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2024 (2) TMI 1471 - AT - IBCAdmission of section 7 application - Appellant's locus standi to file the application - Initiationof insolvency proceedings fraudulently or with malicious intent for any other purpose other than for the resolution of insolvency of the Corporate Debtor. First ground is that Appellant cannot question the order admitting Section 7 Application which has been affirmed by the Appellate Tribunal - HELD THAT - It is on record that admission order was affirmed by this Tribunal by its Judgment and Order dated 06th January, 2023. But when we look into the prayers made in application, Appellant has not prayed for recall of the admission order rather the prayer was that Company Petition be dismissed and penalty be imposed under Section 65 and further to conduct enquiries regarding the collusion. The power under Section 65 of the Code can be exercised by the Adjudicating Authority only after satisfying that grounds as mentioned exist, if the Adjudicating Authority come to the conclusion that insolvency proceedings have been initiated fraudulently or with malicious intent for any other purpose other than for the resolution of insolvency of the Corporate Debtor, it can impose penalty as provided in the provision. While exercising jurisdiction under Section 65, the Adjudicating Authority is also fully entitled to close CIRP process and pass all consequential order. The mere fact that Section 7 Application has been admitted does not denude the jurisdiction of the Adjudicating Authority to examine the application under Section 65 of the Code. The observations of the Adjudicating Authority are that the Appellant is opposing the admission of the proceeding which admission has been affirmed by the Appellate Tribunal. The above does not denude the jurisdiction of the Adjudicating Authority to examine the allegations made in the Section 65 Application even after admission of the proceedings under Section 7. Locus of appellant - HELD THAT - Appellant in the Application has given details of the facts, the transaction which is basis of financial debt by the Financial Creditor. The averments prima facie makes it a case for looking in to the allegations more closely and when such glaring facts have come to the Court, the Court need to examine the allegations. Moreso, Appellant s case is that GGPPL which is also in CIRP, of which the Appellant admittedly is home-buyer has to receive amount from the Corporate Debtor which chance shall also be adversely affected due to commencement of CIRP of the Corporate Debtor. Thus in the facts of the present case, Appellant has locus to file the I.A. No. 4654 of 2023. The Respondent submitted that Application have been filed belatedly at the stage when Resolution Plan of the Corporate Debtor is under consideration. 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 - It is well settled that when proceedings have been fraudulently initiated, the appropriate orders can be passed by Court. The Adjudicating Authority committed error in rejecting the Application without considering the Application on its merit - Appeal disposed off.
Issues Involved:
1. Rejection of intervention application by the Adjudicating Authority. 2. Allegations of fraudulent and malicious initiation of Corporate Insolvency Resolution Process (CIRP). 3. Appellant's locus standi to file the application. 4. Jurisdiction of the Adjudicating Authority under Section 65 of the Insolvency and Bankruptcy Code (IBC). 5. Timing and impact of the application on the resolution plan process. Detailed Analysis: 1. Rejection of Intervention Application: The primary issue was the rejection of the intervention application filed by the Appellant, a home-buyer in a group housing project of Granite Gate Properties Private Limited (GGPPL), by the National Company Law Tribunal (NCLT). The Appellant sought to intervene in the CIRP proceedings against a group company, Vistar Construction Private Limited, alleging fraudulent initiation of the process. The Adjudicating Authority dismissed the application, stating that the Appellant had no direct transaction with the Corporate Debtor and thus lacked the locus to oppose the order admitting the CIRP. 2. Allegations of Fraudulent and Malicious Initiation of CIRP: The Appellant alleged that the initiation of CIRP by the Financial Creditor was fraudulent and malicious, claiming that the debt was non-existent and merely a result of round-tripping of funds. The Appellant argued that the financial transaction was a paper transaction, with the alleged debt amount being transferred back to a related company of the Financial Creditor on the same day, indicating no genuine financial debt. The Appellant sought dismissal of the company petition and imposition of penalties under Section 65 of the IBC, which addresses fraudulent or malicious initiation of proceedings. 3. Appellant's Locus Standi to File the Application: The Adjudicating Authority initially rejected the application on the grounds that the Appellant had no locus standi, as they were not directly involved with the Corporate Debtor. However, the Appellant argued that as a home-buyer in a related company, GGPPL, which was also in CIRP, they had a vested interest in the proceedings. The Appellant claimed that the outcome of the CIRP against the Corporate Debtor would adversely affect their interests, as GGPPL was owed money by the Corporate Debtor. The Tribunal later acknowledged that the Appellant had sufficient interest to file the application, given the potential impact on their rights. 4. Jurisdiction of the Adjudicating Authority under Section 65 of the IBC: The Tribunal clarified that the Adjudicating Authority retains jurisdiction under Section 65 of the IBC to examine allegations of fraudulent initiation of CIRP, even after the admission of a Section 7 application. The Tribunal noted that the mere admission of the CIRP does not preclude the Authority from investigating claims of fraud or malicious intent. The Tribunal emphasized the need for a deeper examination of the allegations made by the Appellant, given the serious nature of the claims. 5. Timing and Impact of the Application on the Resolution Plan Process: The Respondents contended that the Appellant's application was filed belatedly, at a stage when the resolution plan was under consideration. However, the Tribunal held that the timing of the application does not negate the Authority's duty to investigate potential fraud. The Tribunal instructed the Adjudicating Authority to consider the application on its merits before proceeding with the approval of the resolution plan, ensuring that any fraudulent activities are addressed appropriately. Conclusion: The Tribunal set aside the order of the Adjudicating Authority, reviving the Appellant's application for reconsideration. It directed the Adjudicating Authority to examine the allegations of fraud and decide the application in accordance with the law, without expressing any opinion on the merits of the case. The appeal was disposed of, with instructions to address the application before considering the resolution plan.
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