Mr. Dinesh Keshawrao Atkare & Ors vs Palak Swapnil Desai & Ors

(Arising out of the Impugned Order dated 18.12.2024 passed by the 'Adjudicating Authority' (National Company Law Tribunal, Mumbai Bench-I, in I.A. No. 479 of 2024)

IN THE MATTER OF: 1. Mr. Dinesh Keshawrao Atkare Having its address at: Muramba Village, Taluka Murtizapur, PO Kinkhed, District Akola - 444107 ...Appellant No.1

2. Mr. Madan Keshawrao Atkare Having address at: Muramba Village, Taluka Murtizapur, PO Kinkhed, District Akola - 444107 ...Appellant No.2

Versus

Ms. Palak Swapnil Desai Erstwhile Resolution Professional of Santoshi Barrier Film India Pvt. Ltd. Flat No. 901, 9th Floor, Park Vistas, Opposite Lallubhai Park, Near MTNL, ...Respondent Andheri West, Mumbai - 400058

Present: For Appellant : Mr. Gaurav Mitra, Sr. Advocate with Mr. Dhruv Gupta and Ms. Lavanya, Advocates.

For Respondent : Mr. Devul Dighr and Mr. Manish Jha, Advocates.

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)

This Appeal is directed against the impugned order dated 18.12.2024

passed by the National Company Law Tribunal, Mumbai Bench-I, in I.A. No.

479 of 2024 ("Impugned Order"). The application was preferred invoking

Section 66 of the Insolvency and Bankruptcy Code, 2016 ("Code"). By virtue of the Impugned Order, the Adjudicating Authority directed the Appellants to

remit ₹17,23,05,603.50, upon recording a finding that the machinery

hypothecated in favour of the Financial Creditors was not the machinery

which was found at the premises of the Corporate Debtor.

Submissions of the Appellant/ Suspended Directors

2. The Appellant claims that those were allegations of irregularity and not

fraudulent business as contemplated under Section 66 of the Code. It claims

that even if the allegation of a machine swap is taken as true, this act, in and

of itself, does not automatically constitute a "fraudulent business" under

Section 66 of the Code. A single fraudulent transaction is not a pointer to the

entire business being fraudulent. The Appellant relies on the judgment of this

Appellate Tribunal in the case of Renuka Devi v. Regen Powertech, (2023

SCC Online NCLAT 4726) wherein it was held that a single fraudulent act on

a Corporate Debtor during business does not itself necessarily infer that the

business was carried on with the intent to defraud creditors. Paragraph 30 of

the said decision reads thus:

"30. It must be borne in mind that whenever a "fraud" on a "corporate debtor" is committed, in the course of carrying "business", it does not necessarily mean that the "business" is being carried on with an intent to "defraud" the "creditors". In this connection, this "Tribunal" pertinently, points out that if the "directors" of a "company" had acted on a bona fide belief that the "company" will recover from its "financial set back"/"difficulties"/"problems", then, it will not be liable for the "Act"/"offence" of "fraudulent trading", in the considered opinion of this "Tribunal"."

Company Appeal (AT) (Insolvency) No. 325 of 2025 2 of 28

3. The finding of the Ld. Adjudicating Authority is based on a single

disputed transaction, which is not sufficient to satisfy and meet the

requirements of Section 66 of the Code as per the precedent set by the

NCLAT. In the present case, the Ld. NCLT has failed to meet this high

standard of proof and has not established a pattern of fraudulent

business.

4. The said proposition that the intent to defraud the creditors by

carrying on business CD is a sine qua non for a finding that the Section

66 of the Code is applicable as has been held by Hon'ble Supreme Court

in the matter of Piramal Capital and Housing Finance Ltd Vs 63 Moons

Technologies Ltd. dated 1st April 2025 [Civil Appeal Nos. 1632-1634

of 2022], the relevant extract of which is held as under:-

"55. So far as section 66 is concerned, the same falls under Chapter VI and it pertains to the "fraudulent trading or wrongful trading." Subsection 1 of section 66 provides that if during the CIRP or a liquidation process, it is found that any business of the CD has been carried on with intent to defraud creditors of the CD or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional, pass an order that any persons who were knowingly parties to the carrying on of the business in such manner, shall be liable to make such contributions to the assets of the CD, as it may deem fit. From the bare reading of section 66(1), it is very much discernible that the said provision pertains to the "fraudulent trading or wrongful trading" in respect of the business of the CD.

56. Thus, there is a clear distinction between the avoidance applications that may be filed by the resolution professional in view of

Company Appeal (AT) (Insolvency) No. 325 of 2025 3 of 28 section 25(2)(j) for avoidance of transactions in accordance with Chapter III of the Code, and the applications that may be filed by the resolution professional in respect of the fraudulent trading or wrongful trading under section 66, which falls under Chapter VI of the Code. The Legislature has consciously kept the applications in respect of fraudulent trading or wrongful trading falling in Chapter VI, outside the purview of section 25(2), which requires the resolution professional to undertake the actions and file applications for the avoidance of transactions in accordance with Chapter III. Both, the avoidance applications under Chapter III and the applications in respect of fraudulent trading or wrongful trading under Chapter VI, operate in different situations. The powers of the Adjudicating Authority in respect of the avoidance applications filed under Chapter III and the powers of the Adjudicating Authority in respect of the applications pertaining to the fraudulent and wrongful trading filed under Chapter VI, have also been separately circumscribed."

5. The Appellant also claims that the findings of the Ld. Adjudicating

Authority, on the identity of the machinery are contradictory. The NCLT's

order contains mutually contradictory findings regarding the identity of

the machinery. While the order proceeds to hold that the Appellants was

liable for the discrepancy, it simultaneously casts doubt on the ability of

the parties to conclusively identify the machines (para 21 of the Impugned

Order). This creates a fundamental flaw in the NCLT's reasoning. The

NCLT's conclusion that the machinery at the premises is not what was

hypothecated is directly contradicted by its own admission of the lack of a

convincing case by the Resolution Professional (RP) on the identity of the

machinery. Particularly when, the tribunal has acknowledged that it is not

its prerogative to determine the identity of the machinery, but rather was

Company Appeal (AT) (Insolvency) No. 325 of 2025 4 of 28 observed to be a matter of investigation beyond its jurisdiction. It has also

noted that the parties may approach the appropriate forum to resolve that

dispute. This is clear from paragraph 22 of the impugned order, which

states that it is not "this Tribunal's prerogative to determine whether the

machine actually installed at the Corporate Debtor's premises was the C.I.

Flexographic Machine or the Flexographic Press, as that would be a matter

of investigation beyond the jurisdiction of this Tribunal and the parties may

approach the appropriate forum to resolve that dispute". It is of pertinence

to note that once the tribunal has come to a finding that it has no

jurisdiction to decide the issue of identity of machineries, which is at the

core of the controversy then the Tribunal cannot venture into adjudication

of the Section 66 application at all and same should have been dismissed

in limine for want of jurisdiction.

6. The NCLT's finding is in direct conflict with the report of Ankit Goel,

an IBBI empaneled expert, who was appointed by the Appellants to inspect

the machinery. The Tribunal has failed to give due weight to this expert

report by an IBBI empaneled chartered engineer, which directly refutes the

vague and unsubstantiated claims of the RP's valuer.

7. The Appellant also rebuts the valuation report, prepared by the

Resolution Professional, and also claims estoppel against the Financial

Creditors. The appellant claims that the entire action under Section 66 of

the Insolvency and Bankruptcy Code, 2016, originated from an email

dated 12.10.2023 by Pranav Ambaselkar, a valuer appointed by the RP.

Company Appeal (AT) (Insolvency) No. 325 of 2025 5 of 28 This email claimed that Rotogravure Printing machines were found instead

of the C.I. Flexographic Press. This claim has been fully rebutted by the

actions and conduct of the financial creditors themselves, which establish

a clear case of estoppel and waiver.

8. The Appellant claims that the identity of the machinery was duly

established and verified on multiple occasions. A Court Receiver appointed

by the Hon'ble Bombay High Court submitted a report verifying and

confirming the presence of the machine, a Flexographic Press NSA-14.

This report was signed by the financial creditor's representative.

9. The Financial Creditors took possession of the machinery under

Section 13(4) of the SARFAESI Act on 19.09.2020, without raising any

objections regarding the machine's identity.

10. The Appellant claims that the Financial Creditors' prior acceptance

and verification of the machinery's identity, both through the Court

Receiver's report and their own due diligence, create a clear case of

estoppel. They cannot now, through the RP, question the identity of the

very machine they previously verified and took possession of.

11. The Appellant further contends that the entire email of 12.10.2023

by Pranav Ambaselkar was rebutted by relying on the affidavit of Francis

Fernandes, the purported supplier of the machine, who denied having

supplied machinery or parts to the Corporate Debtor. The affidavit, on

pages 452-456 of Annexure A17, directly contradicts the valuer's report,

Company Appeal (AT) (Insolvency) No. 325 of 2025 6 of 28 which was the very basis of the RP's case. This goes to the root of the case

and establishes that the very genesis of the Section 66 action was incorrect

and malafide.

12. The Appellant further claims even on the assumption that the

machinery was not what was originally intended, the NCLT's order to pay

₹17,23,05,603.50 is legally and factually incorrect. The amount represents

the equivalent price of the machines as per the application, which fails to

account for several crucial factors.

13. The NCLT's order for damages is based on an incorrect calculation,

devoid of factoring in the depreciation of the hypothecated

asset/machinery and without deducting the realisable/market value of the

asset/machinery found at the premises. On demurrer, it is submitted that

the correct approach should have considered the depreciated and

realizable value of the assets. The appellant claims that the Hypothecated

Price (₹17,23,05,603.50) should have been Depreciated Value of

Hypothecated Machine less Realisable Value of Machines at Premises.

14. Therefore, the impugned order does not consider the depreciated

value of the machinery at the time of the Corporate Insolvency Resolution

Process (CIRP). Equally, the NCLT also fails to deduct the realizable value

of the machines that were actually found at the premises. The appellant

claims that this ground alone, is fatal to the validity of the impugned order.

Company Appeal (AT) (Insolvency) No. 325 of 2025 7 of 28

15. The Appellant claims that the NCLT's order suffers from several legal

and factual infirmities. The order is based on contradictory findings, ignores

the principle of estoppel, miscalculates the potential damages, and incorrectly

applies the provisions of Section 66 of the IBC. The Appellants submit that

the impugned order should be set aside as it is based on a flawed

interpretation of the facts and the law, and is contrary to established

precedents on the applicability of Section 66.

Submissions of Respondent No. 2/Liquidator

16. The Respondent No. 2 submits that undisputedly, the Corporate Debtor

had availed 2 (two) loans from Tata Capital Financial Services Limited for an

amount of ₹ 8 Crores and Hero Fincorp Limited (now Phoenix ARC on account

of assignment of loan) for an amount of ₹ 4 Crores for the purchase of 2 (two)

C.I. Flexographic Press Machines, 6 colours Varieties along with its

accessories.

17. The Corporate Debtor purchased the C.I. Flexographic Press with 6

Colour Variety along with accessories from Brick and Byte Innovative

Products Private Limited vide Invoice No. 107 dated 23rd December 2016 for

total amount ₹11,50,33,603.50/- by utilizing the proceeds of loan obtained

from Tata Capital Financial Services Limited to the tune of ₹ 8,00,00,000/.

The said invoice duly reflects the delivery note number and the vehicle

number through which it was dispatched. (Invoice at Page No. 178 of the

Appeal Memo).

Company Appeal (AT) (Insolvency) No. 325 of 2025 8 of 28

18. The Corporate Debtor further purchased second C.I. Flexographic Press

with 6 Colour Variety from Nyles Sales Agencies Private Limited vide Tax

Invoice No. NSA/16-17/1182 dated 14th March 2017 for a total amount of

₹5,72,72,000/-by utilizing the proceeds of loan obtained from Hero Fincorp

Limited (now Phoenix ARC) for an amount of ₹ 4,00,00,000/-. The said invoice

also contains details of vehicles through which the said machine was

dispatched to the factory premises of the Corporate Debtor, being D-51, MIDC

Buti-Bori, Nagpur. (Invoices at Page No. 177 of the Appeal Memo).

19. The Corporate Debtor secured the loan availed and amounts utilized for

the purchase of machineries from the respective lenders by creating security

interest in the form of hypothecation in favour of the said lenders i.e. Tata

Capital Services Private Limited and Hero Fincorp Limited vide Hypothecation

Agreements dated 21 October 2016 and 5th January 2017 (hereinafter

referred to as "Hypothecation Agreements") and Appellant No. 1 itself has filed

Form CHG-1 with MCA annexed at Page No. 179.

20. The Appellants despite producing invoices and creating security

interest over C.I Flexographic Press Machine 6 colour variant, the Appellants

thereafter contended that it made a decision to procure, 8 colour variant of

the Flexographic Printing Machine. The Appellants could not produce any

invoices or evidences to discharge the burden of proof and show the Invoice

and/or the documents of title under which Flexographic Press Machine 8.

colour variant was purchased and as to why no prior consent of the secured

lenders were obtained.

Company Appeal (AT) (Insolvency) No. 325 of 2025 9 of 28

21. The Respondent No. 2 states that what machines were actually found

were neither C.L. Flexographic 6 or an 8 colour variant but was rather a

Rotogravure Printing Machine which is substantially lower in value than a

C.I. Flexographic Press Machine and therefore, evidently there has been fraud

played upon by the Appellants upon the Corporate Debtor and its creditors

particularly the secured creditors. (Valuer Mangesh Ketkar Report dated

17.07.2023 Page No. 423 of Appeal Memo & Valuer Pranav Ambaselkar Report

dated 13th September 2023 Page No. 433 of the Appeal Memo).

22. The Respondent No. 2 states that in fact, the entire falsity of the case

of the Appellants is exposed from the fact that, their entire case is based upon

an overall insinuations and contentions made by them without any iota of

corroborative or of documentary evidence on whether and how it has

purchased an 8 colour variant of Flexographic Printing Machine instead of 6

colour variant of C.I. Flexographic Press Machine without even informing

secured lenders. The Respondent No. 2 further submits that neither the

Appellants could produce the invoices for purchase of an 8 colour variant

and/or cancellation of the invoices for purchase of the 6 colour variant

(without prejudice to the proof of delivery of machines under the said Invoices)

nor could the Appellants place any documents on record to support as to why

and under what circumstances the make, model, manufacture type etc. of

machine was removed or why there were inconsistencies in the labels of the

machines than those mentioned in the invoice. The same is without prejudice

to the fact that, neither of the said 2 (two) C.I. Flexographic Press Machines

or even Flexographic Printing Machine as contended by the Appellant were

Company Appeal (AT) (Insolvency) No. 325 of 2025 10 of 28 found or available at the factory premises of the Corporate Debtor. (Valuers

Email dated 12th October 2023-Page No. 193 of Appeal Memo & Valuer Pranav

Ambaselkar Report dated 13th September 2023 Page No. 433 of the Appeal

Memo)).

23. The Respondent No. 2 submits that both the valuers appointed by the

RP being Mangesh Khedkar and Pranav Ambaselkar registered with the Board

and being Mechanical Engineers have categorically observed in their valuation

report that both machines at site are Rotogravure Printing Machine. It is

further submitted that the valuer Pranav Ambaselkar, Chartered Engineers

in his valuation report dated 13th September 2023 has stated that there

exists evidence wherein it appears that machinery had been installed but

since it had been removed. Therefore, it is evident that in order to defraud the

creditors, Rotogravure Printing Machines of substantially less value has been

installed there at instead of C.1. Flexographic Press Machine, under the said

modus operandi, in order to defraud the creditors by swindling away and

taking out of the reach of the creditors, the said C.I. Flexographic Press

Machines over which security interest was created in favour of the secured

lenders having value of ₹17,23,05,603.50 (Rupees Seventeen Crores Twenty

Three Lakhs Five Thousand Six Hundred Three and Fifty Paise only)

respectively as against Rotogravure Printing machines having value of merely

₹40,00,000/-only approximately. (Valuers Email dated 12th October 2023-

Page No. 193 of Appeal Memo).

Company Appeal (AT) (Insolvency) No. 325 of 2025 11 of 28

24. The Respondent No. 2 therefore submits that the relevant experts on

this subject have given an determinate and conclusive opinion and evidence

on the nature of the machines, which demonstrate beyond any reasonable

doubt that C.I. Flexographic Press Machines have been moved out or probably

disposed of, to keep them out of the reach of the creditors/secured lenders in

order to defraud them by replacing them with Rotogravure Printing Machines

of substantially lower value or rather having a scrap value about 20 to 30

lakhs as against the original price of ₹ 17,23,05,603.50/-.

25. Further, the double standards in the case of the Appellants can be

further better ascertained from the fact that the Appellants on one hand

question the findings of 2 (two) "independent" "chartered engineers"/valuers

having requisite qualifications as a "Mechanical Engineers" who were

appointed by the Resolution Professional in terms of the provisions of the

Insolvency Code and therefore, under statutory mandate, having requisite

qualification and on the other hand seek quite hypocritically seek to establish

their case that the machines in questions are Flexographic Printing Machines

8 colour variant on the basis of independent valuer appointed by Appellants

themselves without any statutory mandate or prior order/approval from the

Hon'ble Adjudicating Authority having qualification of an "electrical engineer".

(Valuer Ankit Goel Certificate of Comparison and Technical Superiority dated

5th July 2024, appointed Suo Moto by the Appellant Page No. 405 to 409 of

the Appeal Memo). The Appellants, on one hand questions the findings of such

valuers appointed by the RP and the senior industrial expert stating that the

senior industrial expert did not actually visit or inspect the machines in

Company Appeal (AT) (Insolvency) No. 325 of 2025 12 of 28 question and on other hand relies on and seeks to solely establish their case

based on opinion of valuer Mr. Ankit Goel appointed suo moto by them who

never actually inspected the said machines by himself but had rather merely

sent a representative having no technical knowledge whatsoever and merely

on the basis of photographs clicked by him, gave an opinion on certain

comparative features of machines at site and not even a determinate opinion

that machines are Flexographic Printing Machines 8 colour variants and yet,

the Appellants quite astoundingly contend that they are in fact Flexographic

Printing Machines 8 colour variants and from the aforesaid, it is evident that

the case of Appellants is without substance and fall flat on its head.

(Impugned Order dated 18.12.2024 Para 14 to 17 at Page No. 131 & 132 of

the Appeal Memo).

26. Respondent No. 2 submits that viewed from any angle or perspective,

the fact that loans were obtained to purchase (two) machines of certain

description C.L. Flexographic Press Machine 6 colour variant by the Corporate

Debtor through the Appellants in charge and control of the Corporate Debtor

and inability on the part of the Appellants being in control of the Corporate

Debtor to handover the possession of the same or account for the same is a

manifest fraud or even otherwise, if the Appellant had. procured loan against

purchase of certain specified equipment and subsequently, did not purchase

or account for the same, in any event, otherwise also, this is apparent fraud

in itself committed by the Appellants. The Respondent No. 2 submits that

once if fraud is perpetrated and a transaction intends defrauding the creditors

has been quite intentionally committed by the Appellants in charge of the

Company Appeal (AT) (Insolvency) No. 325 of 2025 13 of 28 Corporate Debtor, the Appellants become liable to contribute the amount of

money for which the fraud is perpetrated vide the said transactions

defrauding creditors. The exact nature and the manner in which the fraud

was perpetrated and hence transaction defrauding creditors was undertaken

by the Appellants are of no consequence.

27. The Respondent No. 2 further states that, it is glaring to note that the

make, type, as well as the registration number mentioned upon the machine

was not identifiable which appears to be a deliberate attempt to tamper to

suppress the identification of machine from the RP/Liquidator and make

identification of machine difficult to be identified and at the same time no

explanation whatsoever, was provided as to why the machines on factory site

which are of 2012 make and plate details are of Frans Engineering

Corporation while the C.1. Flexographic Press Machines were purchased from

Nyle Sales Agencies Private Limited and Brick & Bite Innovative Products

Private Limited, which clearly demonstrates that the machines were replaced

with Rotogravure Machines, otherwise, there is no occasion or reason as to

why the make and manufacturer of the said machines can possibly change or

the Appellants would simply, without any need or benefit or logic change the

plate of the maker or manufacturer from the machine and insert name of

another manufacturer, unless it was a part of a larger design or conspiracy to

defraud creditors. (Valuers Pranav Ambaselkar Email dated 12.10.2023 Page

No. 193 of the Appeal Memo) (Affidavit in Reply of Appellant before Bombay

High Court Para 10 of Page No. 201 of Appeal Memo) (Email of RP dated 16th

October 2023-Page No. 196 of the Appeal Memo).

Company Appeal (AT) (Insolvency) No. 325 of 2025 14 of 28

28. Even the Hon'ble High Court of Bombay in the order passed on 8th

January 2020 passed in Commercial Arbitration Petition (L) No. 1603 of 2019

in paragraph No. 9 has recorded the inconsistencies in the stand of the

Appellant that despite the loan documents clearly mentioning the vendor and

the year of manufacturing as of 2016, but there are even records now to

indicate said machine at site was not of manufacturer in the year 2016 but

2017 and some parts supplied by Brick & Byte Innovative Products relates to

some printing machinery units without specifications and not to the machine

itself while only one machine at the site was bearing endorsement of the

manufacturing year as of 2017 which the Hon'ble High Court noted raises

more questions than giving the answers. (Page No. 355 of Appeal Memo).

29. The Respondent No. 2 submits that on CIRP being commenced on 18th

April 2023, the Appellants were duly bound to handover C.I. Flexographic

Press 6 Colour Variant or in any case Flexographic Printing Machine 8 Colour

Variant as contended by Appellants themselves, but what machines were

available on site after possession was taken over by the RP on 5th July 2023

pursuant to order dated 8th June 2023 passed by Hon'ble NCLT, Mumbai

Bench in I.A. (IBC) 2363 of 2023 directing station officer to expand assistance

for the same on account of non-cooperation by the Appellant. The real

substance of the case lies in the said fact as to machines available on site

when RP took over control of registered office and possession of the site and

what machines were at site in the year 2020 or 2021 is inconsequential.

Therefore, evidently and beyond reasonable doubt, a transaction was done to

keep assets out of reach of creditors and to benefit themselves from their own

Company Appeal (AT) (Insolvency) No. 325 of 2025 15 of 28 acts of fraudulent trading in such assets which squarely within the meaning

of Section 66 of the Code.

30. The Respondent No. 2 states that this Hon'ble Appellate Tribunal in the

case of Gopal Kalra vs Akhilesh Kumar Gupta (Company Appeal (AT) (Ins)

No. 567 of 2024) vide its very recent judgment dated 3rd July 2025 relying

on the decision of the Hon'ble Supreme Court in the case of Anuj Jain, IRP

for Jaypee Infratech Limited vs Axis Bank Limited & Ors. (Civil Appeal

No. 8512-8527 of 2019) held that fraud under IBC is a matter of inference

based on pattern and substance of transaction. Courts are not required to

have direct proof of criminal intent, circumstantial evidence, when sufficiently

compelling can justify a finding of fraudulent trading. The said case was also

based on fraudulent trading based on fictious trading or transactions under

which payments were made by the Corporate Debtor to third party sellers.

The basis of such application was the forensic audit report backed by field

investigation report that these entities were not having address as purported

place of business as per the documents. The Hon'ble Adjudicating Authority

have to consider the facts and proving finding where transactions were

orchestrated or undertaken to cause financial loss to the Corporate Debtor

and/or its creditors. A copy of the said Judgment is hereto annexed as

Annexure "А".

31. A copy of Joint Inspection Report dated 4th July 2024 which was

undertaken vide order dated 9th May 2024 passed by the Ld. NCLT and which

was also forming part of original pleading vide Additional Affidavit dated 10th

Company Appeal (AT) (Insolvency) No. 325 of 2025 16 of 28 August 2024 but not annexed is hereto annexed as Annexure "B". The said

inspection report exposes the Appellants of its false hood that if two

flexographic printing machines were purchased then why they were different

in size and why does their own valuer Ankit Goel refer to second machine on

site as 6 colour variant. Hence, it is prayed that present Appeal be dismissed

with cost.

Analysis and Findings

32. We have considered the submissions of the parties and perused the

material placed on record. The principal question for consideration is whether

the Adjudicating Authority was justified in exercising jurisdiction under

Section 66 of the Code and in directing the Appellants to make contribution

to the assets of the Corporate Debtor on account of the removal and

replacement of the machinery financed and hypothecated in favour of the

Financial Creditors.

33. At the outset, the documentary record establishes that the Corporate

Debtor had obtained finance from the two Financial Creditors for purchase of

two C.I. Flexographic Press Machines of six-colour variety. The relevant

invoices record the purchase and dispatch of the machines to the factory

premises. The machinery was also subjected to hypothecation in favour of the

Financial Creditors. Thus, the existence of the financed and hypothecated

machinery is not founded merely upon an oral assertion; it is supported by

contemporaneous documentary material.

Company Appeal (AT) (Insolvency) No. 325 of 2025 17 of 28

34. The Appellants' principal defence is that the machinery subsequently

found at the premises was an alternative machine of better specifications and

that the change had been orally discussed with the Financial Creditor. We

find no contemporaneous documentary evidence on record establishing that

the Financial Creditors have ever by virtue of any documents consented to

substitution of the hypothecated machinery. Significantly, the material relied

upon by the Liquidator indicates that the explanation concerning an

alternative machine was advanced only subsequently. In the circumstances,

the plea appears to be an afterthought and cannot displace the documentary

evidence relating to the original financed machinery.

35. The contention that the Financial Creditor (Hero Fin Corp. Ltd., HFCL)

had earlier taken possession of the machinery under Section 13(4) of the

SARFAESI Act and did not then raise an objection regarding its identity does

not, by itself, create an estoppel against examination of the machinery during

the insolvency process. The question before us is not whether an earlier

possession exercise conclusively determines the identity of the machinery for

all purposes, but whether the material available in the insolvency proceedings

supports the finding that the assets financed and hypothecated to the

creditors were subsequently removed and replaced to the detriment of the

Corporate Debtor and its creditors.

36. We are also unable to accept the submission that the reports relied

upon by the Resolution Professional are so contradictory or inconclusive as

to render the Section 66 proceedings unsustainable. The record contains the

Company Appeal (AT) (Insolvency) No. 325 of 2025 18 of 28 opinions of two independent valuers regarding the machinery found at the

premises. It is worthwhile to note the reports of experts which was done in

terms of Regulation 35 of the IBBI (CIRP) Regulations 2016, are quite

revealing. The valuation report of Mangesh Kedkar indicates that the fair

value and the liquidation value of the plant and machinery are about ₹ 96.9

lakhs and ₹ 77.51 lakhs, respectively, and the installed machinery is a

rotogravure printing-type machine. The second report of Mr. Pranav

Ambaselkar indicates that the fair value is ₹ 79.04 lakhs and the liquidation

value is ₹ 63.43 lakhs and the installed machinery is a rotogravure printing-

type machine. The photographs attached with this report clearly indicate the

label of Frans Engineering Corporation with its address noted therein, which

is placed on record at page 443.

37. On further inquiry the valuer had clarified that, specifically, the C.I

flexographic machines for which invoices were shown to him were not present

on site but there was the presence of a rotogravure printing machine. The

valuer also notes that during their on-site assessment they observed the

existence of machinery foundations that suggested that machines had

previously been installed but had subsequently been removed. The valuer also

brings to the notice of the liquidator that the most reliable way to validate the

presence of particular machinery is by cross-checking the serial number,

model number, or make of the on-site machine with the information outlined

in the invoices or documents. However, in this particular case, they faced

challenges verifying the serial number and model number due to either

missing or mismatched nameplates.

Company Appeal (AT) (Insolvency) No. 325 of 2025 19 of 28

38. Thus we find that the reports, read with the physical indications at the

factory premises and the absence of documentary material accounting for the

alleged substituted machinery, provide material from which the Adjudicating

Authority could draw an inference. The report produced by the Appellants'

own expert does not, in our view, satisfactorily displace that evidence,

particularly when the expert did not himself undertake a direct inspection of

the machinery and the opinion was based upon photographs and comparative

features.

39. The fact that the Appellants dispute the identity or description of the

machinery does not deprive the Adjudicating Authority of jurisdiction under

Section 66.

40. The observations in paragraph 22 of the Impugned Order have to be

read in the context in which they were made. Relevant extract of the

paragraph is as follows:

"22. It is abundantly clear from this timeline that the machine originally purchased was the C.I. Flexographic Machine and that the machine currently at the premises of the Corporate Debtor is the Rotogravure Machine. It is not this Tribunal's prerogative to determine whether the machine actually installed at the Corporate Debtor's premises was the C.I. Flexographic Machine or the Flexographic Press, as that would be a matter of investigation beyond the jurisdiction of this Tribunal and the parties may approach the appropriate forum to resolve that dispute."

41. The Adjudicating Authority under law could not be called upon to

conduct a technical investigation in the nature of a criminal trial; it was

Company Appeal (AT) (Insolvency) No. 325 of 2025 20 of 28 required to determine, on the basis of material before it, whether the business

of the Corporate Debtor had been carried on in the manner contemplated by

Section 66 of the Code. The finding of fraudulent conduct can be based upon

the cumulative effect of documentary and circumstantial evidence. And if we

peruse subsequent paragraphs of the impugned order, the things become

clear and for that reason they are extracted as below:

"23. The discrepancy in the documents and the invoices, the actual state and the identification of the machinery as Rotogravure Printing Machine and the unmistakable inconsistencies in the submissions of the Respondents, clearly demonstrate that the machines that the financial creditors financed, whether the C.I. Flexographic Machine or the Flexographic machine, are not the machines installed in the premises of the Corporate Debtor. Instead, the machines installed in the premises of the Corporate Debtor are Rotogravure Machines that are valued much less than the sanctioned machines. A high standard is always applied for the proof of a positive fact, while the standard of preponderance of probability is sufficient to prove a negative fact. In the present case, it is more probable than not that the Respondent Nos. 1 and 2 have changed the machinery in the Corporate Debtor's premises with machinery of much less value for their own unjust enrichment.

24. In light of the above discussion, we find that the Respondent Nos. 1 and 2 acted in bad faith and defrauded the creditors by availing a loan of Rs. 12 crores for the purchase of certain machinery and have instead installed completely different machinery, that is valued at a much lower price, in the premises of the Corporate Debtor."

42. The plea that Section 66 of the Code, cannot apply because the case

concerns only one transaction is equally without merit. For better

Company Appeal (AT) (Insolvency) No. 325 of 2025 21 of 28 appreciation of the power relating to fraudulent or wrongful trading as per the

Insolvency and Bankruptcy Code, the relevant provisions are extracted as

below:

"Section 66-Fraudulent or wrongful trading.

(1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional or the liquidator pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit.

(2) On an application made by a resolution professional during the corporate insolvency resolution process, or by a liquidator the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if--

(a) before the insolvency commencement date, such director or partner knew or ought to have known that the there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such corporate debtor; and

(b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the corporate debtor.

Company Appeal (AT) (Insolvency) No. 325 of 2025 22 of 28 (3) Notwithstanding anything contained in this section, no application shall be filed by a resolution professional under subsection (2), in respect of such default against which initiation of corporate insolvency resolution process is suspended as per section 10A.

Explanation.--For the purposes of this section a director or partner of the corporate debtor, as the case may be, shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carrying out the same functions as are carried out by such director or partner, as the case may be, in relation to the corporate debtor.

[Emphasis supplied]

43. Section 66(1) of the Code, does not prescribe that fraudulent trading

must necessarily be established through a series of independent transactions.

What would be material is whether the business of the Corporate Debtor was

carried on with intent to defraud creditors or for a fraudulent purpose. The

removal of high-value secured machinery and its replacement by

substantially lower-value machinery, if established on the evidence, is not a

mere technical irregularity. It directly affects the asset base of the Corporate

Debtor and the security and recovery prospects of its creditors. We find that

the adjudicating authority is sufficiently empowered to delve into the issue of

fraudulent or wrongful trading and the resolution professional has rightly

moved the application. The Adjudicating Authority was well empowered to

direct the suspended director of the Corporate Debtor to make such

contribution to the assets of the Corporate Debtor as it deemed fit.

44. Furthermore, we are conscious of the principle, relied upon by the

Appellants, that a finding under Section 66 of the Code, requires the statutory

ingredients to be established and that mere negligence or an isolated

Company Appeal (AT) (Insolvency) No. 325 of 2025 23 of 28 irregularity cannot automatically be characterized as fraudulent trading. The

authorities cited by the Appellants therefore do not lay down that direct

evidence of fraudulent intent is indispensable in every case. On the contrary,

the nature of the enquiry permits the adjudicatory authority to draw a

conclusion from the totality of the circumstances. Thus we find that the

appellant's reliance on Renuka Devi (supra) is of no assistance to it.

45. The decision in Piramal Capital and Housing Finance Ltd. (supra)

also makes clear the distinct nature of proceedings under Section 66, different

from avoidance application. The distinction noted in this judgment does not

assist the Appellants where the material on record, taken cumulatively,

establishes the requisite fraudulent purpose.

46. In the present case, several circumstances operate cumulatively:

(i) The original machinery was financed by the financial creditors

and supported by invoices and dispatch particulars;

(ii) The machinery was hypothecated in their favour;

(iii) The suspended Board did not permit timely possession of the

Corporate Debtor's assets after commencement of CIRP;

(iv) Possession was ultimately obtained only pursuant to the orders

of the Adjudicating Authority and with police assistance;

(v) The inspection material records indications that machinery had

been removed from the premises;

Company Appeal (AT) (Insolvency) No. 325 of 2025 24 of 28

(vi) The machinery found at the site was identified by the

independent valuers as substantially different and of

considerably lower value;

(vii) The alleged substituted machinery is not supported by the

contemporaneous purchase documentation which one would

ordinarily expect; and

(viii) There is no satisfactory evidence of prior approval or consent of

the secured creditors for substitution of the hypothecated assets.

47. The cumulative effect of these circumstances is significant. The

expensive machinery which constituted the subject matter of the financing

and security interest was required to be available for the benefit of the

Corporate Debtor and its creditors. Its disappearance, coupled with the

presence of substantially lower-value machinery and the failure of the persons

in control of the Corporate Debtor to satisfactorily account for the

substitution, constitutes compelling circumstantial evidence of conduct

intended to keep valuable assets beyond the reach of creditors. We therefore

find no perversity or illegality in the conclusion of the Adjudicating Authority

that the original machinery had been removed.

48. The Appellants have also questioned the quantum of ₹17,23,05,603.50.

Once the finding of fraudulent removal of the secured machinery is upheld,

the direction under Section 66 is intended to restore the assets of the

Corporate Debtor to the extent determined by the Adjudicating Authority. The

Appellants have not demonstrated before us that the quantum directed by the

Company Appeal (AT) (Insolvency) No. 325 of 2025 25 of 28 Adjudicating Authority is so arbitrary or unsupported by the record as to

warrant appellate interference. The plea regarding depreciation and realizable

value, in the circumstances of the present case, does not dislodge the

substantive finding that the financed and hypothecated machinery was

removed and that the Corporate Debtor's asset position was thereby depleted.

49. We also reject the submission that the Resolution Professional or

Liquidator was required to conduct a forensic investigation of every aspect of

the alleged removal before an application under Section 66 could be

maintained. The insolvency process cannot be rendered ineffective merely

because the precise manner in which an asset was removed cannot be

reconstructed with mathematical certainty. The adjudicatory determination

is based upon the evidence available on record and the cumulative inferences

arising therefrom.

50. The conduct of the suspended Board in resisting or delaying the taking

over of possession assumes relevance in the present factual matrix. The CIRP

commenced on 18.04.2023, whereas possession of the assets was ultimately

taken on 05.07.2023 pursuant to the orders of the Adjudicating Authority.

The intervening period, when the persons in control did not permit the

Resolution Professional to take possession, is a circumstance which, when

considered with the inspection and valuation material, strengthens rather

than weakens the inference drawn by the Adjudicating Authority.

51. For the foregoing reasons, we are satisfied that the Adjudicating

Authority correctly exercised its jurisdiction under Section 66 of the Code.

Company Appeal (AT) (Insolvency) No. 325 of 2025 26 of 28 The finding is not based upon a bare allegation or an isolated discrepancy,

but upon the cumulative effect of documentary evidence, inspection reports,

valuation reports, the absence of satisfactory contemporaneous explanation

and the conduct of the suspended Board. The Appellants have failed to

demonstrate any error of law, perversity or material irregularity warranting

interference under Section 61 of the Code.

Conclusion

52. In view of the foregoing discussion, we find no merit in the Appeal. The

Impugned Order dated 18.12.2024 passed by the Ld. National Company Law

Tribunal, Mumbai Bench-I, in I.A. No. 479 of 2024 is hereby affirmed. The

direction requiring the Appellants to remit/contribute ₹ 17,23,05,603.50 to

the assets of the Corporate Debtor is upheld. The Liquidator is permitted to

continue with the liquidation process and to take all consequential steps in

accordance with the Code and the orders of the Adjudicating Authority.

53. We further note that the Appellant/Suspended Board of Directors have

filed a frivolous appeal and has wasted the precious time of this Appellate

Tribunal. Accordingly, we are constrained to impose sufficient cost to deter

such litigants from wasting the precious time of this Appellate Tribunal.

Order

54. The Appeal is dismissed. The order dated 18.12.2024 passed by the

National Company Law Tribunal, Mumbai Bench-I, in I.A. No. 479 of 2024 is

confirmed. The direction issued under Section 66 of the Insolvency and

Bankruptcy Code, 2016, including the direction for contribution of

₹17,23,05,603.50, is upheld. The Liquidator is permitted to continue with the

Company Appeal (AT) (Insolvency) No. 325 of 2025 27 of 28 liquidation proceedings in accordance with law and to take all consequential

and necessary steps for preservation and realization of the assets of the

Corporate Debtor. We dismiss the Appeal. All related pending Interlocutory

Applications, if any, stand disposed of. In the facts and circumstances of the

case, both the Appellants shall bear costs of ₹ 5,00,000/- each, to be

deposited in the Prime Minister's National Relief Fund.

[Justice Sharad Kumar Sharma] Member (Judicial)

[Arun Baroka] Member (Technical)

[Indevar Pandey] Member (Technical) New Delhi.

September 17, 2026.

pawan

Company Appeal (AT) (Insolvency) No. 325 of 2025 28 of 28