Delhi High Court Dismisses 'Luxury Litigation' Over Debt Assignment, Reaffirms NCLT Power To Probe Fraud

The Delhi High Court has dismissed what it described as “luxury litigation” challenging a debt assignment, saying issues of fraud or the existence of debt must be decided by the insolvency tribunal, not a civil court.

A single-judge bench of Justice Purushaindra Kumar Kaurav rejected the suit at the threshold, holding that it was a “mala fide attempt” built on “clever drafting” to derail proceedings under the Insolvency and Bankruptcy Code. The court imposed costs of Rs 2 lakh, saying the case had wasted judicial time and “should never have been filed.”

The dispute involved an Rs 80 crore term loan taken by Roseland Buildtech Private Limited in 2006 from Sonata Investments Limited. The company said the liability stood fully settled in 2024 through a share transfer arrangement. By that time, however, the original lender had already assigned the debt to Vihaan 43 Reality Private Limited under a Business Transfer Agreement.

Relying on that assignment, Vihaan approached the National Company Law Tribunal, New Delhi, to initiate insolvency proceedings against Roseland. Instead of contesting the insolvency case before the tribunal, Roseland moved the High Court, branding the assignment as a “sham, forged, and fabricated” document.

Roseland argued that the NCLT was not equipped to deal with serious allegations of fraud or forgery, and that such questions could only be examined by a civil court after a full trial.

The High Court was not persuaded. It said the IBC clearly shuts out civil courts in such matters and reiterated that the NCLT is fully empowered to look into claims of fraudulent initiation of insolvency, disputes over the existence of debt, and the validity of assignment deeds.

Relying on the Supreme Court's ruling in Embassy Property Developments Pvt. Ltd. v. State of Karnataka, the Court said the insolvency framework itself provides remedies where proceedings are initiated fraudulently or with malicious intent.

The court described the suit as an “anti-tribunal injunction” in disguise and said the plaintiff had created an appearance cause of action where none existed.

It noted that the record ran into “1000s of pages” despite the case being one that “should never have been filed.”

“Allowing the present suit to be simply dismissed would be deeply unfair to the ordinary litigant who was forced to delay his day in court,” the judge observed, adding that costs were necessary to “filter out superfluous litigation.”

The plaint was accordingly rejected. The court directed that the costs be deposited with the Delhi State Legal Services Authority for use in providing psychological support to child victims under the POCSO Act.

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