Insolvency Plea Cannot Be Dismissed For Alleged Malice Without Cogent Proof: NCLT Ahmedabad

The National Company Law Tribunal at Ahmedabad has clarified that an insolvency application cannot be dismissed on allegations of fraudulent or malicious filing unless clear and cogent evidence of mala fides is shown.

While admitting insolvency proceedings against Turnrest Resources Pvt Ltd, a coram of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma said,

“Section 65 of the IBC empowers the AA to dismiss an application if it is found to be filed with malicious intent or for purposes other than insolvency resolution, and to impose costs or penalties. However, invocation of Section 65 requires cogent evidence of fraud or mala fides, not mere allegations or inferences drawn from commercial decisions.”, it said.

The proceedings arose from an insolvency application filed by HDFC Bank Ltd on July 11, 2025 seeking initiation of CIRP against Turnrest Resources for a default of Rs 30.5 crore. The bank placed on record sanction letters, supplemental agreements and an acknowledgment of debt dated October 1, 2023, and had issued a demand notice on December 12, 2024 after the default persisted.

Turnrest Resources sought dismissal of the insolvency plea by filing an interlocutory application under Section 65 alleging that HDFC acted maliciously by pursuing parallel proceedings, concealing material facts and releasing certain guarantors under a release agreement dated September 11, 2024 without informing the company.

It relied on email exchanges between September 2023 and October 2024 to argue that the Bank attempted to exert undue pressure despite ongoing settlement discussions.

The tribunal rejected the allegations and held that HDFC had clearly established the existence of a debt and default through loan records, disbursement schedules and information utility filings. It said the debtor had produced no evidence of collusion or malice in the Bank's conduct.

“No evidence of collusion or violation of due diligence is forthcoming; the Corporate Debtor's reliance on the net worth of released guarantors is irrelevant, as settlement terms are confidential and commercially driven,” it recorded.

The tribunal noted that the release agreement with the guarantors, under which they paid Rs 41 crore, was a bilateral commercial arrangement that reduced the debtor's liability. It reiterated that a contract of guarantee is independent and co-extensive and does not affect the financial creditor's right to initiate CIRP in the event of default.

Having concluded that debt and default were fully established and that the allegations under Section 65 were unsupported by evidence, the tribunal admitted Turnrest Resources into CIRP. It imposed a moratorium and appointed Rajendra Devidas Puranik as the Interim Resolution Professional. HDFC was directed to deposit Rs 5 lakh with the IRP towards the initial costs of the insolvency.

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