False affidavits and fraudulent intent thresholds under insolvency law must be substantiated before Section 340 or Section 65 action is taken

Proceedings under Section 340 CrPC require a substantiated basis for concluding that false evidence or offences against public justice warrant inquiry, and the record here did not justify such action or dismissal of the Section 7 insolvency case. Penalty under Section 65 IBC applies only where insolvency is initiated fraudulently or with malicious intent, and allegations against homebuyers were insufficient to show such misuse of process. An objection founded on the later affidavit attributed to Ajay Khajuria also did not provide a reliable ground to disturb the rejection of the interlocutory applications or interfere with continuation of the insolvency proceedings.

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Issues: (i) Whether the alleged forged or false affidavits justified initiation of proceedings under Section 340 of the Code of Criminal Procedure, 1973 and dismissal of the Section 7 insolvency application. (ii) Whether penalty under Section 65 of the Insolvency and Bankruptcy Code, 2016 was warranted for alleged fraudulent initiation of insolvency proceedings. (iii) Whether the objections based on the affidavit attributed to Ajay Khajuria furnished any ground to interfere with the rejection of the applications.

Issue (i): Whether the alleged forged or false affidavits justified initiation of proceedings under Section 340 of the Code of Criminal Procedure, 1973 and dismissal of the Section 7 insolvency application.

Analysis: The allegations were examined against the record, including the fact that the challenged application had been filed through authorised representatives and that fresh affidavits were subsequently filed by the concerned allottees reiterating their authorisation. The standard for action under Section 340 requires a formed opinion that it is expedient in the interests of justice to initiate an inquiry into false evidence or offences against public justice. On the facts found, the material did not justify such an inquiry.

Conclusion: The request for action under Section 340 was rightly declined and no ground existed to dismiss the insolvency application on this basis.

Issue (ii): Whether penalty under Section 65 of the Insolvency and Bankruptcy Code, 2016 was warranted for alleged fraudulent initiation of insolvency proceedings.

Analysis: Penalty under Section 65 is attracted only where the insolvency process is initiated fraudulently or with malicious intent. The proceedings had been initiated by homebuyers in a real estate project to protect their claims, and the record did not show that the filing was for any purpose other than insolvency resolution. The allegations were therefore insufficient to establish fraudulent or malicious initiation.

Conclusion: No penalty under Section 65 was called for, and the rejection of that prayer was justified.

Issue (iii): Whether the objections based on the affidavit attributed to Ajay Khajuria furnished any ground to interfere with the rejection of the applications.

Analysis: The record showed that Ajay Khajuria had later sought withdrawal of his claim on the basis of settlement and had not then raised a complaint that he had never signed the earlier affidavit. He was no longer part of the Section 7 proceeding, and his later communication did not furnish a reliable basis to upset the impugned order or the continuation of the insolvency proceedings.

Conclusion: The objection based on Ajay Khajuria's affidavit did not warrant interference.

Final Conclusion: The Tribunal found no merit in the challenge to the order rejecting the interlocutory applications and held that the objections were aimed at delaying adjudication of the pending Section 7 matter.

Ratio Decidendi: Proceedings under Section 340 of the Code of Criminal Procedure, 1973 and penalty under Section 65 of the Insolvency and Bankruptcy Code, 2016 can be invoked only on a substantiated showing of intentional falsehood or fraudulent or malicious use of the process; unsupported allegations and belated objections do not justify interference with a maintainable insolvency proceeding.

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