NCLT Mumbai Directs Barracks Retail India's Former Directors To Contribute ₹16.84 Crore For Fraudulent Trading

The National Company Law Tribunal (NCLT), Mumbai, has directed the former directors of Barracks Retail India Private Limited to contribute a combined ₹16.84 crore to the company's assets. The direction follows findings that the company was involved in fraudulent trading through write-offs of inventory and trade receivables, along with withdrawal of company funds.

The bench comprised Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar.

The tribunal observed that purchases during FY 2019-20 led to a three-fold increase in inventory. The vendors did not claim outstanding payments from the company, resulting in the amounts being written back. The company also wrote off receivables arising from sales.

“It is pertinent to note that the purchases during FY 2019-20 led to a three-fold increase in Inventory holding; the parties from whom purchases were made had not claimed outstanding from the corporate debtor, leading to its write-back; and the corporate debtor also had to write off receivables arising from sale transactions.”, the tribunal noted.

The application was originally filed by the Resolution Professional and subsequently pursued by financial creditor ASREC (India) Limited after approval of the resolution plan.

The applicant alleged that suspended directors Puneet P. Bhatia and another director had inflated stock values and created bogus sales to improve the company's financial position and secure additional working capital from the bank.

The directors maintained that the transactions were undertaken in the ordinary course of business and with due diligence.

The tribunal noted that revenue had dropped by more than half in FY 2020-21 and raised concerns over suspicious purchase and sale transactions in the preceding years. It also rejected a director's explanation for transferring ₹23.15 lakh when the company had negligible business. Relying on earlier precedents, it found that the transactions were intended to present a favourable financial picture to secure additional credit.

It held that the write-off of trade receivables worth ₹22.25 crore and inventory worth ₹3.69 crore attracted Sections 66(1) and 66(2) of the IBC. The ₹23.15 lakh withdrawal also attracted both provisions.

However, it declined to impose separate liability for ₹42.50 lakh paid to Mangal Bullion Private Limited, as the applicant failed to produce cogent evidence against the directors' explanation. The tribunal also adjusted the ₹9.34 crore write-back of trade payables while calculating the contribution.

Accordingly, both directors were directed to contribute ₹16.61 crore, jointly or severally. One director was separately directed to contribute ₹23.15 lakh. Both amounts carry 12% annual interest if unpaid within 30 days.