Insolvency and Bankruptcy Code, 2016

Section 66: Fraudulent or Wrongful Trading under the IBC

Section 66 allows the National Company Law Tribunal to order contributions to a corporate debtor's assets where fraudulent trading or wrongful trading is established. The provision addresses knowing participation in fraudulent business conduct and failures by directors or partners to limit creditor losses.

Updated: 21 October 2026 | Indian insolvency law

2026 legal update: The Insolvency and Bankruptcy Code (Amendment) Act, 2026 changed the heading to "Fraudulent or wrongful trading" and expressly added the liquidator as an applicant under sub-sections (1) and (2), effective 26 May 2026. The original webpage did not reflect these amendments or sub-section (3).

Section 66: statutory provisions explained

Section 66(1) - Fraudulent trading

Where, during corporate insolvency resolution or liquidation, the business of a corporate debtor is found to have been carried on with intent to defraud creditors or for another fraudulent purpose, the Adjudicating Authority may, on an application by the resolution professional or liquidator, order persons who knowingly participated in that conduct to contribute amounts it considers appropriate to the corporate debtor's assets.

Section 66(2) - Wrongful trading

On an application by the resolution professional during corporate insolvency resolution, or by a liquidator, the Adjudicating Authority may direct a director or partner to contribute to the corporate debtor's assets if both conditions are satisfied:

Clause (a): Before the insolvency commencement date, the director or partner knew, or ought to have known, that there was no reasonable prospect of avoiding commencement of the corporate insolvency resolution process.
Clause (b): The director or partner failed to exercise due diligence to minimise potential loss to the corporate debtor's creditors.

Explanation: Due diligence is assessed against what could reasonably be expected of a person performing the same functions in relation to that corporate debtor.

Section 66(3) - Section 10A protection

Despite the other provisions of Section 66, a resolution professional cannot file an application under sub-section (2) in respect of a default for which commencement of the corporate insolvency resolution process was suspended under Section 10A.

For authoritative statutory wording and amendment annotations, consult the India Code text of the IBC. The explanations above are summaries rather than a substitute for the enacted text.

Key legal terms

Corporate debtor: A corporate person owing a debt to any person (Section 3(8)).
Adjudicating Authority: For corporate persons, the National Company Law Tribunal (NCLT), under Section 60.
Insolvency commencement date: The date on which the Adjudicating Authority admits an application for initiating corporate insolvency resolution (Section 5(12)).
Resolution professional: An insolvency professional appointed to conduct the corporate insolvency resolution process, including an interim resolution professional (Section 5(27)).
Liquidator: The insolvency professional appointed to conduct liquidation in accordance with the Code, including Section 34.

Fraudulent trading and wrongful trading: the difference

Fraudulent trading under Section 66(1) concerns business carried on with a fraudulent purpose and persons who knowingly participate. It is not restricted to directors or partners. Wrongful trading under Section 66(2) focuses on a director's or partner's knowledge, or constructive knowledge, of unavoidable insolvency and failure to exercise appropriate diligence to minimise creditor losses. A mere business failure does not, without the required statutory elements, establish liability.

Who may apply and what relief is available?

Following the 2026 amendment, the resolution professional or liquidator may seek orders under Section 66 as permitted by the provision. The NCLT may direct liable persons to make contributions to the assets of the corporate debtor; the amount depends on the facts and the tribunal's order. Section 67 deals with consequential orders and enforcement-related matters arising from Section 66.

Section 10A: Suspension of initiation of corporate insolvency resolution for specified defaults arising during the notified COVID-19 period; relevant to the restriction in Section 66(3).
Section 65: Penalties for fraudulent or malicious initiation of insolvency proceedings, distinct from fraudulent trading under Section 66.
Section 67: Proceedings and consequential orders under Section 66.
Sections 43 to 51: Rules addressing specified avoidable transactions, including preferential, undervalued and extortionate-credit transactions; each has separate legal requirements.

Practical considerations

Evidence may include accounting records, transaction trails, board minutes, creditor communications, financial forecasts and records of steps taken to reduce losses. Whether conduct is fraudulent or wrongful depends on the applicable statutory test and the evidence, not merely on the fact that the company entered insolvency.

Official legal sources

Disclaimer: This article provides general legal information. Statutory amendments, commencement notifications and case-specific judicial interpretations should be checked before taking action.