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TMI Blog2025 (3) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(11). From the definition of "initiation date", it is clear that initiation is by a financial creditor, corporate applicant or operational creditor only. In Section 65 of the IBC when we examine the expression "if any person initiates the insolvency resolution process fraudulently or with malicious intent for any purpose other than for resolution of insolvency", the focus is on the person who initiates the insolvency resolution process - Insolvency resolution process can be initiated under Section 7, 9 and 10 which is also clear from definition of "initiation date" under Section 5(11) and the scheme of the IBC as captured by Sections 7, 9 and 10. No other person is entitled to initiate insolvency resolution process except financial creditor, operational creditor or corporate applicant. The heading of Section 65 also provides "fraudulent or malicious initiation of proceedings". It is not competent to the court to stretch the meaning of expression used by the legislature in order to carry out the intention of legislature. Even the literal construction of Section 65 does not contemplates that penalty can be imposed on any person other than one who has fraudulently or maliciously in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties under Section 65 could not be imposed on promoters.
Appeal disposed off. X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellants claimed in the application that Section 7 application was filed fraudulently with malicious intent by financial creditors in collusion with the corporate debtor and its directors. It was pleaded that the corporate debtor and its promoters were previously subject to an oppression and mismanagement petition filed by the shareholders in 2013 where grievance was raised regarding decrease of the shareholding from 62.57% to 17.86%. It was pleaded by the appellants that appellant claim to know about the initiation of the CIRP on 26.05.2022 and thereafter filed the application. We need not notice various other allegations in the application since the issue raised in the appeals are limited as we shall notice hereinafter. 2.3. An intervention petition being IA No.36 of 2022 was filed by Rakesh Arora and Ors. in IA No.3602 of 2022. Adjudicating Authority heard the parties on IA No. 3602 of 2022 as well as intervention petition and by order dated 10.09.2024, allowed the application and recalled the order dated 17.05.2022 held that the CIRP was initiated fraudulently. It is useful to notice paragraphs 16, 17 and 18 of the impugned order : - " 16. To sum up, we are of the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Award exemplary and compensatory costs in favour of the Appellant whose decade long efforts since 2013 in its oppression and mismanagement petition were sought to be defeated by the Respondents by initiating the CIRP fraudulently; and/or iv. Pass any such other or further orders as this Hon'ble Appellate Tribunal may deem fit and proper in the facts and circumstances of the instant case. " 2.5. In Company Appeal (AT) (Insolvency) No.1606 of 2024, similar prayers have been made to the following effect : - " (i) Modify the impugned order dated 12.06.2024 to the extent that it does not impose any penalty under S. 65, IBC on the Respondent Nos. 1 to 6 (alleged Financial Creditors) and Respondent Nos.8 to 15 (promoters of Corporate Debtor) (ii) Impose a penalty of Rs. One Crore on each of the Respondent Nos. 1 to 6 (alleged Financial Creditors) and Respondent Nos. 8 to 15 (promoters of Corporate Debtor) under Section 65, IBC; (iii) Award exemplary and compensatory costs in favour of the Appellant; and/or (iv) Pass any such other/ further orders, as this Hon'ble Appellate Tribunal may deem fit and proper in the facts and circumstances of the instant case. " 2.6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs has opposed the above submissions and submits that penalty under Section 65 can be imposed only on financial creditors who has initiated the proceedings. Section 65 does not indicate that on the promoters' penalty can also be imposed. It is further submitted that the Adjudicating Authority in the impugned order dated 12.06.2024 has not returned any finding regarding collusion of the promoters. Allegations made against the promoters are denied. Adjudicating Authority itself having not found sufficient material to issue notice against the promoters, Appellants' contention that promoters be also penalised is without any basis. Scope of Section 65 does not include collusion. There is no direct evidence to establish that answering respondent conspired and colluded with Respondent Nos.1 to 6 in initiation of the CIRP. 5. We have considered the submissions of the counsel for the parties and perused the record. 6. The submission which has been advanced by the counsel for the parties is with regard to interpretation of Section 65 of the IBC. Section 65 of the IBC provides as follows:- "65. Fraudulent or malicious initiation of proceedings. - (1) If, any person initiates the insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or malicious initiation of proceedings". The use of expression "impose upon such person a penalty" in sub-section (1) of Section 65 obviously relates to the person who has initiated the insolvency resolution process. The submission of the appellant is that the promoter should also be treated in whose collusion the proceedings initiated by financial creditors needs consideration. Counsel appearing for the promoters has refuted the contention that any collusion was found with the promoters. It is not necessary for us to enter into issue as to whether there is any finding of collusion in the order of the Tribunal or this Tribunal dismissing the appeals. We need to examine the statutory scheme under Section 65, unless the promoters can also be covered under the statuary scheme, the prayer of the appellants to impose penalty on the promoters cannot be accepted. Section 65 is a penal provision. Hon'ble Supreme Court in AIR 1954 SC 496- "Tolaram Relumal and Anr. vs. State of Bombay" laid down:- "........if two possible and reasonable constructions can be put upon a penal provision, the Court must lean towards that construction which exempts the subject from penalty rather than the one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order has issued notice to the financial creditors which is clear from direction under paragraph 18 as extracted above. It is submitted that the Adjudicating Authority has referred to Rule 59 of the NCLT Rules, 2016 for issuance of notice which Rule is not applicable. Rule 59 of the NCLT Rules deals with procedure for imposition of penalty under the Act. Rule 59 is as follows:- "59. Procedure for imposition of penalty under the Act.- (1) Notwithstanding anything to the contrary contained in any rules or regulations framed under the Act, no order or direction imposing a penalty under the Act shall be made unless the person or the company or a party to the proceeding, during proceedings of the Bench, has been given a show cause notice and reasonable opportunity to represent his or her or its case before the Bench or any officer authorised in this behalf. (2) In case the Bench decides to issue show cause notice to any person or company or a party to the proceedings, as the case may be, under sub-rule (1), the Registrar shall issue a show cause notice giving not less than fifteen days asking for submission of the explanation in writing within the period stipulated in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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