When a fraudulent CIRP proceeding is initiated, Adjudicating Authority has jurisdiction under the IBC to consider allegations of fraudulent and malicious initiation of CIRP proceedings under Section 65 of IBC and to recall the CIRP admission order/ terminate CIRP (even if a Resolution Plan approval application has been filed before the NCLT) – Acute Daily Media Pvt. Ltd. and Ors. Vs. Rockman Advertising and Marketing (India) Ltd. and Ors. – NCLAT New Delhi
The Hon’ble NCLAT held that:
(i) There is no statutory embargo on the Adjudicating Authority to exercise its discretion carefully and judiciously in a Section 65 application to prevent and protect the Corporate Debtor from being dragged into CIRP.
(ii) When no interest income had been reflected in the balance sheet, yet computing the interest amount in the Section 7 application to cross the threshold hurdle lends credence to the narrative of precipitation of fraud.
(iii) As non- compliance under the Companies Act cannot negate a petition filed under Section 7 as long as there is a valid debt and default in payment of the said debt.
(iv) Debt and default cannot always be seen in isolation. AA is also required to take care that the provisions of Section 7 of IBC are not misused or abused in any manner either by the financial creditor or the promoters of the Corporate Debtor to take undue advantage at the cost of insolvency resolution.