Fraudulent insolvency filing under IBC can be rejected under Section 65 despite debt, default, and alternative remedies.

A corporate debtor's Section 10 IBC application was held liable to rejection where surrounding facts showed fraudulent and malicious initiation, including unfinished projects, substantial claims and litigation, director resignations before filing, and transposition of a director as a financial creditor. Section 65 was applied to prevent admission of a tainted insolvency petition despite debt and default. The application was also held not barred by Section 10A because the default pre-dated 25 March 2020, and a later demand notice merely reiterated an earlier default. The objection that insolvency could not be invoked before exhausting remedies under Uttar Pradesh urban development law was rejected because that alternative remedy did not make the petition premature.

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Issues: (i) whether the corporate debtor's application under Section 10 of the Insolvency and Bankruptcy Code, 2016 was filed fraudulently and with malicious intent so as to justify rejection under Section 65 of the Code; (ii) whether the application was barred by Section 10A of the Code; (iii) whether the application was premature for not first exhausting the remedy under the Uttar Pradesh urban development legislation.

Issue (i): whether the corporate debtor's application under Section 10 of the Insolvency and Bankruptcy Code, 2016 was filed fraudulently and with malicious intent so as to justify rejection under Section 65 of the Code.

Analysis: The record showed large-scale unfinished projects, heavy pending claims and litigation, resignations of long-standing directors immediately before filing, and the transposition of one such director as a financial creditor in the insolvency application. On these facts, the application was found to have been moved not for genuine insolvency resolution but to escape liabilities and prosecution. The statutory bar under Section 65 operates where initiation is fraudulent or malicious, and the provision must be read with Section 10 so that admission is not compelled despite such taint.

Conclusion: The application under Section 10 was rightly held to have been filed with fraudulent and malicious intent, and rejection of the application was justified.

Issue (ii): whether the application was barred by Section 10A of the Code.

Analysis: The application itself referred to demand notices and default existing before 25 March 2020. A later demand notice issued after that date was treated only as a reiteration of an earlier default and not as the origin of default. The Explanation to Section 10A excludes defaults committed before 25 March 2020 from the suspension regime.

Conclusion: The application was not barred by Section 10A.

Issue (iii): whether the application was premature for not first exhausting the remedy under the Uttar Pradesh urban development legislation.

Analysis: The availability of a remedy under the local development statute did not make the insolvency application premature. The choice of remedy lay with the litigant, and the insolvency application could not be rejected merely because another statutory remedy had not been invoked.

Conclusion: The objection of prematurity was rejected.

Final Conclusion: The appellate challenge failed because the rejection of the Section 10 application and the allowance of the Section 65 applications were sustained on merits.

Ratio Decidendi: Where initiation of corporate insolvency proceedings is found to be fraudulent or malicious, Section 65 of the Code permits rejection of a Section 10 application notwithstanding the existence of debt and default, and Section 10A does not apply to defaults committed before 25 March 2020.

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