Essentially for a transaction to qualify as Fraudulent Trading under Section 66(1) of IBC, 2016 and Wrongful Trading under Section 66(2) of Insolvency Code – Mr. Vijendra Kumar Jain Vs. Mr. Nitin Ramchandra Jadhav and Ors. – NCLT Mumbai Bench
May 16, 2024
Hon'ble NCLT Mumbai held that It is pertinent to mention that the concept of 'Wrongful Trading' has been imported from the UK Insolvency Act, 1986 into the IBC, 2016 which is still at a nascent stage in this country. Thus, by taking a cue from the judgments rendered by the English Courts in this regard, the following acts have been held to constitute ‘Wrongful Trading’; (i) Repaying the director loan made to the company while other creditors were not paid; (ii) Repayment of a loan to a family member; (iii) A director paying his own salary while the salary for the employees was not paid; (iv) Buying goods on credit when there is no means to pay for them; (v) Using customer deposits for cash-flow purposes with no means of supplying goods; (vi) Repaying bank personal guarantees over other creditors; (vii) Not keeping proper accounting records; (viii) Falsification of company records; and (ix) Any transfer or sale of assets at anything less than a fair and reasonable commercial value.