NCLAT Orders Former Directors Of Gold Bullion Trader To Pay ₹16.78 Crore For Fraudulent Sales During Insolvency

The National Company Law Appellate Tribunal at New Delhi recently held that three suspended directors of Varsha Corporation Ltd, a gold bullion trading company, must personally contribute more than Rs 16.78 crore to the company's estate after finding that they carried out fraudulent gold sales while an insolvency petition against the firm was pending. A bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha dismissed the suspended directors' appeal against the NCLT Mumbai's March 12, 2025 order and agreed with the finding that the transactions were fraudulent. The tribunal said “we do not have any doubt in our mind that these transactions were fraudulent transactions on the face of them and were fraudulently transacted to keep the inventory of gold of the CD out of the reach of the creditors of the CD.” The case arose from a series of gold sales by Varsha Corporation, which bought and sold bullion in the local market. Between 11 and 17 August 2020 the company sold 29.885 kilograms of gold worth Rs 16.09 crore to Swastik Diamonds on full credit. Only Rs 24 lakh was recovered that year and Rs 42.10 lakh the following year, leaving Rs 15.44 crore outstanding. Despite this, the company again sold gold worth Rs 1.05 crore to the same buyer on June 6, 2022, four days before the commencement of the insolvency process. It also sold gold worth Rs 30.09 lakh to Maa Kali Jewellers in March 2022, of which only Rs 43,826 was ever recovered. All these transactions took place while a Section 7(CIRP) application filed in October 2019 by a financial creditor Rajendra Sha was still pending. The directors argued that the transactions were part of ordinary trading activity and were undertaken in the hope of improving the company's position. They contended that the liquidator had failed to prove any dishonest intention, that the audit report relied upon was incomplete, and that non-payment by a buyer should not be treated as fraud. They further argued that fraudulent trading requires clear proof of dishonesty and that commercial losses should not be equated with wrongful trading. The tribunal rejected these submissions, pointing to the timing, scale and commercial irrationality of the transactions. It noted that 98 percent of the company's revenue for the year came from five credit sales to a single buyer and that bullion trading typically operates on spot payment. It said the audit report was not conclusive but was “a valuable piece of evidence, more so when the same is based on the audited financial records of the parties and therefore, could not be lightly brushed aside.” It also took note of the auditor's observation that “no Director in charge of the Company would make a legitimate commercial decision of sale of 31.885 kg of gold of Rs. 17.15 Crores on Credit to any party and thereafter has held that this sale was made by the Directors with malafide intentions to keep the inventory of gold out of reach of financial creditors"The appeal was dismissed and the NCLT's direction requiring the directors to contribute Rs 16.49 crore and Rs 29.65 lakh with 12 percent annual interest until payment was upheld. Case Title: Shantilal Javerchand Jain and Ors. V. Vinodkumar Pukhraj Ambavat & Ors. Case Number: Company Appeal (AT) (Insolvency) No. 629 of 2025 For Appellant: Advocate Ashish Raghuvanshi For Respondent: Advocate Disha Shah for Vinodkumar P Ambavat.Click Here To Read/Download Order

NCLAT Orders Former Directors Of Gold Bullion Trader To Pay ₹16.78 Crore For Fraudulent Sales During Insolvency

Shivangi Bhardwaj

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