Application u/s 65 of IBC could be maintained even before Admission Insolvency petition: NCLAT

The Delhi Principal bench of the National Company Law Appellate Tribunal (NCLAT) held that an application under section 65 of the Insolvency and Bankruptcy Code (IBC) can be considered even before formal admission of the Corporate Insolvency Resolution Process (CIRP) petitions.

The appeal is against two orders passed by the NCLT wherein a petition under section 7 and an application under Section 60(5), 65 and 75 of the IBC were dismissed by the NCLT. Devashree Developers Pvt, the appellant filed a petition under section 7 of the IBC to initiate a corporate insolvency resolution process against Aravali Cylinders Pvt. Ltd., the corporate debtor for the debt amount to the tune of Rs. 2,31,00,000 which was dismissed. Another application was filed jointly by Leelawati Mahipal and Sanjay Mahipal, shareholders of the corporate debtor under Section 60(5), 65 and 75 of the IBC on the ground that such application could not be admitted before the admission of the petition under section 7 of the IBC.

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The appellant contended that the tribunal dismissed the petition under section 7 without providing an opportunity of being heard therefore it violated the principle of natural justice. It was further argued that the appellant should have been heard before dismissing the petition. Further contended by the appellant that the tribunal wrongly interpreted the provisions of the IBC and it is not a condition precedent that an application under Section 60(5), 65 and 75 could not be admitted before a petition under section 7 is admitted. They relied on multiple judgments of the wherein it was held that an application under section 65 can be admitted even at the admission stage of CIRP petition.

The appellant referred to the Supreme Court judgment in Beacon Trusteeship Limited Vs. Earthcon Infracon Pvt. Ltd. & Anr (2019) wherein it was held that when allegations of fraud are raised under section 65, the adjudicating authority must address them. It was further contended that the tribunal is obligated to enquire into allegations of fraudulent or malicious intent under section 65 notwithstanding whether petition for CIRP has been admitted or not.

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Per Contra, the respondent conceded that an opportunity of being heard was not given to the appellant but maintained that the petition under section 7 of the IBC was devoid of merit and deserved to be dismissed.

The NCLAT held that rejection of the application under section 65 was legally incorrect. Section 65 of the IBC serves major purpose of restricting fraudulent or malicious CIRP petitions from being admitted therefore interpretation given by the NCLT to this provision was not sustainable.

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The NCLAT comprising Mr. Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) concluded that an application under section 65 could be maintained even before the admission of the petition under section 7 of the IBC. The tribunal further held that the NCLT erred in not providing an opportunity of being heard to the appellant while dismissing their section 7 petition. The appeal was allowed and set aside the impugned order.

To Read the full text of the Order CLICK HERE 

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