NCLAT Upholds Condonation of Delay and Dismisses Allegations of Fraudulent CIRP Initiation
- REEDLAW
- Jan 15, 2025
- 3 min read
The NCLAT upheld the condonation of delay and dismissed allegations of fraudulent initiation of the CIRP.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench headed by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal on Monday and held that an application for condonation of delay can be allowed if sufficient cause is demonstrated, and the initiation of CIRP under Section 7 of the IBC cannot be challenged on allegations of fraud without substantive evidence, especially when the creditor acts within the scope of its business and the claim has been admitted in the CIRP process.
The National Company Law Appellate Tribunal (NCLAT) considered I.A. No. 7176 of 2024, an application for condonation of a 14-day delay in filing an appeal. The Appellant argued that the delay occurred as their authorized representative was not present when the impugned order was passed, and they became aware of the order only upon receiving a letter dated August 13, 2024, which reached them on August 27, 2024. Steps were then promptly taken, and the appeal was filed on September 26, 2024. The Respondent opposed the condonation, asserting that no sufficient cause was demonstrated in the application. Upon hearing both parties, the NCLAT found the Appellant's explanation satisfactory, particularly considering the timeline of events. Accordingly, the delay was condoned, and the application was allowed.
The NCLAT also addressed the Appellant's appeal against the rejection of I.A. No. 218/JPR/2019 by the Adjudicating Authority. The Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor had been initiated on April 26, 2019, following a Section 7 application by M/s JFC Finance (India) Ltd., a financial creditor. The Appellant's claim of ₹5,25,93,585 was admitted during the CIRP. Subsequently, the Appellant filed an application under Sections 49, 66, and 69 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking to recall the admission order, alleging fraudulent initiation of CIRP. However, the Adjudicating Authority found no merit in the claim and dismissed the application.
The Appellant argued that the CIRP was initiated based on only two defaults of EMI payments and contended that the Corporate Debtor’s balance sheet demonstrated sufficient revenue. The NCLAT, after examining the records, observed that the financial statements of the Corporate Debtor did not substantiate the Appellant’s claims of fraud. Additionally, the Tribunal noted that the Financial Creditor, being a Non-Banking Financial Company (NBFC), had acted in the normal course of business, and the Appellant's participation in the CIRP, including admission of their claim, further weakened their allegations.
The NCLAT concurred with the Adjudicating Authority’s findings, holding that the allegations of fraudulent initiation lacked evidence. The mere claim of sufficient revenue or the existence of only two defaults did not invalidate the initiation of the CIRP under Section 7 of the IBC. It was also emphasized that the Appellant failed to establish any grounds for recalling the admission order. Consequently, the NCLAT dismissed the appeal, affirming the order of the Adjudicating Authority.
Mr. Kapil Sharma, Advocate represented the Appellant.
Mr. Kanishk Khetan, and Mr. Akash Srivastava, Advocates appeared for Respondent No.1.
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Ms. Varsha Banerjee, Advocate appeared for Respondent No. 2.
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