Insolvency petition order set aside, moratorium terminated, and penalties sought for fraudulent initiation.

The Tribunal set aside the order admitting the insolvency petition, terminated the moratorium, and prioritized proceedings under the Companies Act. Notices were to be issued for a hearing on imposing penalties under Section 65 of the IBC due to fraudulent initiation of insolvency proceedings.

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Issues Involved:
1. Application under Section 65 of IBC 2016 and Rule 11 of NCLT Rules 2016 for recalling the order of admission.
2. Allegation of fraudulent and malicious intent in filing the petition.
3. Collusion between Financial Creditor and Corporate Debtor.
4. Inherent powers of the Tribunal.
5. Applicability of Section 65 of IBC 2016.
6. Imposition of penalty under Section 65 of IBC 2016.

Detailed Analysis:

1. Application under Section 65 of IBC 2016 and Rule 11 of NCLT Rules 2016 for recalling the order of admission:
The application was filed to recall the order of admission passed on 31.10.2019 in C.P. No. 1278/KB/2019, alleging that the petition was filed fraudulently with malicious intent. The Financial Creditor and Corporate Debtor were accused of colluding to deprive the applicants of shares held as security.

2. Allegation of fraudulent and malicious intent in filing the petition:
The Financial Creditor, incorporated with a paid-up capital of Rs. 1,00,000, allegedly gave a loan of Rs. 50,00,000 without security to the Corporate Debtor, which was claimed to be an instance of collusive action. The applicants argued that the petition under Section 7 of IBC 2016 was filed to obtain a moratorium and stall proceedings under Sections 58-59 of the Companies Act 2013.

3. Collusion between Financial Creditor and Corporate Debtor:
The applicants contended that the Financial Creditor and Corporate Debtor had no prior dealings, and the loan was given without security, indicating collusion. The Financial Creditor’s recent incorporation and its primary business objectives were inconsistent with the loan transaction, further suggesting collusion.

4. Inherent powers of the Tribunal:
The Tribunal discussed its inherent powers under Rule 11 of NCLT Rules 2016, which are parallel to Section 151 of the Code of Civil Procedure, 1908. These powers allow the Tribunal to make orders necessary for justice or to prevent abuse of process. The Tribunal emphasized that inherent powers could be exercised to recall orders obtained through fraud or abuse of process.

5. Applicability of Section 65 of IBC 2016:
Section 65 of IBC 2016 allows the Tribunal to impose penalties if insolvency proceedings are initiated fraudulently or with malicious intent. The Tribunal noted that a conclusive finding of fraud or malicious intent is required before taking action under this section. The Tribunal found that the Financial Creditor’s actions, including the timing and nature of the loan, indicated malicious intent and abuse of process.

6. Imposition of penalty under Section 65 of IBC 2016:
The Tribunal concluded that the order for CIRP was obtained fraudulently and with malicious intent. However, before imposing a penalty under Section 65, the Tribunal directed the Registry to issue notices to the Corporate Debtor and involved parties to present their case, ensuring an opportunity for a hearing.

Conclusion:
The Tribunal set aside the order dated 31.10.2019 in C.P. No. 1278/KB/2019, terminated the moratorium under Section 14 of IBC 2016, and directed the Registry to prioritize the application under Sections 58-59 of the Companies Act 2013. Notices were to be issued to the Corporate Debtor and related parties for a hearing on the imposition of penalties under Section 65 of IBC 2016.

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