Fraudulent trading or wrongful trading
Section 66 of the Insolvency and Bankruptcy Code, 2016 deals with fraudulent trading or wrongful trading. 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 r The Act was enacted on 28 May 2016.
(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 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, 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 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.
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.
Section 66, The Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016).
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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Raman Prakash Mangla vs Anuj Jain
Court's Decision & Legal Precedent
The Adjudicating Authority has limited jurisdiction in approving a resolution plan, circumscribed by Sections 30(2) and 31 of the Insolvency and Bankruptcy Code, 2016. The Authority cannot interfere with the commercial aspects of the decision taken by the Committee of Creditors. If the Adjudicating Authority finds shortcomings in the resolution plan vis-à-vis the specified parameters of keeping the corporate debtor as a going concern, maximizing the value of its assets, and taking care of interests of all stakeholders, it must send the plan back to the Committee of Creditors for reconsideration, not modify the plan itself. Payment to dissenting financial creditors must be in monetary terms, not in kind or through transfer of equity or land. Once homebuyers as a class vote in favor of a resolution plan through their authorized representative, individual homebuyers cannot challenge the plan as dissenting creditors or aggrieved persons. The INR 750 crores deposited by the holding company pursuant to Supreme Court orders in Chitra Sharma is the property of the holding company, not the corporate debtor, and cannot be appropriated by the corporate debtor or the resolution applicant.
On this section: Fraudulent transactions
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Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited vs Axis Bank Limited
Court's Decision & Legal Precedent
Mortgage transactions executed by a subsidiary to secure loans of its holding company constitute preferential transactions under Section 43 of the Insolvency and Bankruptcy Code 2016 when: (1) the transactions transfer the subsidiary's property for benefit of the holding company (a related party and creditor of the subsidiary) for antecedent debts owed by the subsidiary to the holding company; (2) the transactions put the holding company in a beneficial position compared to other creditors in liquidation distribution; (3) the transactions fall within the two-year look-back period for related party transactions; and (4) the transactions are not made in the ordinary course of business or financial affairs of the subsidiary, which requires reading the word 'or' in Section 43(3)(a) as 'and' to ensure both the subsidiary's and transferee's ordinary course of business are considered. Furthermore, lenders of a holding company cannot be categorized as financial creditors of a subsidiary merely by holding mortgages on the subsidiary's assets because financial debt requires disbursal against consideration for time value of money to the corporate debtor, and mortgage debt does not satisfy this essential requirement. The distinction between secured creditor and financial creditor must be maintained, with financial creditors being those with direct engagement in the corporate debtor's functioning from inception, involvement in assessing viability, and role in restructuring.
On this section: Addresses fraudulent or wrongful trading; requires intent to defraud creditors; distinct from preferential transaction which is deemed preference without requiring intent
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Sudipa Nath v. Union of India
Court's Decision & Legal Precedent
Final Order order-1.pdf 2023-01-18 DATE VERIFIED. WP(C)(PIL) 04/2023. Tripura HC Agartala Division Bench (CJ Acting + Arindam Lodh). Reporting YES. Isolate: IBC 66(1) is not an avoidance section (unlike 43/45/50). Only the RP may apply. NCLT may only order contribution to the CD’s assets from persons who knowingly carried on the business with intent to defraud creditors or for a fraudulent purpose (mens rea). Cannot declare transactions void under 66; cannot rope in other organisations (Usha Ananthasubramanian applies to 66). Not ultra vires Art 14. Independent civil/criminal action remains open. Do not pad IBC 43 (Anuj Jain already fills 43). Piramal leftover remains reserved ROP.
On this section: IBC 66(1) is not an avoidance section: only the RP may apply; NCLT may order contribution to assets on proved fraudulent/wrongful trading with mens rea, not void transactions or third organisations (Sudipa Nath, Tripura HC DB). Do not pad 43 (Anuj Jain). Piramal leftover remains reserved ROP.
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Chandra Prakash Jain RP vs Mr. Rajendra Sharma & Ors.
Court's Decision & Legal Precedent
A consolidated interlocutory application in insolvency proceedings may be bifurcated into separate applications addressing distinct sections of the Insolvency and Bankruptcy Code when such bifurcation promotes procedural efficiency and does not prejudice the rights of any party. The tribunal has the discretion to segregate applications to streamline complex insolvency proceedings involving multiple respondents and diverse legal issues.
On this section: One of the sections addressed in the bifurcated IA 24/2022, relating to specific aspects of insolvency proceedings
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Judgments citing this section
These may be obiter dicta or a precedent, for you to study. These are the judgments where this section is quoted.
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… New Delhi, (NCLAT) in Company Appeal (AT) (Insolvency) [ hereinafter referred to as Company Appeal ] Nos. 454-455 and 750 of 2021, only to the extent that it modified the Resolution Plan (RP) by holding that the RP that permitted the SRA to appropriate recoveries, if any, from Avoidance applications filed under Section 66 of the Insolvency and Bankruptcy Code (IBC) ought to be set aside and the Resolution Plan be sent back to the Committee of Creditors (CoC) for reconsideration on that aspect. - ii. Civil Appeal Nos. 2989-2991 of 2022 have been filed by the Appellant Union Bank of India challenging the said common judgment and …
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… New Delhi, (NCLAT) in Company Appeal (AT) (Insolvency) [ hereinafter referred to as Company Appeal ] Nos. 454-455 and 750 of 2021, only to the extent that it modified the Resolution Plan (RP) by holding that the RP that permitted the SRA to appropriate recoveries, if any, from Avoidance applications filed under Section 66 of the Insolvency and Bankruptcy Code (IBC) ought to be set aside and the Resolution Plan be sent back to the Committee of Creditors (CoC) for reconsideration on that aspect. - ii. Civil Appeal Nos. 2989-2991 of 2022 have been filed by the Appellant Union Bank of India challenging the said common judgment and …
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… New Delhi, (NCLAT) in Company Appeal (AT) (Insolvency) [ hereinafter referred to as Company Appeal ] Nos. 454-455 and 750 of 2021, only to the extent that it modified the Resolution Plan (RP) by holding that the RP that permitted the SRA to appropriate recoveries, if any, from Avoidance applications filed under Section 66 of the Insolvency and Bankruptcy Code (IBC) ought to be set aside and the Resolution Plan be sent back to the Committee of Creditors (CoC) for reconsideration on that aspect. - ii. Civil Appeal Nos. 2989-2991 of 2022 have been filed by the Appellant Union Bank of India challenging the said common judgment and …
Made under this section, and citing it
3 instruments name this provision in its title or its text without being made under it.
Questions about Section 66
What have the courts held on Section 66 of the Insolvency and Bankruptcy Code?
Raman Prakash Mangla vs Anuj Jain (24 Mar 2021) is the leading judgment on this section among those set out below: Fraudulent transactions. Another 3 judgments on this section are set out below, 2 of them from the Supreme Court. They run from 2020 to 2023.
How do I find court cases under Section 66 of the Insolvency and Bankruptcy Code?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Insolvency and Bankruptcy Code 66, section 66 Insolvency and Bankruptcy Code, section 66 of the Insolvency and Bankruptcy Code. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 4 reported judgments on this section are set out on this page, beginning with Raman Prakash Mangla vs Anuj Jain (24 Mar 2021).
What should I read with Section 66 of the Insolvency and Bankruptcy Code, and has it changed?
3 other provisions in this corpus refer back to it. 3 instruments name it without being made under it, most recently Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment) Regulations, 2022 (2022), then IBBI (Liquidation Process) (Fourth Amendment) Regulations, 2020 (2020).
When was Section 66 of the Insolvency and Bankruptcy Code enacted?
Section 66 of the Insolvency and Bankruptcy Code, cited as Insolvency and Bankruptcy Code 66, was enacted on 28 May 2016 as Act 31 of 2016. It is in force as at the date shown on this page.
Other sections of this Act
- 240. Power to make regulations2349 words
- 5. Definitions2326 words
- 3. Definitions1381 words
- 29A. Person not eligible to be resolution applicant1152 words
- 239. Power to make rules963 words
- 196. Powers and functions of Board942 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Text as in force on 14 Oct 2026. This page is not a substitute for legal advice.