent trading and wrongful trading by directors and partners of corporate debtors. Section 66 forms part of the avoidance transactions framework under the IBC, alongside provisions dealing with preferential transactions (Section 43), undervalued transactions (Section 45), transactions to defraud creditors (Section 49), and extortionate credit transactions (Section 50).

Section 66 empowers the Adjudicating Authority to direct persons who have been involved in fraudulent or wrongful trading to make contributions to the assets of the corporate debtor. The provision applies when a director or partner knew or ought to have known that there was no reasonable prospect of avoiding the commencement of corporate insolvency resolution process, yet failed to exercise due diligence in minimizing potential loss to creditors. The National Company Law Appellate Tribunal has held that fraud for purposes of Section 66 includes debts which the debtor had no intention to repay or did not expect to be able to pay, as well as false representations made without intention to pay back [7].

The application under Section 66 can be filed by the resolution professional or liquidator during the CIRP or liquidation process. However, the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, particularly Regulation 35A, prescribes timelines for filing such applications. The NCLAT has clarified that while these timelines are directory rather than mandatory, resolution professionals and liquidators are expected to act diligently and expeditiously in investigating potential fraudulent transactions and bringing them before the Adjudicating Authority.

The Insolvency Law Committee Report of February 2020 extensively discussed Section 66 and recommended several amendments to strengthen the framework for dealing with avoidable transactions and improper trading. The Committee observed that investigation of such transactions should primarily be undertaken by insolvency professionals who are in the best position to examine the corporate debtor’s affairs during CIRP or liquidation, rather than relying solely on the Insolvency and Bankruptcy Board of India to conduct investigations.

Role of the Insolvency and Bankruptcy Board of India

The Insolvency and Bankruptcy Board of India (IBBI) was established on 1st October 2016 under Section 188 of the IBC as the principal regulatory authority overseeing insolvency proceedings in India [8]. The IBBI is responsible for regulating insolvency professionals, insolvency professional agencies, information utilities, and registered valuers involved in the insolvency ecosystem. The Board consists of a Chairperson and ten members, including representatives from the Ministries of Finance and Law, the Reserve Bank of India, and other experts in finance, law, accountancy, and administration.

Under Section 196 of the IBC, the IBBI exercises extensive powers and functions including registration, renewal, suspension, or cancellation of registrations for insolvency professionals and agencies; specification of minimum eligibility requirements; conduct of inspections and investigations; monitoring performance and auditing the functioning of regulated entities; and specification of regulations regarding data storage and access by information utilities. The Board also possesses powers equivalent to those of a civil court under the Code of Civil Procedure, 1908, including the power to summon persons, enforce attendance, examine witnesses on oath, and compel production of documents.

In the context of cases like Adya Oils and Chemicals Ltd., the IBBI receives information from NCLTs regarding matters requiring investigation or regulatory action. When the NCLT forwards a case to the Central Government for investigation with a copy to the IBBI, the Board takes requisite action including examining whether the conduct of insolvency professionals, creditors, or other stakeholders requires regulatory intervention, determining whether systemic issues need to be addressed through regulatory amendments, and coordinating with law enforcement authorities when criminal prosecution may be warranted.

Judicial Precedents on Director Accountability Under IBC

The interpretation and application of provisions relating to director accountability under IBC have evolved through several landmark judgments. In the case of Baiju Trading and Investment Private Limited v. Arihant Nenawati & Ors., the NCLAT Principal Bench held that fraud under Section 66 of the IBC consists of debts which the debtor has no intention to repay or does not expect to be able to pay, and may also occur through false representation without intention to pay back. The expression “any person” in Section 66 was interpreted to include knowing parties to fraudulent transactions, thereby extending liability beyond the immediate officers of the corporate debtor to those who participate in or facilitate fraudulent trading [9].

The Supreme Court of India has also addressed the broader question of how far the Committee of Creditors’ commercial wisdom should be respected by adjudicating authorities. In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors., the Court held that neither the NCLT nor the NCLAT should ordinarily interfere with decisions taken by the Committee of Creditors in exercise of their commercial wisdom. However, if the Committee arbitrarily rejects a just settlement or withdrawal claim, the adjudicating authorities can set aside such decisions. This judgment reflects the delicate balance the IBC seeks to maintain between creditor autonomy and judicial oversight.

Another significant case is Amit Katyal v. Meera Ahuja, where the NCLAT clarified that no penalty can be imposed under Section 65 of the IBC (dealing with fraudulent or malicious initiation of proceedings) without recording an opinion establishing a prima facie case that a person fraudulently or with malicious intent initiated insolvency proceedings for purposes other than resolution or with intent to defraud. This precedent establishes that allegations of fraud or wrongful conduct must be substantiated with credible evidence before punitive measures are imposed, protecting stakeholders from arbitrary or vindictive actions while ensuring genuine accountability of director under the IBC.

The Investigation Process and Central Government’s Role

When the NCLT directs that a case be forwarded to the Central Government for investigation, the matter typically falls under the purview of the Ministry of Corporate Affairs. The Ministry, through its various investigative wings including the Serious Fraud Investigation Office (SFIO), conducts detailed examination of the allegations. The investigation process involves scrutiny of financial records, examination of transactions during relevant periods, interviews with directors, officers, and other stakeholders, analysis of compliance with statutory obligations, and determination of whether criminal prosecution is warranted.

The Central Government’s investigation serves multiple purposes beyond merely determining individual culpability. It helps identify systemic weaknesses in corporate governance that may have contributed to the company’s failure, provides valuable data for policy formulation and regulatory improvements, serves as a deterrent to other directors and officers who might be tempted to engage in similar conduct, and ensures that victims of fraud or misconduct have recourse to criminal remedies in addition to civil remedies available under the IBC.

Following investigation, if sufficient evidence of offences under Section 73 or other penal provisions is found, the matter may be referred for prosecution before the Special Court established under Chapter XXVIII of the Companies Act, 2013. Section 64(1) of the IBC specifies that offences under the Code shall be tried by Special Courts, ensuring that such cases are handled by judges with expertise in corporate and commercial matters. The Special Court has all the powers of a Court of Session and follows the procedures laid down in the Code of Criminal Procedure, 1973, while trying offences under the IBC.

Implications for Corporate Governance and Director Conduct

The NCLT Mumbai Bench’s decision in the Adya Oils case carries significant implications for corporate governance standards in India. Directors can no longer assume that their conduct will escape scrutiny merely because the company has entered insolvency proceedings. The provision for retrospective application of Section 73 means that false representations or fraudulent conduct that occurred before the insolvency commencement date can still attract criminal liability, closing off a potential avenue for unscrupulous directors to escape accountability.

The case also highlights the importance of maintaining accurate and truthful records throughout a company’s existence, not just during insolvency proceedings. Directors who might have provided misleading information to creditors, auditors, or regulators during the normal course of business may find such conduct becoming the subject of investigation once insolvency proceedings commence. This creates a strong incentive for directors to maintain high standards of transparency and honesty in all their dealings, knowing that past conduct can be examined retrospectively.

Furthermore, the decision reinforces the fiduciary duties directors owe to the company and its stakeholders. Once a company enters the zone of insolvency, directors’ duties shift to include protection of creditors’ interests. The duty to exercise due diligence in minimizing potential loss to creditors, as articulated in Section 66, becomes paramount. Directors who continue to trade while knowing there is no reasonable prospect of avoiding insolvency, without taking steps to minimize creditor losses, expose themselves to personal liability and potential criminal prosecution.

Comparative Perspectives: International Frameworks

The IBC’s provisions on director accountability draw inspiration from international best practices while adapting them to the Indian context. The United Nations Commission on International Trade Law (UNCITRAL) Legislative Guide on Insolvency Law emphasizes the importance of avoidance provisions that permit transactions undertaken prior to insolvency to be cancelled or rendered ineffective where they were intended to defeat creditor claims. The IBC’s framework incorporating Sections 43, 45, 49, 50, and 66 reflects this international consensus on the need for robust mechanisms to prevent asset stripping and fraudulent conduct.

In common law jurisdictions like the United Kingdom, the concept of wrongful trading has long been recognized. Under Section 214 of the UK Insolvency Act 1986, directors can be held personally liable if they knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation, yet failed to take steps to minimize potential loss to creditors. The IBC’s Section 66 adopts a similar approach, requiring directors to exercise due diligence commensurate with their position and the circumstances of the company.

The United States bankruptcy regime, while following a different model of debtor-in-possession, also incorporates provisions to address fraudulent transfers and hold individuals accountable for misconduct. Title 18 U.S.C. Section 157 criminalizes bankruptcy fraud, including filing false documents or making false representations in bankruptcy proceedings. The Indian framework shares this emphasis on maintaining the integrity of the insolvency process by imposing criminal sanctions for conduct that undermines creditor rights or distorts the resolution process.

Conclusion

The NCLT Mumbai Bench’s decision to direct investigation against the directors of Adya Oils and Chemicals Ltd. represents an important milestone in the enforcement of director accountability under the Insolvency and Bankruptcy Code, 2016 (IBC). By invoking the provisions related to false representations to creditors and forwarding the matter to the Central Government for appropriate action, the tribunal has sent a clear message that directors cannot evade their responsibilities or engage in fraudulent conduct with impunity during insolvency proceedings.

Section 73 of the IBC, with its stringent penalties ranging from three to five years of imprisonment and fines up to one crore rupees, provides a powerful deterrent against misconduct. The provision’s application to both pre-commencement and post-commencement conduct ensures that the entire spectrum of director actions affecting creditor decisions is subject to scrutiny. When read together with Section 66 on fraudulent and wrongful trading, these provisions create a framework that holds directors personally accountable for conduct that causes harm to creditors and undermines the insolvency resolution process.

The role of the Insolvency and Bankruptcy Board of India in receiving information and coordinating appropriate action further strengthens the enforcement mechanism. The IBBI’s regulatory oversight ensures that systemic issues are identified and addressed, while individual cases of misconduct are pursued through investigation and prosecution where warranted. The involvement of the Central Government’s investigative machinery ensures that resources and expertise are available to conduct thorough examination of complex corporate transactions and schemes.

As the IBC continues to evolve through judicial interpretation and legislative amendments, cases like Adya Oils and Chemicals Ltd. will play a crucial role in shaping the contours of director accountability. The full implications of the NCLT’s decision will become apparent as the investigation proceeds and the Central Government determines the appropriate course of action against the respondent directors. However, the decision already serves as an important reminder to directors across India that their conduct during insolvency proceedings, and indeed throughout the life of the company, will be subject to rigorous scrutiny. This development aligns with the broader principle of accountability of directors under the IBC, which seeks to ensure that the resolution process is not compromised by misconduct or misrepresentation.

The continuing development of jurisprudence under the IBC reflects India’s commitment to creating a robust and efficient insolvency regime that balances the interests of all stakeholders while promoting economic growth and financial stability. Director accountability under the IBC provisions like Section 73 and Section 66 are essential components of this regime, ensuring that corporate insolvency serves its intended purpose of value maximization and equitable distribution rather than becoming a vehicle for fraud or evasion of legitimate obligations.

References

[1] Falcon eBiz. (2023). ADYA OILS & CHEMICALS LIMITED Company Profile. Retrieved from https://www.falconebiz.com/company/ADYA-OILS-CHEMICALS-LIMITED-U15140MH1997PLC111777

[2] Wikipedia. (2025). National Company Law Tribunal. Retrieved from https://en.wikipedia.org/wiki/National_Company_Law_Tribunal

[3] IndiaFilings. (2025). National Company Law Tribunal – Powers & Jurisdiction. Retrieved from https://www.indiafilings.com/learn/national-company-law-tribunal-powers-jurisdiction/

[4] Testbook. (2024). National Company Law Tribunal (NCLT). Retrieved from https://testbook.com/ias-preparation/national-company-law-tribunal

[5] Wikipedia. (2025). Insolvency and Bankruptcy Code, 2016. Retrieved from https://en.wikipedia.org/wiki/Insolvency_and_Bankruptcy_Code,_2016

[6] IBC Laws. (2022). Section 73 of IBC – Insolvency and Bankruptcy Code, 2016: Punishment for false representations to creditors. Retrieved from https://ibclaw.in/section-73-punishment-for-false-representations-to-creditors/

[7] LiveLaw. (2023). S. 66 Of IBC: Fraud Includes A Debt Which Debtor Has No Intention To Repay: NCLAT Delhi. Retrieved from https://www.livelaw.in/ibc-cases/fraud-includes-a-debt-which-debtor-has-no-intention-to-repay-false-representation-debtor-not-able-to-pay-section-66-ibc-226311

[8] ClearTax. (2025). Insolvency and Bankruptcy Board of India. Retrieved from https://cleartax.in/s/insolvency-bankruptcy-board-india

[9] LiveLaw. (2022). Offences And Penalties Under IBC. Retrieved from https://www.livelaw.in/columns/insolvency-and-bankruptcy-code-national-company-law-appellate-tribunal-offences-and-penalties-corporate-persons-corporate-debtor-corporate-insolvency-resolution-process-199879

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