Fraudulent Invocation of CIRP permits termination and imposition of penal and compensatory costs, including RP fees, when justified.

Where surrounding facts and conduct demonstrated invocation of insolvency proceedings for purposes other than genuine resolution, the article explains that Section 65 permits termination of CIRP and imposition of penal liability when invocation is fraudulent or malicious; the conclusion affirms termination and penalty against the petitioner. It further states that, where the CoC is non-functioning, assets are absent and the RP funds CIRP, equity may justify directing the petitioner to bear penal and compensatory costs including resolution professional fees and CIRP expenses, departing from ordinary cost-bearing norms when the factual matrix warrants it.

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Issues: (i) Whether the CIRP initiated by the Appellant was fraudulently and/or with malicious intent attracting liability under Section 65 of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the Adjudicating Authority was justified in directing the Appellant to bear penalty and the Resolution Professional's fees and CIRP expenses.

Issue (i): Whether the CIRP initiated by the Appellant was fraudulently and/or with malicious intent attracting liability under Section 65 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The Tribunal examined (a) the Appellant's omission to file claims after admission of CIRP despite being the petitioner whose Section 9 petition led to admission; (b) timing of CIRP admission vis-a -vis pending tax recoveries and the effect of moratorium; (c) familial and prior directorship links between the Appellant and the corporate debtor; and (d) surrounding facts indicating use of CIRP to frustrate tax recovery. The Tribunal also noted that Section 65 may be invoked at any stage where facts and circumstances show fraudulent or malicious invocation of insolvency process.

Conclusion: The Tribunal affirmed the Adjudicating Authority's finding that the CIRP was initiated for purposes other than genuine insolvency resolution and that Section 65 of the Insolvency and Bankruptcy Code, 2016 applied; this conclusion is against the Appellant.

Issue (ii): Whether the Adjudicating Authority was justified in directing the Appellant to bear penalty and the Resolution Professional's fees and CIRP expenses.

Analysis: The Tribunal considered that the CoC comprised only tax authorities, the CIRP had stagnated, assets were absent and the RP had funded the process. Given the established abuse of CIRP proceedings and the non-functioning CoC, the Tribunal held that equitably the Appellant could be directed to bear penal and compensatory costs and RP fees. The Tribunal accepted that ordinarily such costs are met from corporate assets or by the CoC, but found the present factual matrix justified departure from the ordinary rule.

Conclusion: The Tribunal upheld the Adjudicating Authority's directions imposing a penalty and directing the Appellant to bear RP fees and CIRP expenses; this conclusion is against the Appellant.

Final Conclusion: The Tribunal found no infirmity in the impugned order and dismissed the appeal, thereby upholding the termination of CIRP, the imposition of penalty under Section 65 of the Insolvency and Bankruptcy Code, 2016, and the direction to the Appellant to bear RP fees and CIRP expenses.

Ratio Decidendi: Where surrounding facts and conduct demonstrate that insolvency proceedings were invoked fraudulently or with malicious intent for purposes other than resolution of insolvency, the Adjudicating Authority may, under Section 65 of the Insolvency and Bankruptcy Code, 2016, terminate CIRP and impose penal and compensatory costs including directing the petitioner to bear RP fees and CIRP expenses, even if such measures depart from ordinary cost-bearing norms, provided the factual matrix justifies such relief.

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