Managerial remuneration for legitimate services rendered in the ordinary course of business lacks intent to defraud under Section 66.

The Appellants, suspended directors of the Corporate Debtor (CD), withdrew managerial remuneration totaling ₹21.64 lakhs on 31.03.2021 and ₹2 lakhs via a cheque dated 30.06.2022.

Additionally, ₹2.78 lakhs was recovered for advisory services after the Corporate Insolvency Resolution Process (CIRP) commenced on 01.07.2022.

A Transaction Audit Report (TAR) flagged these as fraudulent/wrongful trading under Section 66 of the IBC.

The Adjudicating Authority (NCLT Ahmedabad) ordered the Appellants to refund ₹26.42 lakhs, prompting this appeal.

The Appellants contended that since the Resolution Professional (RP) admitted similar remuneration claims for FY 2020-21, the payments for FY 2019-20 were legitimate and made in the ordinary course of business.

Whether the payment of managerial remuneration for FY 2019-20 constitutes fraudulent trading or wrongful transactions under Section 66 of the IBC.

Whether the withdrawal of funds immediately prior to or after the insolvency commencement date establishes an "intent to defraud".

The court primarily applied Section 66 of the Insolvency and Bankruptcy Code, 2016, which requires a high burden of proof to establish that business was carried on with the "intent to defraud" creditors or for any fraudulent purpose.

It relied on the precedent set in Anuj Jain vs. Axis Bank Ltd. & Ors. (2020), emphasizing that specific material facts must be pleaded and proven for Section 66 applications.

The court also distinguished between Section 43 (preferential transactions) and Section 66 (fraudulent trading), noting they have distinct connotations and evidentiary requirements.

The Appellate Tribunal found that the RP had already admitted the Appellants' claims for technical/managerial services for a subsequent period (FY 2020-21), thereby recognizing the legitimacy of the services rendered.

Since the ₹21.64 lakhs withdrawal on 31.03.2021 was supported by ledger entries and occurred 15 months prior to CIRP, the court held that mere suspicion or the CD's NPA status did not equate to an intent to defraud.

The court noted that the "intent to defraud" must be explicitly demonstrable and cannot be based on the interchangeable use of "preferential" and "fraudulent" labels.

However, the ₹2 lakh withdrawal via a cheque cleared after the CIRP admission date was viewed critically; the court inferred that the directors likely knew insolvency was inevitable, rendering that specific transaction unsustainable.

The ₹2.78 lakh recovery was conceded by the Appellants as inadmissible due to the moratorium.

The court answered Issue 1 in the negative for the 2021 transaction but sustained the refund order for the instances of proximity to the insolvency date.

The Appellants are directed to restore ₹2 lakhs (cheque dated 30.06.2022) and ₹2.78 lakhs (post-CIRP recovery) to the Corporate Debtor’s account, while the remainder of the refund order is quashed.