Section 66 of IBC : Section 66: Fraudulent Trading Or Wrongful Trading

Explanation using Example

Imagine a company, XYZ Pvt Ltd, which is undergoing corporate insolvency resolution process (CIRP). During this process, it is discovered by the resolution professional that the directors of XYZ Pvt Ltd continued to take large orders knowing that the company was not in a position to deliver these orders or pay back the creditors. They also transferred company funds to personal accounts, thereby intentionally defrauding the creditors.

The resolution professional brings this to the notice of the Adjudicating Authority (National Company Law Tribunal, NCLT). The NCLT, after examining the evidence, finds that the directors were knowingly involved in fraudulent activities and orders them to return the misappropriated funds and make additional contributions to XYZ Pvt Ltd's assets to cover the losses caused by their actions, as per Section 66 of The Insolvency and Bankruptcy Code, 2016.