Tribunal says debt and default were clearly established; holds Section 65 plea of fraudulent initiation cannot be raised for first time in appeal, but grants liberty to move Adjudicating Authority.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has dismissed an appeal filed by Affle 3i Limited challenging the admission of Talent Unlimited Online Services Pvt. Ltd. into Corporate Insolvency Resolution Process (CIRP). The appeal arose from an order of the National Company Law Tribunal (NCLT), New Delhi-Court III, which had admitted a Section 7 petition filed by Axis Trustee Services Limited, acting as debenture trustee.
A bench comprising Justice Yogesh Khanna, Officiating Chairperson, and Barun Mitra, Member (Technical), first condoned a 13-day delay in filing the appeal, noting that the delay fell within the permissible extended period under Section 61(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) and that sufficient cause had been shown.
Affle 3i Limited, which claimed to be a substantial investor and shareholder in the corporate debtor, argued that the insolvency proceedings had been initiated fraudulently and with malicious intent. It contended that the CIRP was being used to defeat arbitral and contractual rights, including inspection rights and enforcement of an arbitral award. The appellant also claimed that it had a direct commercial and legal interest in the matter and therefore had locus to challenge the admission order.
The NCLAT, however, found no reason to interfere with the NCLT’s admission order. Referring to the documents placed before the Adjudicating Authority, the Tribunal noted that the debenture subscription documents, trust deed, bank statements, notices of default, acknowledgments of liability, and the record of default with the Information Utility all established the existence of financial debt and default. Citing settled Supreme Court law, including Innoventive Industries Ltd. v. ICICI Bank and Swiss Ribbons Pvt. Ltd. v. Union of India, the Tribunal reiterated that once financial debt and default are established, admission of a Section 7 application is mandatory.
On the allegation that the CIRP had been fraudulently initiated, the Tribunal held that such a plea falls within Section 65 of the IBC and requires specific pleadings, foundational material, and strict proof of fraudulent or malicious intent. The bench observed that no such plea or supporting material had been placed before the NCLT, and therefore it could not be raised for the first time in appeal. Relying on Beacon Trusteeship Limited v. Earthcon Infracon Pvt. Ltd., the Tribunal said that allegations of collusion or fraud must be examined first by the Adjudicating Authority.
The NCLAT also rejected the argument that the availability of a settlement proposal or alternative funding route could justify interference with the CIRP admission. It held that the statutory framework under Section 7 does not permit the Tribunal to go beyond the question of debt and default once these are established.
While dismissing the appeal, the NCLAT granted liberty to Affle 3i Limited to file a proper application under Section 65 before the NCLT. The Adjudicating Authority may then examine the maintainability, locus, and merits of such an application in accordance with law.
Bottom Line :
Under Section 7 of the Insolvency and Bankruptcy Code, once financial debt and default are established, admission of CIRP is mandatory. A plea that CIRP was fraudulently or maliciously initiated under Section 65 cannot ordinarily be raised for the first time in appeal when no foundational pleadings or material were placed before the Adjudicating Authority; however, liberty may be granted to move a proper Section 65 application before the Adjudicating Authority.
Statutory provision(s): Section 7, Section 61, Section 65, Insolvency and Bankruptcy Code, 2016
