Fraudulent or malicious initiation of proceedings [ Section 65 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Fraudulent or malicious initiation of proceedings [ Section 65 ] Penalty for fraudulent intent [ Section 65(1) of the IBC, 2016 ] If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the adjudicating authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. Penalty to defraud any person [ Section 65(2) of the IBC, 2016 ] If, any person initiates voluntary liquidation proceedings with the intent to defraud any person , the adjudicating authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees. Penalty for PPIRP with fraudulent intent [ Section 65(3) of the IBC, 2016 ] If, any person initiates the pre-packaged insolvency resolution process- (a) fraudulently or with malicious intent for any purpose other than for the resolution of insolvency; or (b) with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. Relevant Case Laws Monotrone Leasing Pvt. Ltd. Vs. PM Cold Storage Pvt. Ltd. 2020 (8) TMI 386 - NCLAT Dated 16.07.2020 Though section 65 provides for penal action against initiating CIRP with a fraudulent or malicious intent, the same cannot be construed to mean that if an application is filed under section 7, 9 or 10 of the Code without any malicious or fraudulent intent, then also such a petition can be rejected by the AA on the ground that the intent of the applicant was not resolution. Unigreen Global Pvt. Ltd. Vs Punjab National Bank and Ors. [CA (AT) (Ins.) No. 81 of 2017] NCLAT order dt. 01.12.2017 There is nothing on record to suggest that the corporate applicant has suppressed any fact or has not come with the clean hands. The AA has also not held that the application has been filed by the corporate applicant fraudulently or with malicious intent for any purpose other than for the resolution process or liquidation or that the voluntary liquidation proceedings have been initiated with the intent to defraud any person. In absence of any such reasons recorded by the AA, the impugned order of AA was not be upheld. Further, as the AA before imposing penalty under section 65 has not given nor served any notice to the corporate applicant recording its prima facie view and intent to punish the corporate applicant, therefore, the impugned order of AA cannot be upheld as being passed in violation of rules of natural justice. Amit Katyal Vs. Meera Ahuja Ors. 2020 (11) TMI 356 - NCLAT Dated 09.11.2020 i. In case an allottee does not want to go ahead with its obligation to take possession of the flat, but wants to get back the monies already paid, by way of coercive measure, the use of section 65 is justified, as one allottee is misusing his position to stall the entire project. But it does not mean that an application satisfying the requirements of section 7 or 9 could be dismissed arbitrarily under the guise of section 65. ii. The Code provides stringent action under section 65 against the person who initiates proceeding fraudulently or with malicious intent, for the purpose other than the resolution of insolvency or liquidation.