NCLT Says Independent Directors Must Exercise Due Diligence in Fraud Cases Under IBC

The National Company Law Tribunal (NCLT), Mumbai, has ruled that Independent and Non-Executive Directors cannot automatically avoid liability for alleged fraudulent transactions under the Insolvency and Bankruptcy Code (IBC).

The order, passed on October 31, 2025, dismissed applications filed by former Independent Directors of Metalyst Forgings Limited seeking removal from ongoing insolvency proceedings. The Tribunal held that Section 66 of the IBC does not distinguish between Independent and Executive Directors, emphasising that due diligence obligations apply equally. It stated that Directors could have identified irregularities through reasonable care and clarified that the Ministry of Corporate Affairs’ (MCA) circular limiting prosecution under the Companies Act does not extend to insolvency cases under the IBC.