Fraudulent intent under IBC section 65 is not inferred from prior SARFAESI action alone; fresh consideration restored.

Prior initiation of SARFAESI recovery steps does not, by itself, prove that a section 10 insolvency application was filed fraudulently or with malicious intent under section 65 of the Insolvency and Bankruptcy Code. The record showed disclosure of financial debt, default, and inability to pay, and no independent material established that the application was filed for any purpose other than insolvency resolution. On that basis, invocation of section 65 was unjustified, the rejection of the section 10 application and the penalty could not be sustained, and the insolvency application was restored for fresh consideration on merits.

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Issues: Whether initiation of SARFAESI proceedings before the filing of a section 10 application, by itself, establishes fraudulent or malicious intent under section 65 of the Insolvency and Bankruptcy Code, 2016 and justifies rejection of the section 10 application.

Analysis: The application under section 10 disclosed the financial debts, the defaults, and the inability of the corporate applicant to discharge its liabilities. Section 65 requires proof that insolvency proceedings were initiated fraudulently or with malicious intent for a purpose other than resolution of insolvency. Mere prior initiation of proceedings under section 13(2) of the SARFAESI Act, 2002, even if recovery steps were underway, is not by itself sufficient to infer fraudulent or malicious intent. Something more than the existence of parallel recovery proceedings must be shown to sustain an application under section 65. The record did not disclose independent material establishing that the section 10 application was filed for any purpose other than insolvency resolution.

Conclusion: The invocation of section 65 was unjustified and the rejection of the section 10 application could not be sustained.

Final Conclusion: The order rejecting the section 10 petition and imposing penalty was set aside, and the corporate insolvency application was restored for fresh consideration by the Adjudicating Authority on merits.

Ratio Decidendi: Prior initiation of SARFAESI proceedings, without further material showing a dishonest or abusive object, does not by itself establish fraudulent or malicious initiation under section 65 of the Insolvency and Bankruptcy Code, 2016.

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