2026 (3) TMI 1592 - AT - IBC

Section 65 IBC requires specific proof of fraud or malice; a post-default NOC dispute cannot defeat insolvency.

A Section 65 IBC challenge requires specific pleadings and cogent material showing fraudulent or malicious initiation of insolvency proceedings. The ... Corporate insolvency resolution process - Maintainability of the application under Section 65 on the plea that the Section 7 proceedings were initiated fraudulently or with malicious intent because of non-issuance of no-objection certificates - Malicious initiation of insolvency proceedings. Malicious initiation of insolvency proceedings - Non-issuance of NOC - Section 65 application - HELD THAT: - The Appellate Tribunal held that the pleadings in the homebuyers' application did not contain allegations or material satisfying the ingredients of fraudulent or malicious initiation required for invoking Section 65. Their grievance was confined to non-issuance of NOC and the resulting prejudice in obtaining possession and conveyance, but that, by itself, did not establish that the insolvency process had been initiated for a purpose other than insolvency resolution. The Tribunal accepted the view that the issue of non-issuance of NOC arose subsequent to the occurrence of default and, therefore, could not invalidate or obstruct proceedings under Section 7. It further noted that the Adjudicating Authority had considered the application on merits and found absence of cogent material showing mala fides or fraud. [Paras 10, 11, 12] The rejection of the homebuyers' application under Section 65 was affirmed and the appeal against that order was dismissed. Final Conclusion: The appeal challenging rejection of the Section 65 application was dismissed, the Tribunal holding that non-issuance of NOC and the allegations made by the homebuyers did not establish fraudulent or malicious initiation of CIRP. The companion appeal against admission of the Section 7 application was disposed of in terms of the separate order passed in the connected appeal. Issues: Whether the application under Section 65 of the Insolvency and Bankruptcy Code, 2016 was maintainable on the plea that the Section 7 proceedings were initiated fraudulently or with malicious intent because of non-issuance of no-objection certificates.Analysis: The application under Section 65 contained no specific pleadings or cogent material to establish fraudulent or malicious initiation of the insolvency process. The grievance regarding non-issuance of no-objection certificates was held to be a post-default issue and did not displace the statutory consequences of an admitted default. The availability of possession during CIRP and the operation of Regulation 4E of the Insolvency Resolution Process for Corporate Persons Regulations, 2016 also showed that the allottee-related grievance did not furnish a ground to invoke Section 65.Conclusion: The challenge under Section 65 failed and the rejection of that application was sustained.Final Conclusion: The decision upheld the insolvency admission process and declined to interfere with the finding that the Section 65 plea was unsupported on merits.Ratio Decidendi: A Section 65 proceeding requires specific pleadings and cogent proof of fraudulent or malicious initiation, and a post-default contractual grievance does not by itself bar or invalidate a Section 7 insolvency petition.