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of <h1>Corporate debtor's Section 10 IBC application cannot be rejected solely for filing after SARFAESI proceedings initiation</h1> <h3>Getz Cables Private Limited Versus State Bank of India, Northern ARC Capital Limited</h3> NCLAT Principal Bench allowed appeal against rejection of corporate debtor's Section 10 IBC application. Lower court had dismissed the application finding ... Rejection of application filed by the Appellant under Section 10 of the Insolvency and Bankruptcy Code, 2016 - proceedings under Section 13, sub-section (2) of the SARFAESI Act was initiated by the SBI against the Appellant prior to filing of Section 10 Application - main reason for dismissing Section 10 application is that Applicant has filed Section 10 application with malicious and fraudulent intent to delay and halt the recovery proceedings initiated by Respondent Bank - whether filing of an application by the Appellant under Section 10, can be termed as initiation of proceedings with fraudulent and malicious intent? - HELD THAT:- The basis for Section 65 application filed by the SBI is the fact that SBI has initiated proceedings under Section 13, sub-section (2) of the SARFAESI Act vide notice dated 24.02.2023, prior to filing of the application under Section 10 by the Corporate Applicant. Admittedly, Section 10 application was filed by the Appellant, subsequent to initiation of proceedings under Section 13, subsection (2) by the SBI. The pleadings of the of the SBI in proceedings under Section 13, sub-section (2) were that 13(2) proceedings were on the verge of being completed, when Corporate Applicant has filed application under Section 10 with malafide and fraudulent intent. From the pleadings in Section 65 application, we do not find any foundation to come to the conclusion that application under Section 10 was fraudulently initiated. The learned Counsel for the Appellant has relied on judgment of this Tribunal in Unigreen Global Private Limited vs. Punjab National Bank and Ors. [2018 (1) TMI 505 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], where this Tribunal noticing Section 7 and Section 10 of the IBC held that, two factors are common i.e. the debt is due and there is a default - This Tribunal further held that action under Section 13(4) of SARFAESI Act against Corporate Debtor or proceedings before Debt Recovery Tribunal, if any, are pending, cannot be a ground to rejection application under Section 10, if the application is complete. The present is a case where Adjudicating Authority has allowed Section 65 application filed by the SBI principally based on the foundation of the SBI that Section 10 application filed at the time when proceedings under Section 13, sub-section (2) were on the verge of completion. Whether Section 10 application deserve to be admitted or not, is a decision, which has to be taken by the Adjudicating Authority on facts of each case. For allowing Section 65 application, fraudulent and malicious intent of CD has to be proved from some materials on record. Merely because proceeding under Section 13, sub-section (2) and (4) has been initiated by the creditor prior to filing of Section 10 application, cannot be a ground to hold that Section 10 application is filed with malicious and fraudulent intent. For proving fraudulent and malicious intent, something more is required to be pleaded and proved apart from initiation of proceedings under Section 13, sub-section (2) and (4) by the creditor against the Corporate Applicant. The Adjudicating Authority committed error in allowing Section 65 application filed by the SBI and rejecting Section 10 application. In event a proposition of law is accepted that when a creditor has initiated proceedings under Section 13, sub-section (2) against the CD, he is precluded to file Section 10 application, that proposition will be clearly against the intent and purpose of Section 10 of the IBC - the basis of rejection of Section 10 application is the finding by the Adjudicating Authority that application has been filed with malicious and fraudulent intent to delay and halt the recovery proceedings. There mere fact that application is filed, consequent of which the recovery proceedings may be halted, cannot lead to conclusion that intent and purpose of the application is malicious and fraudulent - Adjudicating Authority committed error in allowing Section 65 application filed by the SBI. The company petition filed under Section 10 is revived to be considered and decided by the Adjudicating Authority afresh - appeal allowed. Issues Involved:1. Whether the application under Section 10 of the Insolvency and Bankruptcy Code (IBC) was filed with malicious and fraudulent intent.2. Whether the initiation of proceedings under the SARFAESI Act by the State Bank of India (SBI) precludes the filing of an application under Section 10 of the IBC.3. Whether the Adjudicating Authority erred in allowing the application under Section 65 of the IBC and imposing a penalty on the Appellant.Issue-wise Detailed Analysis:1. Malicious and Fraudulent Intent under Section 10 of the IBC:The primary issue was whether the Appellant filed the application under Section 10 of the IBC with malicious and fraudulent intent. The Adjudicating Authority dismissed the Section 10 application, invoking Section 65 of the IBC, on grounds that it was filed to delay and halt recovery proceedings initiated by SBI. The Appellant argued that the mere initiation of proceedings under the SARFAESI Act cannot be the basis for concluding malicious intent. The Tribunal emphasized that for proving fraudulent and malicious intent, there must be deceit and injury, and the act must be done intentionally without just cause or excuse. The Tribunal found no sufficient material or foundation in the SBI's Section 65 application to substantiate claims of fraudulent or malicious intent by the Appellant.2. Impact of SARFAESI Proceedings on Section 10 IBC Applications:The Tribunal considered whether ongoing SARFAESI proceedings preclude the filing of a Section 10 application. The Appellant contended that the right to file under Section 10 is statutory and cannot be negated by SARFAESI proceedings. The Tribunal referred to precedents, emphasizing that SARFAESI proceedings or actions under the Debt Recovery Tribunal Act do not obstruct the filing of a Section 10 application, provided the application is complete and there is a debt and default. The Tribunal noted that the mere existence of SARFAESI proceedings does not imply the Section 10 application was filed with malicious intent.3. Error in Allowing Section 65 Application and Imposing Penalty:The Tribunal examined whether the Adjudicating Authority erred in allowing the Section 65 application filed by SBI and imposing a penalty on the Appellant. The Tribunal found that the Adjudicating Authority's decision was primarily based on the initiation of SARFAESI proceedings, which is insufficient to prove malicious and fraudulent intent. The Tribunal highlighted that something more is required to prove such intent, beyond the initiation of SARFAESI proceedings. The Tribunal concluded that the Adjudicating Authority committed an error in allowing the Section 65 application and rejecting the Section 10 application solely on this basis.Conclusion:The Tribunal allowed the Appeal, setting aside the order dated 30.09.2024, which allowed IA No.1955 of 2024 and rejected the Section 10 application. The Tribunal revived the company petition filed under Section 10 to be reconsidered by the Adjudicating Authority afresh. The Tribunal clarified that it has not expressed any opinion on the merits of the Section 10 application, leaving it to the Adjudicating Authority to decide in accordance with the law. The Appeal was allowed with no order as to costs.
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