1. If, in the course of the scrutiny or implementation of any scheme or proposal including the draft scheme or proposal, it appears to the Tribunal that any person who has taken part in the promotion, formation or management of the sick company or its undertaking, including any director, manager, officer or employee of the sick company who are or have been in employment of such company,
a. has misapplied or retained, or become liable or accountable for, any money or property of the sick company; or
b. has been guilty of any misfeasance, malfeasance, non-feasance or breach of trust in relation to the sick company, it may, by order, direct him to repay or restore the money or property, with or without interest, as it thinks just, or to contribute such sum to the assets of the sick company or the other person, entitled thereto by way of compensation in respect of the misapplication, retainer, misfeasance, malfeasance, non-feasance or breach of trust as the Tribunal thinks just and proper:
Provided that: such direction by the Tribunal shall be without prejudice to any other legal action that may be taken against the person including any punishment for fraud in the manner as provided in section 447.
2. If the Tribunal is satisfied on the basis of the information and evidence in its possession with respect to any person who is or was a director or an officer or other employee of the sick company, that such person by himself or along with others had diverted the funds or other property of such company for any purpose other than the purposes of the company or had managed the affairs of the company in a manner highly detrimental to the interests of the company, the Tribunal shall, by order, direct the public financial institutions, scheduled banks and State level institutions not to provide, for a maximum period of ten years from the date of the order, any financial assistance to such person or any firm of which such person is a partner or any company or other body corporate of which such person is a director, by whatever name called, or to disqualify the said director, promoter, manager from being appointed as a director in any company registered under this Act for a maximum period of six years.
3. No order shall be made by the Tribunal under this section against any person unless such person has been given a reasonable opportunity of being heard.
Legal Commentary & Landmark Judgments: Section 266
Section 266 historically empowered the Tribunal to assess damages and initiate misfeasance proceedings against delinquent promoters, directors, and officers during revival proceedings; omitted by the Insolvency and Bankruptcy Code, 2016, its clawback and restitutionary powers are now exercised under Sections 43 to 66 of the IBC.
During restructuring or liquidation, instruct forensic accountants to conduct a lookback transaction audit covering the relevant lookback periods (one year for normal parties, two years for related parties). File composite applications before the NCLT under Sections 43, 45, and 66 IBC seeking attachment of personal assets of delinquent promoters.