NCLT: Bad Business Decisions Can’t Be Termed As Fraudulent

| Updated: March 8, 2022 9:49 am

The National Company Law Tribunal is a quasi-judicial body set up by the Central Government in 2016 under Section 408 of the Companies Act, 2013. The main function of this body is to govern the companies which are registered in India.

Recently, the Mumbai bench of the NCLT in an order stated that a company can’t be termed as a fraudster based on the bad commercial decisions made by it. The case involved Reid & Taylor India (RTIL Ltd).

In the matter, Resolution Professional of RTIL had filed a plea seeking to declare transactions done by the company as unlawful. The transaction was of Rs. 1019.48 crore.

The Resolution Professional had argued in the court that,” there was an increase in the purchase of the raw material during the year 2013 and 2014. In March 2016, the value of the inventory was reduced by giving huge discounts. Inventory was reduced by Rs. 551.74 crores.”  Another important point raised by the RP of the company was the write-offs of corporate debtors of around Rs. 1,019.48 crore.

Tribunal preceded by HV Subba Rao and CB Singh in their order, said,” It is a fact that management has taken a certain decision which has not worked out as intended by the management and eventually loss occurred. However, such bad commercial decisions cannot be considered to be fraudulent or wrongful under provisions of Section 66 of the Insolvency and Bankruptcy Code,2016.

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