2020 (4) TMI 516 - SC - Insolvency and Bankruptcy

Initiation of CIRP - Section 65 of the IBC - NCLAT dismissed the appeal on the ground that an objection for admitting application should be raised before NCLT first - It was submitted by the learned counsel appearing for Respondent No.2 that allegation of collusion is unfounded and has no merit - HELD THAT - Considering the provision of Section 65 of the IBC, it is necessary for the Adjudicating Authority in case such an allegation is raised to go into the same. In case, such an objection is raised or application is filed before the Adjudicating Authority, obviously, it has to be dealt with in accordance with law. The plea of collusion could not have been raised for the first time in the appeal before the NCLAT or before this Court in this appeal - we relegate the appellant to the remedy before the Adjudicating Authority.

Summary

Issues:
1. Application for intervention and impleadment.
2. Validity of insolvency proceedings under Section 7 of the IBC.
3. Allegation of collusion in initiating insolvency proceedings.
4. Interpretation of Section 65 of the IBC regarding fraudulent or malicious initiation of proceedings.
5. Jurisdiction of the Adjudicating Authority to inquire into collusion allegations.
6. Remedies available to parties regarding collusion allegations.

Analysis:
1. The judgment addressed applications for intervention and impleadment, allowing the intervention and impleadment to the extent of intervention, ensuring all relevant parties are heard in the proceedings.

2. The case involved the validity of insolvency proceedings under Section 7 of the IBC, where the appellant filed a petition against the respondent based on defaults related to debentures issued. The NCLAT dismissed the appeal, leading to the present appeal before the Supreme Court.

3. The appellant raised concerns about collusion in initiating proceedings, alleging vague invoices and collusive behavior between the respondents. The Court highlighted the need to address such allegations before the Adjudicating Authority as per Section 65 of the IBC.

4. Section 65 of the IBC regarding fraudulent or malicious initiation of proceedings was extensively discussed, emphasizing penalties for initiating insolvency proceedings with malicious intent or for fraudulent purposes, underscoring the importance of investigating such claims.

5. The Court clarified the jurisdiction of the Adjudicating Authority to inquire into collusion allegations, stating that objections regarding collusion should be raised before the Adjudicating Authority for proper consideration, rather than in subsequent appeals.

6. The judgment outlined the available remedies for parties regarding collusion allegations, directing the appellant to pursue the matter before the Adjudicating Authority for a thorough examination of the alleged collusion, ensuring due process and legal scrutiny.

In conclusion, the Supreme Court set aside the NCLAT's order, disposing of the appeal while maintaining interim protection for a specified period and allowing parties to seek appropriate remedies before the Adjudicating Authority. The judgment highlighted the significance of addressing collusion allegations in insolvency proceedings and the need for proper legal recourse in such cases.