The National Company Law Tribunal (NCLT), Ahmedabad Bench, has held the former management respondents of Radha Madhav Corporation Limited jointly and severally liable to contribute ₹170.424 crore to the company’s assets after finding that purchases from non-existent suppliers and unexplained accounting adjustments attracted Section 66 of the Insolvency and Bankruptcy Code, 2016.
The Bench of Shammi Khan (Judicial Member) and Sanjeev Sharma (Technical Member) partly allowed the avoidance application while rejecting several other claims. It emphasised that an audit report, missing documents, commercial losses or differences in financial records cannot automatically establish fraudulent trading. Each disputed transaction must independently satisfy the statutory requirements.
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Radha Madhav Corporation Limited, a listed company engaged in flexible packaging, entered the corporate insolvency resolution process on October 22, 2020, following admission of an operational creditor’s petition under Section 9 of the IBC.
The resolution professional appointed PVRN & Co., Chartered Accountants, to examine transactions undertaken between April 1, 2018, and October 22, 2020. The final transaction audit report was submitted on October 22, 2021, and the avoidance application was filed on December 16, 2021.
The application questioned multiple categories of transactions, including supplier advances, trade receivables, commission payments, inventory discrepancies, discounts, inter-party adjustments, accounting rectifications and purchases from suppliers identified as non-existent in GST proceedings. The quantified allegations under Section 66 aggregated to approximately ₹900.61 crore, apart from certain allegations that were not independently quantified.
According to the applicant, the suspended management failed to furnish several primary records despite repeated requests, including stock registers, agreements, invoices, reconciliations and supporting documents.
The Tribunal approved the resolution plan submitted by Vama Construction on August 1, 2022. The order records the applicant’s submission that the plan had subsequently been fully implemented and the successful resolution applicant had taken over the company.
As the plan did not specifically identify who would pursue the pending avoidance proceedings, a meeting held on March 25, 2026, resolved that applicant Company, the largest financial creditor, would prosecute the application for the benefit of creditors.
The Tribunal permitted Alchemist’s substitution in place of the erstwhile resolution professional by an order dated June 12, 2026.
The Tribunal held that the transaction audit report was an important piece of material, but its conclusions could not be treated as conclusive.
For Section 66(1), the Bench explained that the applicant must establish that the company’s business was carried on with an intent to defraud creditors or for a fraudulent purpose, and that the persons against whom contribution was sought knowingly participated in that conduct.
Consequently, irregular accounting, unsuccessful commercial decisions and incomplete records could not, without further evidence, justify a recovery order.
The total corresponds to ₹170.424 crore.
The Tribunal upheld the claim concerning purchases of ₹3,028.88 lakh, or ₹30.2888 crore, from suppliers identified as non-existent in GST proceedings.
The audit report relied on a notice dated August 2, 2021, issued by the GST authorities concerning Santosh Ganesh Gholap, Augt Overseas Private Limited and Savitri Trading Company.
The contesting respondents argued that the company had actually received the goods and that a supplier’s subsequent failure to comply with GST obligations could not make the purchases fictitious.
However, the Tribunal found that they had not produced transport documents, goods receipt records, corresponding stock entries or other contemporaneous evidence establishing actual movement and receipt of the goods.
The Bench distinguished this claim from allegations based solely on missing records. Here, the GST authorities’ findings concerning the suppliers were accompanied by the management’s failure to produce primary evidence rebutting those findings despite sufficient opportunity.
It concluded that the purchases were non-genuine and had depleted the company’s cash or assets. The Tribunal found that the transactions were undertaken with knowledge and an intention to siphon off funds, attracting Section 66(1).
The Tribunal also upheld the claim concerning inter-party adjustments aggregating to ₹8,201 lakh, or ₹82.01 crore.
The respondents maintained that such settlements were a regular feature of the company’s business. The Bench held that this general explanation did not establish the underlying transactions, the authority for the adjustments or the corresponding settlement of liabilities.
It noted that the records were particularly within the knowledge and control of those responsible for the company’s financial affairs. Nevertheless, no transaction-wise explanation supported by contemporaneous documents had been produced.
The Tribunal found that the entries altered or extinguished substantial receivables and liabilities without a verifiable basis, prejudicing the company and its creditors. It also observed that adjustments outside the routing of money through the company’s books created opportunities to favour some parties at the expense of others.
The Bench held that the directors had failed to exercise due diligence in minimising potential losses to creditors and invoked Section 66(2).
A further ₹5,812.52 lakh, or ₹58.1252 crore, had been routed through a “Rectification and Adjustment Account”.
The Tribunal explained that a genuine rectification should be traceable to an identifiable error in an original accounting entry. An adjustment should similarly disclose why a balance was altered, transferred or extinguished.
The respondents did not furnish a transaction-wise reconciliation identifying the original entries, the errors requiring correction, the authority for the changes or the beneficiaries of the adjustments.
Considering the substantial amounts, their routing through a common account and the absence of a satisfactory accounting trail, the Bench concluded that the entries had been used to manipulate the company’s accounts and financial balances. It held that Section 66(2) was attracted.
The Tribunal declined to treat differences between the company’s books and GST returns as amounts automatically recoverable from the respondents.
The audit had identified purchase differences of ₹18,292.76 lakh and sales differences of ₹1,696.76 lakh. Although their magnitude raised serious concerns, the Bench held that the discrepancies did not themselves prove diversion of an equivalent amount or fraudulent conduct.
Such differences could arise from transaction timing, credit notes, return amendments, reversals, classification or other accounting adjustments. The applicant had not identified the particular fraudulent transactions or demonstrated how the differences caused a corresponding loss.
The Tribunal also rejected claims relating to supplier advances, outstanding receivables, shortage and claim expenses, schemes and discounts, commission expenses, inventory discrepancies, rental shortfall and security deposits because the material did not establish the necessary statutory ingredients.
Regarding rental concessions during the COVID-19 pandemic, the Bench held that a commercial decision to retain tenants and preserve some income could not, by itself, establish fraudulent trading.
The allegation concerning use of the company’s premises and machinery by other concerns did not result in a quantified contribution order because the material lacked sufficient particulars of the assets, duration of use and financial consequences.
The Tribunal separately found that a motor car transferred on September 30, 2019, constituted an undervalued transaction.
The vehicle’s written-down value was ₹16.72 lakh, while the recorded consideration was ₹7.50 lakh, resulting in a ₹9.22 lakh shortfall. The respondents explained that the transfer adjusted an amount payable to the then chief financial officer, but the Bench found the justification inadequate.
In its findings under Section 48, the Tribunal directed vesting of the transferred property in the corporate debtor and, considering the vehicle’s age and possible depreciation, directed the beneficiary to pay the ₹9.22 lakh shortfall with interest at 12% from the transaction date until payment.
This relief was separate from the ₹170.424 crore contribution ordered under Section 66.
The Tribunal held the respondents jointly and severally liable for ₹170.424 crore. This permits recovery from one or more respondents, with any amount realised reducing the outstanding liability to that extent.
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