NCLT Rightly Removed Directors for Fund Diversion | NCLAT

Case Details: Vishwas Lakras v. Dharmendra Pal - [2025] 176 taxmann.com 698 (NCLAT- New Delhi)

Judiciary and Counsel Details

• Yogesh Khanna, Judicial Member and
•  Indevar Pandey, Technical Member
• Gaurav Gupta and Ms. Rupal Gupta, Advs. for the Appellant.
•  Shivansh Soni, Adv. and Anmol Jha, PC for the Respondent.

In the instant case, appellants and respondents formed a company, which was engaged in construction and infrastructure development. The Company purchased a plot for the purpose of constructing a multi-storied building consisting of 28 flats. For the construction of a residential multi-story building, the company was sanctioned a term loan by a financial corporation.

The Company entered into a sale deed for the sale of one flat out of 28 flats, and the sale deed was executed by the appellant and the respondent on behalf of the company. However, later, appellants stopped including respondents in the daily affairs of the company.

The Respondents realised that the Appellants had diverted funds received as a loan from a financial corporation to other bank accounts without the Respondents’ permission. Additionally, respondents also realised that appellants had misappropriated funds through payments made to alleged creditors and suppliers from whom the company had never received any materials to date.

Respondents also raised a complaint against the appellants with the Registrar of Companies. The appellants failed to reply to the notice sent by the Registrar of Companies. Considering the appellants’ acts seriously prejudicing the company’s functioning and project completion, the NCLT passed an order giving control over the company to the respondents and removed the appellants as directors of the company for the next three years.

It was noted that two years had lapsed since management had been handed over to respondents, but still, respondents were alleging that the entire record of the company had not been handed over to them.

NCLAT Held

The NCLAT held that, considering the conduct of the appellants, where they accepted money from allottees but failed to complete construction and even failed to pay off loans and did not show any enthusiasm to complete the project, the appeal was not to be accepted. Therefore, records were to be obtained from the appellants and handed over to the respondents so that they could start construction.

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