2026 (2) TMI 441 - AT - IBC

Initiation of Corporate Insolvency Resolution Process: authorization of representative and failure to meet Section 65 standard leads to dismissal

Initiation of corporate insolvency concerned alleged collusive and malicious Section 7 filing and a Section 65 recall request. The tribunal found the ... Initiation of Corporate Insolvency Resolution Process (CIRP) - Section 65 IBC recall of admission - collusive and malicious initiation of CIRP - debt and default u/s 7 IBC - settlement agreement and withdrawal of Section 7 petition - board resolution and authority to represent the corporate debtor - standard of proof u/s 65 - HELD THAT:- It is the case of the Appellant itself that Board Resolution was passed on 05.10.2021 by the CD, where Mr. Atish Kumar Shaw was authorized to sign, verify and represent the CD before the NCLT and NCLAT. The copy of the Board Resolution, which is at Page-579 of the Appeal paperbook, shows that the said Board Resolution was also signed by one of the Appellant. The CD having by Board Resolution authorized Mr. Atish Kumar Shaw to appear before the NCLT, no objection can be taken on behalf of the Ex-Directors of the CD that Mr. Atish Kumar Shaw could not have filed reply in Section 7 application. It has been submitted on behalf of the Respondent that Mr. Atish Kumar Shaw is a practicing Chartered Accountant, who was associated with both FC and the CD. Giving loan recall notice on behalf of the FC, cannot be a reason to hold that initiation of Section 7 application by FC was fraudulent and malicious. The Board Resolution authorizing Mr. Atish Kumar Shaw on behalf of the CD is subsequent to issuance of loan recall notice, hence, had there any objection with regard to Mr. Atish Kumar Shaw to represent the CD, the Board of the CD would not have passed the resolution. We, thus, do not find any substance in the above submission of the Appellant that initiation of CIRP has to be held malafide and fraudulent. The issue having considered and answered holding that Applicant has not produced any material that satisfies the strict standard of proof required under Section 65. We, thus, are of the view that Adjudicating Authority did not commit any error in rejecting application Section 65 application filed by the Appellant praying for rejection of Section 7 proceedings and recall of admission order dated 15.12.2023. There is no merit in the Appeal. The Appeal is dismissed. Issues: Whether the initiation of Corporate Insolvency Resolution Process (CIRP) by the Financial Creditor by filing a Section 7 petition was fraudulent, malicious or a collusive proceeding and whether the application under Section 65 of the Insolvency and Bankruptcy Code, 2016 seeking recall of the admission order should be allowed.Analysis: The legal framework comprises Section 7 (initiation and admission of a Section 7 petition on proof of debt and default) and Section 65 (power to reject or recall admission where petition is found to be fraudulent, malicious or collusive) of the Insolvency and Bankruptcy Code, 2016. The operative facts include an earlier Section 7 petition resolved by a Settlement Agreement dated 13.04.2022, subsequent dishonour of cheques and a fresh Section 7 petition admitted on 15.12.2023. The applicant filed I.A. under Section 65 after eight months of admission, alleging collusion and malafide initiation, pointing to overlap of individuals connected with the Financial Creditor and the Corporate Debtor and to a person who issued a loan recall notice also verifying the CD's reply. The material placed on record included the Settlement Agreement, board resolution and power of attorney authorizing representation, balance sheets acknowledging liability and evidence of dishonoured cheques. The requisite strict standard of proof under Section 65 requires clear material establishing that the petition was instituted fraudulently, maliciously or in collusion; allegations alone without supporting decisive evidence do not meet that threshold. The record shows admission of the second Section 7 petition was founded on proved debt and default arising after the Settlement Agreement and dishonour of payment, and the board resolution and other documents undermined the contention that representation by the same individual rendered the initiation collusive or malicious.Conclusion: The issue is answered against the Appellants; the applicants failed to satisfy the strict standard of proof required under Section 65 of the Insolvency and Bankruptcy Code, 2016. The Section 65 application is rejected and the appeal is dismissed (in favour of the Respondent).