NCLAT Upholds Order Directing Golden Tobacco Directors To Pay ₹6.92 Lakh Over Non-Deposit Of Salary Deductions

The National Company Law Appellate Tribunal (NCLAT) at Delhi has upheld the liability of former directors of Golden Tobacco Ltd. for failing to deposit employee salary deductions with a credit society. It held that diversion of such funds, even without personal gain, may constitute fraudulent conduct under Section 66 of the Insolvency and Bankruptcy Code.

The appellate tribunal dismissed a challenge to an order of the National Company Law Tribunal, Ahmedabad. That order had directed the directors to contribute Rs. 6.92 lakh with interest at 12% per annum from the date of application till realisation.

A bench of Judicial Member Justice Mohd. Faiz Alam Khan, and Technical Member Arun Baroka said the amounts deducted from salaries were held as trustees and could not be used for any other purpose.

“So even if, as per the submissions advanced by the Ld. Counsel for the appellants, the money deducted from the salaries of the employees and workmen of the CD even have not been misappropriated by the appellants for their personal use and have been diverted or siphoned off somewhere else the same may for the purpose of Section 66 of the Code would constitute the running of the affairs of the company fraudulently in order to deceive the creditors of the CD ,” the tribunal observed.

The case arose out of the corporate insolvency resolution process of Golden Tobacco Ltd. The GTC Employees Co-operative Credit Society Ltd. informed the resolution professional that Rs. 6.33 lakh had been deducted from employees' salaries between September 2021 and May 2022. The amount was not deposited with the society.

The resolution professional admitted the claim and moved an application under Section 66. It alleged that the company's affairs had been carried on for fraudulent purposes.

The directors said the non-deposit stemmed from financial stress. They claimed the money was used for working capital and not for personal benefit. They argued that the ingredients of fraudulent trading were not met.

The tribunal was not persuaded. It noted that the deductions were made over several months and remained unpaid. The directors had admitted this position.

It held that the money was held by them as trustees. There was no right to use it for any other purpose.

The bench referred to the definition of fraud under Section 447 of the Companies Act, 2013. It said proof of wrongful gain or loss is not required to establish fraud.

No ground was found to interfere with the Ahmedabad tribunal's order. The appeal was dismissed.