Rejection of Section 65 Application Filed Prior to Acceptance of Section 7 IBC Application Unfair

Devashree Developers Pvt. Ltd. & Ors Vs Aravali Cylinders Pvt Ltd (NCLAT Delhi)

NCLAT Delhi decided to reject the application. The application of Article 65 of the Law is not sustainable on the grounds that the application was made before the acceptance of the application made in accordance with Article 7 of the Law.

Facts- This objection was filed by Aravali Cylinders Pvt. The application jointly filed by Leelawati Mahipal and Sanjay Mahipal, shareholders of Ltd., has been filed against the order dated 29.08.2023 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi). Ltd. The application made by (Corporate Debtor) in accordance with Articles 60(5), 65 and 75 of the Law was rejected on the grounds that it was made before the acceptance of the application made in accordance with Article 7 of the Law.

Solution- It has been decided that the application made under Article 65 of the Law can be continued after the application made under Articles 7, 9 or 10 of the Law, not after the acceptance. Therefore, the above discussion and the law laid down by the Hon’ble Supreme Court and the dismissal of the application by this Court on the ground that the application was filed only before the admission of the application under Section 7 are not relevant in this case. sustainable.

FULL TEXT NCLAT DECISION/ORDER

This appeal was filed by the Appellant under Section 7 of the Act for Rs. It was decided to dismiss the suit for the amount of 2,31,00,000/- without considering the allegations regarding the said application.

2. Mr. Ankur Mahindra, Advocate appearing on behalf of the respondent did not deny this fact.

3. In view of the above stated facts and circumstances, as the Court has not followed the fundamental principle that no one should be convicted without a hearing, therefore, in our opinion, the impugned order must be set aside and remanded for retrial. After hearing both parties and giving the order to speak, a decision is made on the application in accordance with the law.

4. In the result, the present appeal is allowed and the impugned order is set aside. CP (IB) No. 2021 267, is hereby affirmed and the matter remanded to the Court. The parties were asked to appear before the Court at 02:00^And September 2024. The court is instructed to hear both sides and decide the application as soon as possible in accordance with the law. However, while evaluating this appeal, it has been clarified that we did not go into the merits of the case and therefore no review was carried out.

Comp. APPLICATION. (EC) (Ins) No. 1430 / 2023

This objection was filed by Aravali Cylinders Pvt. The application jointly filed by Leelawati Mahipal and Sanjay Mahipal, shareholders of Ltd., has been filed against the order dated 29.08.2023 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi). Ltd. The application made by (Corporate Debtor) in accordance with Articles 60(5), 65 and 75 of the Law was rejected on the grounds that it was made before the acceptance of the application made in accordance with Article 7 of the Law.

2. Counsel for the Appellant submitted that the Court committed patent error in rejecting the application solely on the ground that it was filed before the application was granted under Article 7, which was contrary to the law determined by His Honour. There are various decisions of the Supreme Court and this Court.

3. In this context, the Hon’ble Supreme Court’s decision in Beacon Trusteeship Limited Vs. Earthcon Infracon Pvt. Ltd. & Anr., 2020 SCC OnLine SC 1233 and Paragraphs 7 and 8 read as follows:-

“7. Considering the provision of Section 65 of IBC, in case such a claim is made, the Adjudicating Authority is required to enter into the same. If such an objection is raised or applied to the Adjudicating Authority, it must of course be handled in accordance with the law. The allegation of collusion cannot be raised for the first time in the appeal before the NCLAT or before this Court in this appeal. We therefore refer the appellant to remedy before the Judicial Authority.

8. If an appropriate application is made, the issue of whether the case was initiated in a collusive manner will be examined in accordance with the law and appropriate decisions will need to be made, taking into account the facts and circumstances of the incident. We made it clear that we do not comment on the merits of the case. “We set aside the impugned order passed by NCLAT and dispose of the appeal in accordance with the direction stated above.”

4. It is also the case of this Court in Ashmeet Singh Bhatia Vs. He also relied on a decision he made in the case. Sundrm Consultants Pvt. ltd. & Anr., 2023 SCC OnLine NCLAT 1423 also deals with the issue of application under Section 65 in the case filed under Section 7 and reference is made to paragraphs 12, 13, 14, 16 and 18 and is as under:-

“12. The issue in this case is whether an application made under Section 65 of the Act is maintainable after an application made under Sections 7, 9 or 10 of the Act or whether it is maintainable only after such application has been granted.

13. In fact, the learned Court, while interpreting Section 65 of the Act, held that the application under Section 65 of the Act can be maintained only after the application under Section 7, 9 or 10 is accepted and the CIRP is initiated. However, in our view, the view taken by the learned Court is wholly erroneous as it has not examined the essential provisions, let alone the definitions provided under Sections 5(11) and 5(12) of the Act and has been unduly influenced by these views. The word “initiates” under Section 65 has been used to observe that it means the time when the CIRP is initiated, i.e. after initiation. “

14. In this connection, consideration may be taken of the decision of the Hon’ble Supreme Court in the case of Ramesh Kymal (Supra) where the Hon’ble Supreme Court held that the commencement date of CIRP is. The date on which the Financial Creditor, Operational Creditor or Corporate Applicant applies to the Adjudicating Authority to initiate the process and the insolvency start date is the date on which the application is accepted.

16. Thus, in the light of the aforesaid discussion, the question posed earlier is answered in favor of the Appellant and against the Respondents. If an application is made pursuant to Article 65 of the Law, it is accepted that the application can be continued after the application is made within the scope of Articles 7, 9 or 10 of the Law.

18. In case of objection by the Respondents regarding the authority of the Appellant to file such application under Section 65 of the law, the matter in question shall be decided by the Court having regard to the objection raised or by the Respondent and after giving due opportunity to the Appellant/Applicant. It will be brought to the agenda later.”

5. Further, this Court has also observed the decision in Shree Ambica Rice Mill Vs. Reference is made to Kaneri Agro Industries Ltd., 2021 SCC Online NCLAT 599 and paragraph 19 which reads as follows:-

“19. Therefore, it is clear that the Adjudicating Authority is obliged to investigate the nature of the transaction and must exercise great caution when accepting the application in order to prevent unfair use of the IBC provisions in a way that would prejudice the rights of legitimate creditors. Protect the Corporate Debtor from being dragged into CIRP in bad faith. Section 65 provides that if any person fraudulently or in bad faith commences Insolvency Resolution Proceedings or liquidation proceedings for any purpose other than the resolution of Insolvency or Liquidation, the Adjudicating Authority may impose a penalty on such person. Section 65 provides that if any person gives any information under Section 7 that is false in material particulars, knowing that it is false or omits any material fact, knowing that it is material, that person shall be liable to a fine.

6. The Defendant’s Counsel (FC) reiterated his position before the Court.

7. We have heard the lawyers of the parties and examined the records.

8. The subject of this case is at what stage the application under Article 65 can be pursued.

9. The answer to this question is not far off due to the decisions in Beacon Trusteeship Limited (Supra), Ashmeet Singh Bhatia (Supra) and Shree Ambica Rice Mill (Supra). In Beacon Trusteeship Limited (Supra) case the Hon’ble Supreme Court stated: “The allegation of collusion could not have been raised for the first time before this Court in the appeal before the NCLAT or in this appeal. We therefore refer the appellant to the remedy before the Judicial Authority.”

10. In the case of Ashmeet Singh Bhatia (supra) a specific question is framed in paragraph 12: “As to whether an application made under Section 65 of the Act can be maintained after an application made under Sections 7, 9 or 10 of the Act or only after such application has been accepted?

11. The answer to the above mentioned question is found in paragraph 16; This Court has decided that the application made under Section 65 of the Act shall not be filed after the 7th, 9th or 10th act of the Act.

12. Therefore, in view of the aforesaid discussion and the law laid down by the Supreme Court and this court, it is not sustainable for the application to be dismissed by the Court merely on the ground that the application was filed before the admission of the application under Section 7.

13. Accordingly, the appeal is allowed and the impugned order is set aside. The application dated 2022 and numbered 1120, which was rejected by the decision in question, was withdrawn and the matter was sent back to the Court for the application to be decided in accordance with the law. At this stage, Respondent Counsel (FC) Mr. Sumesh Dhawan also raised an objection regarding the location of the intervener and submitted that it could be kept open before the Court for the same to be decided. We order accordingly.

However, when deciding on this appeal, it is clearly stated that we did not go into the merits of the case, but only decided from a legal perspective. The court is directed to list the said application along with the main petition CP (IB) No. 267 of 2021, which was returned today in a separate order.