Adjudicating Authority Must Consider Application U/S 65 Of IBC On Merits When Allegations Of Malicious Initiation Of CIRP Are Raised: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan and Mr. Barun Mitra (Technical Member) has held that once an application under Section 65 of the IBC is filed and allegations of malicious or fraudulent initiation of the CIRP are raised, the Adjudicating Authority is bound to consider it on merits and cannot reject it solely on the ground of lack of locus. The present appeal has been filed against an order passed by the National Company Law Tribunal (NCLT) Guwahati Bench by which it dismissed an intervention application of the Appellant. The Appellant submitted that the Adjudicating Authority committed error in not considering the application filed by the Appellant under Section 65. The Appellant as well as 129 workers of the Kitply Industries Ltd. – Corporate Debtor (CD) being stakeholders of the CD, have moved an application alleging fraudulent and collusive initiation of CIRP, which application deserved to be considered on merits. Per contra, the Respondent submitted that an application filed by a lone workers of the CD has rightly not been entertained by the Adjudicating Authority. The purpose of application for intervention was only to derail the CIRP. The Tribunal noted that the application concerned malicious or fraudulent initiation of the petition under section 7 of the IBC. The Applicants sought both intervention and dismissal of the application under section 7 of the IBC. The NCLAT in Beacon Trusteeship Ltd. held that when allegations are raised, the Adjudicating Authority must examine them. It further observed that mere pendency of an application under section 66 of the IBC does not bar proceedings under section 7 of the IBC. In the present case, the Appellant has not only relied on the pendency of the application under section 66 of the IBC but also alleged that the Respondent No. 1 controls the Respondent No. 2 through related entities and that the application under section 7 of the IBC is based on circular transaction. Since the CIRP was initiated against the Respondent No. 2 and was taken over by a related party of the Respondent No. 1, the application under section 7 has been initiated maliciously. However, the said application was dismissed solely on grounds of lack of locus without examining the allegations. It held that “insofar as, Section 7 proceedings are concerned, there can be no quarrel to the observation that an Intervenor, who may not be necessary party or proper party, cannot intervene, but in a case where prayer of the Applicant under Section 65 regarding pleading to initiation of CIRP with fraudulent and malicious intent, the Adjudicating Authority ought to have looked into the allegations carefully.” The Tribunal further held that 130 workers who are stakeholders in the CIRP have come up with the application. The application was not filed by any stranger or third party, who has no stake in the CIRP. The 130 workers, who sought to file application were all workers of the CD - Kitply Industries Ltd. and were stakeholders. Accordingly, the present appeal was allowed. Case Title: Anil Singh Versus SREI Equipment Finance Ltd. & Anr. Case Number: Company Appeal (AT) (Insolvency) No. 1069 of 2025 Judgment Date: 25/08/2025Click Here To Read/Download The Order

Adjudicating Authority Must Consider Application U/S 65 Of IBC On Merits When Allegations Of Malicious Initiation Of CIRP Are Raised: NCLAT

Mohd Malik Chauhan

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