2019 (1) TMI 1251 - AT - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Scheme of Arrangement for Amalgamation sanctioned - proceeding relating to insolvency resolution process was initiated fraudulently in collusion or with malicious intent - Held that - Dome-Bell Electronics India Pvt. Ltd. Pledged 44,38,400 equity shares in Videocon D2H Limited and also executed a corporate guarantee by way of further security. He has referred to order dated 27th July, 2017 passed by the National Company Law Tribunal, Mumbai, sanctioning the Scheme of Arrangement for Amalgamation of Videocon D2H Ltd. into and with Dish TV India Ltd. Due to defaults in repayment of the debentures, the debenture trustee sent a demand notice to Hindustan Oil Ventures Limited on 20th December, 2017. All those facts were brought on record but the Appellant has failed to suggest that an application under Section 7 was filed by Invex Private Limited fraudulently or with malicious intent, for the purpose of rejecting the application or for imposing penalty under Section 65 of the I&B Code . Thus in absence of any merit, no relief can be granted. The appeal is dismissed.

Summary

Issues:
1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for Corporate Insolvency Resolution Process initiation.
2. Allegation of fraudulent share pledge transaction to defeat legitimate claims.
3. Intervener's plea regarding copy of petition under Section 7 not served.
4. Rejection of collusiveness allegation by the Adjudicating Authority.
5. Requirement of proof for allegations under Section 65 of the I&B Code.
6. Failure to establish fraudulent or malicious intent in initiating insolvency proceedings.

Analysis:
1. The Respondent, a Financial Creditor, filed an application under Section 7 of the I&B Code against the Corporate Debtor for the initiation of Corporate Insolvency Resolution Process. The Appellant, an Intervener, also filed a similar application under Section 7 against the same Corporate Debtor, alleging a fraudulent share pledge transaction to defeat its legitimate claims.

2. The Appellant claimed that the Corporate Debtor entered into a fraudulent share pledge transaction to avoid its payment obligations towards the Appellant. However, the Adjudicating Authority rejected the collusiveness allegation due to lack of evidence establishing the same.

3. The Intervener raised a plea regarding the non-service of the copy of the petition under Section 7. The Authority dismissed this plea, stating that an Intervener is only entitled to demand a copy of the pleading after being admitted as a party to the litigation.

4. To prove allegations under Section 65 of the I&B Code, the party making the application must provide corroborating evidence. The Authority cannot pass any order without substantial proof of fraudulent or malicious intent in initiating insolvency proceedings.

5. Section 65 of the I&B Code deals with fraudulent or malicious initiation of proceedings, while Section 66 relates to fraudulent or wrongful trading. The Appellant failed to demonstrate that the application under Section 7 was filed fraudulently or with malicious intent, leading to the dismissal of the appeal.

6. Despite the detailed agreements and defaults in repayment presented by the Appellant, the failure to establish fraudulent intent in initiating insolvency proceedings led to the dismissal of the appeal. The lack of merit in the allegations resulted in no relief being granted, and the appeal was ultimately dismissed without costs.