Adjudicating Authority Can Decide Allegations Of Fraud U/S 65 Of IBC While Resolution Plan Is Being Considered: NCLAT
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice N Seshasayee and Mr Arun Baroka (Technical Member) has held that the stage at which an application under Section 65 is considered is inconsequential; and if fraud in initiating insolvency proceedings is proved, the entire proceedings stand vitiated. The mere fact that a resolution plan was under consideration...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice N Seshasayee and Mr Arun Baroka (Technical Member) has held that the stage at which an application under Section 65 is considered is inconsequential; and if fraud in initiating insolvency proceedings is proved, the entire proceedings stand vitiated. The mere fact that a resolution plan was under consideration when the application under Section 65 was filed does not denude the Adjudicating Authority of its power to decide allegations of fraud and collusion.
The present appeal has been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against an order passed by National Company Law Tribunal (NCLT) New Delhi.
The Appellant submitted that the application under Section 65 of the IBC was filed only on 13.12.2023, i.e., five months after the admission of Corporate Insolvency Resolution Process (CIRP) (14.07.2023) and eight months after the filing of the Section 7 petition (06.04.2023), indicating a clear after thought.
It was further submitted that merely being a related party is not sufficient to attract Section 65. The IBC disqualifies related parties from being part of the CoC (Section 21(2)) and from submitting a resolution plan (Section 29A), but nowhere equates related party status with fraud or malice.
Per contra, the Respondents submitted that from the bare perusal of the response filed by the Corporate Debtor to the Section 7 Application of the Appellant, it is evident that the prompt response of the Corporate Debtor in admitting to the said liability of the Appellant reflects the malicious and fraudulent approach adopted by the parties to release the Corporate Debtor of its obligations to other creditors and allottees.
It was further submitted that the non-disclosure of the related party status was deliberate and formed part of a larger scheme to misuse the CIRP process. The Adjudicating Authority was, therefore, justified in piercing the corporate veil to reveal the real intent behind the initiation of proceedings, which was found to be collusive and aimed at defeating the rights of other creditors.
The Tribunal noted that on a perusal of Part IV of the application, it becomes clear that the Appellant invested Rs. 15 crores under an MoU with the Respondents agreeing to transfer sale proceeds above ₹2200/- per sq. ft. as return on investment. Subsequently, the Respondent admitted its liability to the tune of Rs 12.88 crores payable within a month without interest and thereafter with interest at the rate of 18%.
It further observed that this converted the earlier investment into a financial debt. However, absence of a stamped loan agreement and proper documentation indicates that the transaction was not at arm's length and there was a possible collusion between the parties.
It further observed that the Appellant filed backdated documents to validate the transactions with the corporate debtor. Form D-12 also indicates that Mr. Hemant Sharma remained Director of both entities at the time of execution of the MoU which prima facie suggests that the filings were done back dated. The Binding Understanding and Minutes of Meeting are not registered. Additionally, there are no witnesses and the documents are forged to validate sham transactions to defraud legitimate creditors. Further, MCA records further show that Mr Sharma and Mr Neeraj Gusain were partners in Greens LLP which establishes a related party status during transactions.
It held that Corporate Debtor Respondent-Logix candidly admitted the debt and default without raising any objection. In the above background we are compelled to come to a conclusion that this is nothing else but collusion between Logix and Expert Realty.
The Tribunal held that “We cannot agree with the argument of the Appellant that the Application under Section 65 and impugned order was filed at the fag end of the CIRP and therefore it is not maintainable. We note that if there is fraud it will vitiate everything including order approving the resolution plan. Thus, the stage of CIRP is inconsequential, while considering the Section 65 application.”
It noted that the NCLAT in Ashmeet Singh Bhatia Vs. Pragati Impex India Private Limited & Anr. held that the mere fact that Application has been filed at the time when plan is under consideration does not take away the jurisdiction of the Adjudicating Authority to consider the allegations and find out the truth, if any.
Accordingly, the present appeal was dismissed.
Case Title: Expert Realty Professionals Private Limited Versus Logix Infrastructure Private Limited
Case Number: Company Appeal (AT) (Insolvency) No. 383 of 2025
Judgment Date: 08/09/2025
For Appellant : Mr. Sunil Fennandes, Sr. Advocate with Mr. Ketan Madan and Ms. Muskan Surana, Advocates
For Respondent : Mr. Gaurav Rana and Mr. Ajitesh Kumar, Advocates for R-2 & 3. Mr. Rishi Singhal, Mr. Pawan Kr. Goyal and Ms. Reena, Advocates for RP/R-1.