The Mumbai Bench of the National Company Law Tribunal (NCLT) has partly allowed an application filed by the Resolution Professional (RP) of Marvelous Metals Pvt. Ltd., directing six former directors to jointly or severally contribute ₹8.73 lakh, along with 12% annual interest if the amount is not paid within 30 days.
However, the bench of Shri Prabhat Kumar (Technical Member) and Sushil Mahadeorao Kochey (Judicial Member) dismissed the Resolution Professional’s claims seeking recovery of more than ₹10.19 crore on allegations of fraudulent transactions, holding that the material placed on record did not satisfy the evidentiary threshold required under Section 66 of the Insolvency and Bankruptcy Code (IBC).
The proceedings arose from an application filed under Section 66(1) of the Insolvency and Bankruptcy Code, 2016, by Resolution Professional Atul Rajwadkar during the Corporate Insolvency Resolution Process (CIRP) of Marvelous Metals Pvt. Ltd. The insolvency proceedings had commenced following the admission of a petition filed by the State Bank of India in December 2024, and the company subsequently entered liquidation in August 2025.
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The RP relied upon findings contained in a transaction audit report and sought directions against the company’s existing and former directors, as well as certain related parties, alleging fraudulent conduct and seeking recovery of approximately ₹10.27 crore. The application alleged improper payments to related entities, excessive salaries and interest paid to directors, disappearance of inventory valued at over ₹8.82 crore, and missing cash in hand of ₹8.73 lakh.
At the outset, the respondents argued that the application was not maintainable because it was filed beyond the timelines prescribed under Regulation 35A of the CIRP Regulations.
Rejecting this objection, the NCLT reiterated that the timelines prescribed under Regulation 35A are directory and not mandatory, and therefore non-compliance with those timelines does not render an application under Section 66 or other avoidance provisions of the IBC non-maintainable.
The RP challenged payments aggregating ₹99.15 lakh made towards machining labour charges to related parties, alleging that the transactions were fraudulent because the recipients were controlled by persons connected with the corporate debtor.
The Tribunal, however, found that the company had consistently incurred similar machining labour expenses in previous financial years and that the expenditure bore a direct relationship with its manufacturing operations and sale of machine castings. It noted that the proportion of machining charges to sales remained broadly consistent across multiple years and that the RP had not questioned identical transactions in earlier years.
Accordingly, the Bench held that payments cannot be treated as fraudulent merely because they were made to related parties, particularly in the absence of evidence showing inflated charges or diversion of funds.
The Tribunal also rejected allegations concerning ₹37.43 lakh paid towards salaries and interest to directors and related parties.
Although the RP argued that directors’ remuneration had increased substantially during FY 2021-22, the Bench observed that the analysis ignored disclosures contained in the audited financial statements and failed to consider that remuneration paid to several directors in the previous year had not been fully reflected in comparative figures.
The NCLT further noted that overall employee benefit expenses had remained relatively stable despite increasing operational revenues and that finance costs had actually declined during the relevant period. Interest payments to directors were also found to be consistent with earlier years, and no statutory prohibition against such payments had been established.
Consequently, the Tribunal held that the allegations were based on a selective reading of financial statements and did not establish fraud.
The RP’s largest claim related to alleged disappearance of inventory valued at ₹8.82 crore.
The Tribunal examined multiple inspection reports, including a joint inspection conducted by State Bank of India and a subsequent stock audit. While earlier inspection reports indicated the existence of inventory at the factory premises, later reports suggested that the stock was slow-moving and significantly lower than what would ordinarily support the company’s borrowing levels.
However, the Bench observed that the bank had subsequently taken physical possession of the factory under the SARFAESI Act, yet no evidence had been produced showing that inventory was absent when possession was taken.
The Tribunal found that several possible explanations existed regarding the inventory and that the available material did not conclusively establish wrongful removal or fraudulent diversion by the respondents.
Relying upon the National Company Law Appellate Tribunal’s decision in Regen Powertech Pvt. Ltd. v. Wind Construction Pvt. Ltd., the Bench reiterated that allegations under Section 66 require more compelling evidence capable of satisfying the test of preponderance of probabilities, which was absent in the present case.
The only allegation accepted by the Tribunal related to cash in hand amounting to ₹8.73 lakh reflected in the company’s books.
The Bench observed that although the respondents were statutorily required to maintain proper books of account under the Companies Act, they failed to produce records explaining how the cash had been utilized. The Tribunal also noted earlier orders directing the directors to furnish books of account, which remained uncomplied with, ultimately prompting directions to the Registrar of Companies to initiate appropriate proceedings for failure to maintain statutory records.
While the Tribunal acknowledged that the cash may have been spent during the company’s operations, it emphasized that the former directors had completely failed to account for its utilization.
Holding that the cash remained unexplained, the NCLT directed Respondent Nos. 3 to 8, who were directors during the relevant period, to jointly or severally contribute ₹8.73 lakh to the corporate debtor within 30 days, failing which the outstanding amount would carry interest at 12% per annum.
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