NCLAT Upholds ₹6.56 Crore Liability on Paranjape Agro Promoter For Fraudulent Stock Write-Off

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently held that the promoter-director of Paranjape Agro Products India Private Limited must personally repay Rs 6.56 crore to the company after finding that inventory shown in the books never existed and was written off to defraud creditors at a time when there was no reasonable prospect of avoiding insolvency.

A bench of Justice Mohd. Faiz Alam Khan and Technical Member Indevar Pandey upheld an order passed by the National Company Law Tribunal, Mumbai. The Appellate Tribunal agreed that the write-off was not a genuine business decision but a conscious act to erase inflated figures from the accounts.

“The writing off of the inventory in the books of account of the CD was only for the purpose of cleaning of the books of accounts of the CD to wash a non-existent inventory,” the bench said.

Paranjape Agro was engaged in the processing and export of cashew. The tribunal noted that the company had shown large quantities of cashew seed and processed cashew as inventory in its books, even though repeated inspections told a different story.

“No cashew seed or cashew was purchased and it was only a paperwork,” the Appellate Tribunal recorded.

The company was admitted into the corporate insolvency resolution process on a petition filed by Canara Bank. During the process, a transaction audit was carried out. The audit found that inventory worth Rs 6.56 crore had been written off in the 2019–20 financial year. The write-off was treated as an extraordinary item and amounted to 232% of the company's total income for that year.

There were no records of physical stock verification, no purchase documents, and no explanatory note in the financial statements. On the basis of these findings, the Resolution Professional moved the NCLT alleging fraudulent trading. The NCLT accepted the plea and directed the promoter-director to contribute the entire amount to the corporate debtor.

Before the NCLAT, the promoter-director denied any fraudulent intent. He claimed the cashew stock had perished due to COVID-19 restrictions and prolonged lockdowns. He said the write-off was a bona fide accounting decision approved by the board. He also argued that there was no evidence to show that the inventory had been misappropriated.

The Appellate Tribunal rejected these explanations. It noted that the company's loan account had already been classified as a non-performing asset in April 2018, much before the pandemic. It also noted that cashew has a shelf life of about one year, yet large quantities of stock continued to appear in the books over several years. Bank unit visits and stock audits consistently reported that no physical inventory was found at the plant.

"The stock records which were maintained by the CD are not proper and no records were found for physical verification of the same," it said.

The bench also rejected the COVID-19 defence. It held that the argument assumed the existence of stock, which was never there in the first place. It found that after the loan was sanctioned, the plant never held any physical inventory at any point.

The tribunal concluded that stock values were inflated on paper and later written off in March 2020 to wipe out non-existent assets once insolvency proceedings were on the horizon.

Dismissing the appeal, the NCLAT held that the promoter-director was knowingly party to fraudulent trading and that the direction to repay Rs 6.56 crore to the corporate debtor was justified.