How the NCLAT’s 2026 ruling in Rakshit Dhirajlal Doshi & Ors. vs. Chirag Shah redraws the line between a director’s legitimate paycheck and a fraudulent siphoning of funds.
Every director who has ever drawn a salary from a company that later slid into insolvency has, at some point, felt the cold sweat of a simple question: can this be clawed back? The Insolvency and Bankruptcy Code, 2016 gives liquidators and resolution professionals a formidable weapon in Section 66 — the power to unwind transactions carried out with intent to defraud creditors. But a weapon this powerful, wielded loosely, can turn every rupee of directors’ salaries during insolvency into a suspect. The NCLAT’s decision in Rakshit Dhirajlal Doshi and Ors. vs. Chirag Shah is a rare, closely-reasoned judgment that pulls that weapon back within its proper limits — and in doing so, offers a masterclass in how Section 66 ought to actually work.
This is a judgment every director, resolution professional, liquidator, and insolvency lawyer needs to read closely, because it exposes just how thin the line is between honest remuneration and fraudulent trading — and how easily that line gets blurred without rigorous proof.
The Case at a Glance
| Forum | National Company Law Appellate Tribunal, New Delhi |
| Bench | Ashok Bhushan, J. (Chairperson) & Barun Mitra, Member (T) |
| Corporate Debtor | Doshion Water Umbrella Pvt. Ltd. |
| CIRP Commencement | 01.07.2022 |
| Amount Impugned by AA | Rs. 26.42 lakhs |
| Amount NCLAT Ordered Refunded | Rs. 4.78 lakhs |
| Provision in Question | Section 66, IBC 2016 (Fraudulent / Wrongful Trading) |
The Backdrop: A Transaction Audit Flags Two Payments
When Doshion Water Umbrella Pvt. Ltd. entered CIRP, the Resolution Professional engaged M/s Pipara & Company as Transaction Auditor. Their report flagged two sets of payments to the erstwhile directors (the Appellants): managerial remuneration aggregating Rs. 23.64 lakhs, and a separate sum of Rs. 2.78 lakhs. The RP filed a Section 66 application. By the time it reached final hearing, the RP had been replaced by a Liquidator following the company’s move into liquidation.
The Adjudicating Authority (NCLT, Ahmedabad) sided fully with the Liquidator, holding that the entire Rs. 26.42 lakhs had been withdrawn “under the guise of managerial remuneration” in violation of Section 66, and ordered a complete refund. The directors appealed — and the NCLAT’s re-examination of the facts tells a very different story.
The Battle Lines
Rested on a deceptively simple internal-consistency argument: they had drawn no salary at all since April 2019. When they eventually claimed remuneration for April 2020 to June 2022, the very same Resolution Professional admitted those claims as legitimate. So how could remuneration claimed by the same directors, for the same role, for the immediately preceding financial year (2019–2020), suddenly become “fraudulent”? They also pointed to the absence of any other employees or operational creditors left unpaid in preference, and leaned on Anuj Jain vs. Axis Bank Ltd. to insist that fraudulent intent must be pleaded with specific material facts — not inferred from vague suspicion.
Built on circumstantial optics: the remuneration was drawn immediately upon receipt of funds from a sister concern (M/s Penta Aqua Pvt. Ltd.); the company was financially stressed with statutory dues like TDS unpaid; and the directors, as insiders, should have held themselves to a higher standard of restraint. Direct proof of fraud, it was argued, isn’t necessary — circumstantial evidence of self-payment during distress is enough.
Inside the NCLAT’s Reasoning: Five Principles That Matter
Section 66 Demands Proof “Beyond Reasonable Doubt” — Not Suspicion
The Tribunal opened its analysis (Para 9) with a statement that deserves to be underlined by every insolvency practitioner: to establish fraudulent or wrongful trading, the degree of proof required is of an “unimpeachable nature and beyond reasonable doubt.” Mere suspicion, however well-founded it may feel to a Liquidator staring at a stressed balance sheet, is not enough. Section 66 is not meant to be a convenient mop-up clause for every payment a liquidator finds distasteful in hindsight.
You Can’t Admit the Same Transaction Twice and Call It Fraud Once
The RP had admitted the directors’ remuneration claims for FY 2020–2021 as legitimate, evidenced by IBBI claims portal records, the Transaction Audit Report, and supporting ledgers (Para 10). Having accepted that the directors genuinely rendered managerial services, the Liquidator could not simultaneously call structurally identical payments for the preceding year fraudulent — absent any allegation of falsified records.
Timing Isn’t What You Assume It Is — Read the Bank Statement, Not the Narrative
The Liquidator leaned heavily on proximity — the suggestion of last-minute, insolvency-eve withdrawals. But the bank statements (Para 11) showed the Rs. 21.64 lakh payment was withdrawn on 31.03.2021 — more than fifteen months before the Section 7 petition was even admitted. The narrative of “eleventh-hour siphoning” didn’t survive contact with the primary evidence.
Routing Funds Through a Sister Concern Is Not, By Itself, a Badge of Fraud
The Tribunal rejected the theory that receiving funds from a related entity and immediately drawing remuneration from it was inherently suspicious. Inter-group fund routing for revenue generation is “standard business practice,” and fraudulent intent must be backed by specific pleading and proof (Para 13) — not inferred from a related-party relationship alone.
Unpaid TDS Doesn’t Retroactively Poison a Separate, Legitimate Payment
The Liquidator argued that failure to deposit TDS while the account was NPA made the remuneration payments preferential too. The NCLAT rejected this, holding non-payment of tax obligations and payment of remuneration to be “two separate buckets or categories of payments” (Para 14).
The Real Doctrinal Contribution: Untangling Section 43 from Section 66
Beyond the facts of this case, the NCLAT delivered its most valuable service to IBC jurisprudence in Para 15, calling out the Adjudicating Authority for casually conflating preferential transactions (Section 43) with fraudulent trading (Section 66).
Section 43 targets preference — a debtor putting one creditor ahead of similarly situated others in the twilight period before insolvency, tested through a largely objective, look-back framework.
Section 66, by contrast, is anchored entirely in intent to defraud — a far more serious and subjective threshold, requiring specific material facts to be pleaded and proved.
Blurring these two provisions is not a technicality — the consequences that flow from each are materially different, and tribunals cannot use the softer, more mechanical test under Section 43 to backfill a Section 66 case that fails on intent. This clarification alone makes the judgment a valuable precedent well beyond its specific facts.
The One Payment That Didn’t Survive — And Why It’s the Most Interesting Part
Of the Rs. 26.42 lakhs originally clawed back, the NCLAT freed up Rs. 21.64 lakhs (over 80% of the disputed amount) — but it did not extend the same relief to a smaller Rs. 2 lakh cheque. Why? The cheque was drawn one day before CIRP commenced, but was cleared only after the CIRP admission order.
The Tribunal held it “cannot rule out the factum that the Appellant was having knowledge that insolvency of the Corporate Debtor was imminent or was inevitable,” and ordered this amount restored (Para 12). Combined with the Rs. 2.78 lakhs the directors themselves conceded (a post-CIRP appropriation caught by the moratorium), the final refund liability came down to Rs. 4.78 lakhs.
“Knowledge that insolvency was imminent or inevitable” sounds less like intent to defraud under Section 66(1), and more like the wrongful-trading standard under Section 66(2).
This distinction rewards close reading. The judgment does not expressly separate its analysis along these sub-sections, and a sharper practitioner should note that the reasoning for the Rs. 2 lakh clawback leans on a lower, more objective threshold than the “beyond reasonable doubt” fraud standard applied everywhere else. In practice, the operative bright line is simpler and far more useful: once the moratorium clock starts ticking, the date of clearance — not just the date of drawing — determines the fate of a payment.
The Scorecard
| Transaction | Amount | Date | Outcome |
|---|---|---|---|
| Managerial remuneration (FY 2019–20) | Rs. 21.64 lakhs | Withdrawn 31.03.2021 | Relief Granted |
| Managerial remuneration (FY 2019–20) | Rs. 2 lakhs | Cheque cleared post-CIRP | Refund Upheld |
| Project advisory services | Rs. 2.78 lakhs | Appropriated 02.07.2022 | Refund Upheld |
Distilled Wisdom: What Every Stakeholder Should Take Away
For Directors & Promoters
Consistency and documentation are your best defence. Remuneration regularly recorded and treated uniformly across years is hard to recharacterise as fraud later. But the moratorium is an absolute wall — stop all outward transactions the moment insolvency proceedings are admitted, not merely when cheques are signed.
For RPs & Liquidators
A Section 66 application cannot be built on distress plus timing plus suspicion. It needs specific, pleaded, proved facts establishing dishonest intent — and think twice before admitting a claim for one period while challenging an identical claim for the next.
For Insolvency Lawyers
Keep Section 43 and Section 66 analytically separate. Don’t let the language of “preference” creep into a fraudulent trading finding, or vice versa.
Conclusion
Rakshit Dhirajlal Doshi vs. Chirag Shah is ultimately a judgment about proportionality and precision in insolvency litigation. It affirms that Section 66 remains a serious, high-threshold provision reserved for genuine dishonesty — not a catch-all recovery tool against every director who happened to be paid while their company was in distress.
For a question as consequential as whether directors’ salaries during insolvency can survive scrutiny, the NCLAT’s answer is clear: legitimate remuneration, properly documented and consistently treated, is safe — but the moment the moratorium bell rings, every subsequent rupee needs to stay firmly on the company’s side of the ledger.
Frequently Asked Questions
Can a director’s salary be clawed back during company insolvency in India?
Only if the Resolution Professional or Liquidator proves, with specific and cogent evidence, that the payment was made with intent to defraud creditors under Section 66 of the IBC. Genuine remuneration for actual services rendered, recorded properly in company books, is generally protected — as the NCLAT confirmed in Rakshit Dhirajlal Doshi vs. Chirag Shah.
What is the difference between Section 43 and Section 66 of the IBC?
Section 43 deals with preferential transactions — payments that put one creditor ahead of similarly placed creditors, tested through an objective look-back framework. Section 66 deals with fraudulent or wrongful trading and requires proof of actual intent to defraud creditors, a much higher and more subjective threshold.
What standard of proof is required to establish fraudulent trading under Section 66?
The NCLAT held that the evidence must be of an “unimpeachable nature and beyond reasonable doubt.” Mere suspicion, presumption, or circumstantial financial distress is not sufficient to attract Section 66.
Does receiving company funds from a sister concern automatically make a director’s payment fraudulent?
No. The NCLAT held that routing funds through a related or sister concern is standard business practice and cannot, by itself, be treated as evidence of fraudulent intent unless accompanied by specific pleadings and proof of wrongdoing.
If a company doesn’t pay statutory dues like TDS, does that make other payments to directors fraudulent?
Not automatically. The NCLAT ruled that unpaid statutory dues and remuneration payments are separate categories of transactions, and a default on one does not by itself establish fraudulent intent behind the other.
What happens to payments made after the CIRP moratorium begins?
Payments appropriated or cleared after the commencement of the moratorium under Section 14 of the IBC are generally inadmissible and recoverable, regardless of when they were initiated. A cheque drawn before CIRP but cleared after CIRP admission was ordered to be refunded in this case.
Can an RP challenge a transaction as fraudulent if it had earlier admitted a similar claim for a different period?
The NCLAT indicated this is difficult to justify. If an RP admits a remuneration claim for one financial year as legitimate, it undermines a later argument that a structurally identical payment for an adjacent period was fraudulent, absent evidence of falsified records.
