PART A: Criminal Offences Under IBC, 2016

Chapter VII - Sec 68 to 77 - Punishable by NCLT complaint under Sec 236

Procedure: Offence is cognizable? No. Sec 236(1) - NCLT shall take cognizance on complaint filed by IBBI or Central Govt. Police cannot register FIR directly under IBC. Sec 236(2) - Special Court under Companies Act, 2013 shall try the offence.

The Link between Sec 66 and Sec 69[Civil][Criminal]

This is the most litigated point.

• Sec 66(1) & (2) - Civil Liability: If business of CD carried on with intent to defraud creditors OR with wrongful trading [knew insolvency inevitable but kept taking credit], NCLT can order directors/persons to contribute to assets of CD. Standard of proof - preponderance of probabilities.
• Sec 69 - Criminal Liability: Same conduct but with mens rea proved beyond reasonable doubt, leads to imprisonment.

NCLT first holds liability u/s 66, then IBBI files complaint u/s 69 based on that finding.

PART B: Under Companies Act, 2013

IBC does not override Companies Act fraud provisions. Sec 67 of IBC says Sec 68-77 is in addition to other laws.

1. Sec 447 - Punishment for Fraud
Definition: Fraud includes any act, omission, concealment, abuse of position with intent to deceive, to gain undue advantage or injure interests of company or creditors.

Punishment: 6 months to 10 years. If fraud involves public interest - minimum 3 years. Fine = amount involved x 3.

This is invoked when directors siphoned funds before CIRP.

2. Sec 66(10) of Companies Act - Fraudulent Trading during Winding Up
If in winding up it appears business carried on to defraud creditors, Tribunal can hold persons liable without limitation of liability - same as IBC Sec 66.

PART C: Case Laws - How Courts Applied Criminal Liability

1. The Foundation of Criminal vs Civil - Anil Goel v. IBBI (NCLAT, 2021)
Facts: Promoter concealed property of CD during CIRP. RP filed application u/s 66 and 68.
Held: NCLAT held Sec 66 is for recovery/contribution, Sec 68 is punitive. Both can run parallel. Finding under Sec 66 is not a prerequisite for filing complaint under Sec 68, but is strong evidence. NCLT can refer to Special Court even during CIRP.

2. Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corp. (2023) 10 SCC 545 - SC
Supreme Court held: Approval of Resolution Plan under IBC does NOT extinguish criminal liability of erstwhile management under Sec 68-77 or Sec 447 Companies Act. Resolution applicant gets clean slate for CD's civil liability [Essar Steel doctrine], but directors remain criminally liable for past fraud. Quashing of criminal case on ground of resolution plan approved is not allowed.

3. Vemulapalli Sagar v. State (Delhi High Court 2022) - Sec 74 IBC
Promoter continued to operate bank account and sold asset during moratorium u/s 14.
Delhi High Court refused anticipatory bail. Held Sec 74 is serious - moratorium is statutory injunction. Violation is criminal offence triable by Special Court. Sec 74 prosecution can be launched by RP directly.

4. IBBI v. Vijaykumar V. Iyer - Bhushan Power & Steel (NCLT Delhi 2022)
NCLT found that directors created fictitious purchase invoices to inflate CIRP cost and siphon funds - classic fraudulent transaction u/s 66. Tribunal ordered contribution of Rs 1,500 crores and simultaneously directed IBBI to file criminal complaint u/s 69. Directors were later arrested under PMLA.

5. Satish Kumar Gupta, RP v. Vandana Singh (NCLAT 2020) - Sec 69 & Sec 66 nexus
RP filed application that directors knew company was insolvent since 2016 but continued to take huge unsecured loans till 2018 - wrongful trading. NCLAT upheld Sec 66(2) liability of directors to contribute Rs 22 Cr. Observed that this conduct crosses threshold for Sec 69 prosecution if intent to defraud proved.

6. Union of India v. Nirav Modi (Punjab National Bank Scam) - Sec 447 Companies Act + Sec 68 IBC
Though CIRP of Firestar International was initiated, SFIO prosecuted under Sec 447 for fraud and Sec 68 IBC. NCLT Mumbai held both provisions can co-exist. Sec 447 needs proof of dishonest intent to defraud, which is similar to Sec 68.

7. Directorate of Enforcement v. Manoj Gaur (Jaypee Infratech - SC 2024)
Issue: Can ED attach property of CD after resolution plan approved?
SC held: Sec 32A of IBC gives immunity to CD and its property from prosecution/offences committed by erstwhile management AFTER resolution plan approved. But immunity does NOT extend to directors/ officers themselves. They remain liable under PMLA and Sec 68-77. This is often called clean slate for company, not for fraudsters.

PART D: Practical Framework to Establish Criminal Liability

For a RP / Forensic Auditor to move from civil to criminal:

1. Forensic Audit Report under Reg 13(2)(d) of CIRP Reg. finds - Transaction defrauding creditors.
2. Transaction Audit Application u/s 43-50, 66 filed before NCLT.
3. NCLT finding that transaction is fraudulent / undervalued / with intent to defraud.
4. IBBI Complaint u/s 236 to Special Court.
5. Special Court issues summons - Punishment as per Sec 68-77.

Burden of Proof:

• For Sec 66: RP must prove - business carried on to defraud + director was knowingly party.
• For Sec 69: Prosecution must prove mens rea - knowledge and intent beyond reasonable doubt.

If you are advising a director, the key defences accepted by courts are:

• No knowledge - Independent / Non-executive director with no involvement in day-to-day [Sec 66(2) proviso exempts if due diligence exercised].
• Business judgment - Loss was due to market, not fraud.
• No concealment - Books were handed over to RP.

Do you want me to prepare for you:

1. Draft format of Application u/s 66 + 68 to NCLT, or
2. A chart of defences for directors against Sec 66/447 prosecution with latest 2023-25 judgments?