2025 (1) TMI 686 - AT - IBC

Condonation of 14 days delay in filing the appeal - sufficient cause for delay or not - whether initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was fraudulent? - HELD THAT - The submission of the Appellant that there is default of only two EMIs by the Corporate Debtor, hence, Section 7 proceeding ought not to have been initiated does not commend here. When default was committed by the Corporate Debtor, it was always open for the Financial Creditor to initiate proceeding which is remedy provided under I B Code. On looking into the Total Revenue it is Rs.33,447,942/- it is much less than the revenue of earlier year. The Total Expenses it is Rs.65,936,603/- and profit thus is shown in minus, as noted in the above Balance Sheet, which in no manner support the submission of the Appellant that initiation of CIRP was fraudulent. Further it is relevant to notice that in the CIRP the Appellant has filed its claim which claim has already been admitted and shall be dealt with in the proceeding in accordance with law. An application to recall an admission order needs sufficient grounds, which are not present in the present case - The Adjudicating Authority has rightly noted that allegations of fraud could not be proved by the Appellant. Conclusion - i) Sufficient cause must be shown for condonation of delay. The delay in filing the appeal was condoned. ii) Fraudulent initiation of CIRP requires substantial evidence. iii) Recall of an admission order requires substantial grounds. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

Whether the delay of 14 days in filing the appeal should be condoned.
Whether the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was fraudulent.
Whether the application for recall of the admission order under Sections 49, 66, and 69 of the Insolvency and Bankruptcy Code (IBC) was justified.
Whether the presence of sufficient revenue in the Corporate Debtor's balance sheet negates the initiation of CIRP.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay

Relevant Legal Framework and Precedents: The Tribunal considered the principles for condonation of delay, which require a sufficient cause to be shown for the delay in filing.
Court's Interpretation and Reasoning: The Tribunal found that the appellant had shown sufficient cause, as they were not aware of the impugned order until they received a letter on 27.08.2024.
Key Evidence and Findings: The appellant filed the appeal on 26.09.2024, after receiving the order on 27.08.2024.
Application of Law to Facts: The Tribunal applied the principle of sufficient cause and found the delay excusable.
Treatment of Competing Arguments: The respondent opposed the condonation, arguing insufficient cause was shown, but the Tribunal disagreed.
Conclusions: The delay was condoned, allowing the appeal to proceed.

Issue 2: Fraudulent Initiation of CIRP

Relevant Legal Framework and Precedents: Sections 49, 66, and 69 of the IBC deal with fraudulent or wrongful trading and transactions.
Court's Interpretation and Reasoning: The Tribunal found no evidence of fraudulent initiation, as mere allegations without substantiation were insufficient.
Key Evidence and Findings: The appellant's claim was admitted in the CIRP, and no evidence of fraud was presented.
Application of Law to Facts: The Tribunal applied the legal standards for proving fraud and found the appellant's case lacking.
Treatment of Competing Arguments: The appellant argued the initiation was based on only two EMI defaults and sufficient revenue, but the Tribunal found these arguments unconvincing.
Conclusions: The Tribunal upheld the initiation of CIRP as legitimate.

Issue 3: Recall of Admission Order

Relevant Legal Framework and Precedents: The recall of an admission order requires substantial grounds, such as evidence of fraud or procedural irregularity.
Court's Interpretation and Reasoning: The Tribunal found no substantial grounds to recall the admission order, as the appellant failed to prove fraud.
Key Evidence and Findings: The appellant's claim was admitted, and their participation in the CIRP was noted.
Application of Law to Facts: The Tribunal applied the requirement for substantial grounds and found the appellant's case lacking.
Treatment of Competing Arguments: The appellant claimed the initiation was fraudulent, but the Tribunal found no supporting evidence.
Conclusions: The application for recall was rightly rejected.

Issue 4: Sufficient Revenue in Balance Sheet

Relevant Legal Framework and Precedents: Financial health as reflected in balance sheets can be considered but is not solely determinative.
Court's Interpretation and Reasoning: The Tribunal found that the balance sheet did not support the appellant's claim of sufficient revenue.
Key Evidence and Findings: The balance sheet showed a decrease in revenue and a negative profit, undermining the appellant's argument.
Application of Law to Facts: The Tribunal considered the financial data and found it insufficient to negate the CIRP initiation.
Treatment of Competing Arguments: The appellant argued the balance sheet showed sufficient revenue, but the Tribunal found otherwise.
Conclusions: The balance sheet did not justify halting the CIRP.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning:
- "The mere allegation pertaining to lack of due-diligence in granting of loan by the Financial Creditor cannot warrant invocation of Section 65 of the Code."
- "The Customs Department has failed to make out a case concerning fraudulent initiation of the CIRP and recalling of the order wherein the CIRP of the Corporate Debtor was initiated."
Core Principles Established:
- Sufficient cause must be shown for condonation of delay.
- Fraudulent initiation of CIRP requires substantial evidence.
- Recall of an admission order requires substantial grounds.
Final Determinations on Each Issue:
- The delay in filing the appeal was condoned.
- The initiation of CIRP was not fraudulent.
- The application for recall of the admission order was rightfully rejected.
- The balance sheet did not support the appellant's claims of sufficient revenue.