Section 65 IBC requires cogent proof of fraudulent initiation and cannot reopen decided debt-and-default findings in CIRP.

Section 65 of the Insolvency and Bankruptcy Code, 2016 applies only where cogent material shows fraudulent, malicious, or collusive initiation of CIRP; it cannot be used to reopen findings on debt and default already decided in Section 7 proceedings. The NCLAT noted that the debtor's assignment-based objection had already been considered at admission, the debt was reflected in the corporate debtor's books, and the record did not establish fraud or malice. Refusal to terminate the CIRP was therefore upheld. A separate direction requiring a forensic audit through Canara Bank's empanelled auditor at Canara Bank's cost was set aside as unsupported by the relief sought and beyond the scope of the application.

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Issues: (i) Whether the ingredients of Section 65 of the Insolvency and Bankruptcy Code, 2016 were made out so as to justify termination of the CIRP and dismissal of the company petition on the ground of fraudulent or malicious initiation. (ii) Whether the direction requiring the Resolution Professional to conduct a forensic audit through the Canara Bank empanelled auditor at the cost of Canara Bank was sustainable.

Issue (i): Whether the ingredients of Section 65 of the Insolvency and Bankruptcy Code, 2016 were made out so as to justify termination of the CIRP and dismissal of the company petition on the ground of fraudulent or malicious initiation.

Analysis: The plea that the debt had been assigned and that no creditor-debtor relationship existed was already raised by the corporate debtor in the Section 7 proceedings and was considered before admission of the insolvency petition. The adjudicating authority had found debt and default, noted the corporate debtor's audited financial statements showing the applicant as financial creditor, and held that the alleged assignment did not establish a basis for denying admission. The application under Section 65 was, in substance, an to reagitate the same issue of debt and default and to recall the admission order. The material on record did not establish that initiation of CIRP was fraudulent, malicious, or in collusion, especially when the financial creditor was not a party to the alleged assignment and the debt had been reflected in the corporate debtor's books for several years.

Conclusion: The conditions for invoking Section 65 were not satisfied, and refusal to terminate the CIRP was upheld against the appellant.

Issue (ii): Whether the direction requiring the Resolution Professional to conduct a forensic audit through the Canara Bank empanelled auditor at the cost of Canara Bank was sustainable.

Analysis: Once the application under Section 65 was declined, no further order of the nature directed in the impugned paragraph was warranted in that application. The forensic audit direction was also unsupported by the prayers in the application and travelled beyond the relief sought.

Conclusion: The direction for a forensic audit was set aside.

Final Conclusion: The challenge to the refusal to invoke Section 65 failed, but the direction for forensic audit did not survive and was quashed, resulting in one appeal being dismissed and the connected appeal being allowed.

Ratio Decidendi: Section 65 can be invoked only on cogent material showing fraudulent or malicious initiation of insolvency proceedings, and it cannot be used to reopen or indirectly review findings on debt and default already adjudicated in Section 7 proceedings.

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