Where it appears that application is filed collusively not with the purpose of Insolvency Resolution but otherwise, then despite fulfilling all the conditions of Section 7(5) of the Code, the AA can exercise its discretion in rejecting the application relying on Section 65 of the Code – Hytone Merchants Pvt. Ltd. Vs. Satabadi Investment Consultants Pvt. Ltd.

Where it appears that application is filed collusively not with the purpose of Insolvency Resolution but otherwise, then despite fulfilling all the conditions of Section 7(5) of the Code, the AA can exercise its discretion in rejecting the application relying on Section 65 of the Code – Hytone Merchants Pvt. Ltd. Vs. Satabadi Investment Consultants Pvt. Ltd. – NCLAT New Delhi

July 3, 2021

NCLAT held that based on the law laid down by Hon'ble Supreme Court in Para 59 of the Swiss ribbons [2019] ibclaw.in 03 SC, it is clear that even if the Application filed under Section 7 meets all the requirements, then also the Adjudicating Authority has exercise discretion carefully to prevent and protect the Corporate Debtor from being dragged into the CIRP mala fide. When a statute makes a provision for punishment for any wrong, it also contains deemed power to prevent it. Therefore, it cannot be said that section 65 will be applicable only after initiation of the CIRP fraudulently or with malicious intent. Even if the petition complies with all requirements of Section 7 of the Code, it is filed collusively, not with the intention of Resolution of Insolvency but otherwise. Therefore, it is not mandatory to admit the Application to save the Corporate Debtor from being dragged into CIRP with mala fide.

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