NCLT Has Exclusive Jurisdiction Over Debt and Fraud, No Need for Civil Court once IBC is Invoked: Delhi HC [Read Judgment]

In a recent ruling, the Delhi High Court held that once insolvency proceedings are initiated under the Insolvency and Bankruptcy Code, 2016, the National Company Law Tribunal has exclusive jurisdiction to examine issues relating to the existence of debt, validity of assignment, and allegations of fraud by a financial creditor and that there is no need for intervention by a civil court.

Roseland Buildtech Pvt. Ltd. filed a commercial suit before the Delhi High Court challenging insolvency proceedings initiated against it by Vihaan 43 Realty Pvt. Ltd. under Section 7 of the IBC. The proceedings were based on an alleged default arising from a loan of Rs. 80 crores, which the financial creditor claimed had been assigned to it under a Business Transfer Agreement dated 06 March 2020.

The plaintiff claimed that the loan stood fully discharged through payments made pursuant to share transfer arrangements and alleged that the Business Transfer Agreement was fraudulent, forged, and void.

On this basis, it sought declarations from the civil court that no debt was due and that the insolvency proceedings were malicious. The financial creditor applied for rejection of the plaint under Order VII Rule 11 CPC, arguing that the IBC barred the suit.

The plaintiff argued that the NCLT, at the stage of a Section 7 application, could not examine fraud or the validity of an assignment deed and that civil courts retained jurisdiction under Section 9 CPC.

The financial creditor, on the other hand, argued that the IBC is a complete code and that Sections 63 and 231 expressly bar civil court jurisdiction. They argued that allegations of fraud and malicious initiation are specifically addressed under Sections 65, 75, and 60(5)(c) of the IBC.

Justice Purushaindra Kumar Kaurav observed that the IBC was enacted to replace a fragmented insolvency regime with a unified framework under a specialised forum. The court observed that “Sections 63 and 231 of the IBC are almost similarly worded, classical ouster clauses, usually provided in specialised legislations” intended to centralise insolvency-related disputes before the NCLT.

The court explained that the NCLT has wide powers to examine fraud and false information, observing that it is “institutionally equipped, both in terms of jurisdiction and procedure, to adjudicate complex disputes involving allegations of fraud, forgery, fabrication of documents, and collusion.”

The court further observed that the reliefs sought in the suit, though framed as declaratory, were in substance aimed at stalling insolvency proceedings and amounted to an impermissible collateral attack on the NCLT. The court pointed out that permitting such suits would allow parties “to achieve indirectly what they are barred from doing directly” and would defeat the legislative intent of the IBC.

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