NCLT Recalls Insolvency Over Forged Documents, Imposes ₹50 Lakh Penalty On Financial Creditor

The National Company Law Tribunal (NCLT), New Delhi, has set aside insolvency proceedings against SLR Techinfra Pvt. Ltd., a real estate and infrastructure development company, and imposed a Rs 50 lakh penalty on Endless Services Pvt. Ltd., a private services firm, for malicious and fraudulent initiation of insolvency proceedings.

Recalling its earlier order admitting the Corporate Insolvency Resolution Process (CIRP), a coram of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi directed the resolution professional to hand back control and custody of the company and its assets to the erstwhile management. The tribunal said the insolvency process had been misused in a manner that strikes at the very credibility of the law.

“The admission of Corporate Debtor is based upon malicious and fabricated documents which had been used to misled this AA and to get a favourable order. Such conduct, which reflects an attempt to misuse the CIRP mechanism for extraneous and unjust purposes, cannot be condoned or ignored, even after the admission of the CIRP,” the tribunal observed.

The case arose from a plea filed by the suspended directors of SLR Techinfra, who alleged that Endless Services, claiming to be a financial creditor, had suppressed material facts and relied on forged loan documents to push the real estate company into insolvency.

According to them, the move was aimed at defrauding the management rather than recovering any genuine debt.

The tribunal found serious flaws in the documents relied upon by the creditor. It noted that a purported loan agreement said to be from 2014 made references to the Insolvency and Bankruptcy Code, 2016, a law that came into force much later.

The agreement also carried the creditor's registered office address that came into existence years later.

The NCLT also found that Endless Services had not placed complete bank records on file. It said the company manipulated its ledgers and even tagged a Rs 20 lakh payment from an entirely different loan to inflate its claim.

This, the bench said, was done to artificially cross the Rs 1 crore threshold required to trigger insolvency proceedings.

The tribunal said that provisions dealing with fraudulent initiation are not limited to conduct before insolvency begins. Even subsequent conduct can show that a case was filed with dishonest intent.

Relying on earlier appellate rulings, the bench reiterated that when the very initiation of insolvency is tainted by fraud, the adjudicating authority has the power to undo the entire process.

In these circumstances, the tribunal held that nothing could survive, even though a resolution plan was pending. The NCLT found that the very foundation of the CIRP was fraudulent and malicious.

It therefore recalled the insolvency process in its entirety and imposed Rs 50 lakh costs on Endless Services. The tribunal said the penalty was meant to deter misuse of insolvency law.

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