Alleged forged-records insolvency petition and malicious CIRP initiation: s.65 IBC fraud enquiry required; tribunal order set aside

Despite an alternative statutory remedy under s.61 IBC, the HC held that the maintainability objection must be raised at the earliest stage; since the revision had been admitted and interim stay granted long earlier, relegating the petitioner to the alternate remedy would be unjust, and the petition was entertained. On the dominant issue of alleged fraudulent/malicious initiation of CIRP based on purportedly forged records, the HC held that the Adjudicating Authority can enquire into fraud only under s.65 IBC and that the consequence of fraudulent initiation is confined to the monetary penalty under s.65; the Tribunal's failure to exercise this jurisdiction caused manifest injustice, and its order was set aside.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether supervisory jurisdiction under Article 227 could be exercised to entertain the challenge despite availability of an alternative statutory appellate remedy under the Insolvency and Bankruptcy Code, 2016.

(ii) Whether the Adjudicating Authority has jurisdiction to summon and direct production of originals of documents relied upon in insolvency proceedings, where authenticity/forgery is alleged.

(iii) Whether the Adjudicating Authority has jurisdiction under Section 65 of the Insolvency and Bankruptcy Code, 2016 to enquire into allegations of fraudulent or malicious initiation of insolvency proceedings, and the permissible consequence of such finding.

(iv) Whether closure of the application as "not maintainable" amounted to failure to exercise jurisdiction vested in the Adjudicating Authority, warranting interference and remand.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Entertainability under Article 227 despite alternative remedy

Legal framework (as discussed): The Court considered the existence of an alternative statutory remedy of appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, and the discretionary nature of writ/supervisory jurisdiction. The Court treated the objection as one going to whether it should entertain the petition, not as an absolute bar to jurisdiction.

Interpretation and reasoning: Although an alternative appellate remedy existed, the Court noted that the objection regarding alternative remedy ought to be taken at the earliest. The Court also relied on the circumstance that the petition had been filed earlier, admitted, and an interim stay had operated, and therefore relegating the petitioner to the alternative remedy after lapse of time was not appropriate. The Court further observed that the questions involved were based on both facts and law, making it a fit case for exercise of supervisory jurisdiction.

Conclusion: The Court held that it would entertain the Civil Revision Petition under Article 227 notwithstanding the alternative remedy under Section 61.

Issue (ii): Power of the Adjudicating Authority to direct production of original documents

Legal framework (as discussed): The Court examined Rule 131 of the National Company Law Tribunal Rules, 2016, which regulates discovery/production of documents and permits issuance of summons to produce documents upon a showing of relevance.

Interpretation and reasoning: Applying Rule 131, the Court held that the Adjudicating Authority is empowered to summon and require production of documents. On that basis, the Court rejected the approach of treating an application seeking production of the original ledger document as outside the Tribunal's competence.

Conclusion: The Court held that the Adjudicating Authority has jurisdiction to summon/require production of original documents sought for adjudication in the insolvency proceeding.

Issue (iii): Jurisdiction under Section 65 to enquire into fraudulent/malicious initiation and the scope of consequence

Legal framework (as discussed): The Court extracted and considered Section 65 of the Insolvency and Bankruptcy Code, 2016, which authorises the Adjudicating Authority to impose a monetary penalty where proceedings are initiated fraudulently or with malicious intent for purposes other than resolution of insolvency/liquidation.

Interpretation and reasoning: The Court treated the allegation of forged/fabricated ledger statement as foundational to a plea that the insolvency proceeding was initiated maliciously/fraudulently. The Court reasoned that, where Section 65 empowers the Adjudicating Authority to examine malicious/fraudulent initiation and impose penalty, the Adjudicating Authority cannot decline jurisdiction by closing the application as not maintainable. At the same time, the Court confined the consequence of a Section 65 enquiry to what the provision itself prescribes.

Conclusion: The Court held that the Adjudicating Authority can enquire into allegations of fraud/malicious initiation only under Section 65, and that the consequence of fraudulent initiation is limited to the monetary penalty contemplated by Section 65.

Issue (iv): Failure to exercise jurisdiction; interference and remand

Interpretation and reasoning: Having held that the Adjudicating Authority possessed jurisdiction both to summon documents (Rule 131) and to examine malicious initiation (Section 65), the Court concluded that closing the application as "not maintainable" reflected a failure to exercise jurisdiction vested in it. The Court found that such failure resulted in manifest injustice and warranted supervisory interference.

Conclusion: The impugned order was set aside, and the matter was remanded to the Adjudicating Authority to consider the application afresh in accordance with principles of natural justice, without costs.

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