The NCLAT, New Delhi Bench has opined that to prove any transaction to be collusive and fraudulent in nature, the degree of proof and evidence required should be of unimpeachable nature and beyond reasonable doubt. The Bench also noted that the scope and jurisdiction of the NCLT is   summary in nature. 

Brief Facts:

The present appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) against the order of the NCLT vide which the Section 7 application filed by Vistra ITCL (Respondent No.1) against the Corporate Debtor was admitted. 

Brief Background:

The Appellant along with Respondents No.2 and 3 undertook development and construction of residential and commercial projects in Pune. 

For this purpose, the Corporate Debtor was incorporated. 

The Corporate Debtor authorized the issuance of 5790 fully secured, redeemable, non-convertible debentures and Respondent No.1 was appointed as the Debenture Trustee. 

Thereafter, the Corporate Debtor started committing payment defaults besides not complying to obligations set out in the Debenture Trust Deed. 

Therefore, Section 7 application was filed by the Respondent No.1 another application was filed by the Appellant alleging that there were disputes between the directors of the Corporate Debtor and that the Respondent No.2 and Financial Creditor acted in collusion to defraud the Corporate Debtor.

Contentions of the Appellant: 

It was contended that the insolvency petition was filed by Respondent No.1 with fraudulent and malicious intent. It was urged that the NCLT did not even consider the Interim Application filed by the Appellant alleging fraud, misrepresentation and collusion. 

Contentions of the Respondent: 

It was argued that the NCLT did consider the interim application and dismissed the same. Thereafter, Section 7 application was admitted. 

Observations of the Tribunal: 

It was opined that once a debt becomes due or payable, in law and in fact, and there is incidence of non-payment of the said debt in full or part thereof, CIRP may be triggered by the Financial Creditor as long as the amount in default is above the threshold limit. 

In the present case, it was noted that the Corporate Debtor did not refute that it failed to redeem the non-convertible debentures. The Corporate Debtor himself admitted that arious macro-market and micro-market factors propelled by the economic downturn caused by the Covid pandemic led to decline in their sales, revenue and cash flow. 

Regarding the contentions that before deciding interim application, section 7 application was admitted, the Tribunal noted that the NCLT did hear the interim application at length. 

Further, it was ruled that to prove any transaction to be collusive and fraudulent in nature, the degree of proof and evidence required should be of unimpeachable nature and beyond reasonable doubt. The Bench also noted that the scope and jurisdiction of the NCLT is   summary in nature. 

The decision of the Tribunal:

Based on the aforementioned reasons, the NCLAT upheld the order of the NCLT and accordingly dismissed the Section 7 Application. 

Case Title: Sanjay Pandurang Kalate V.  Vistra ITCL (India) Ltd. & Ors.

Case No.: Company Appeal (AT)(Insolvency) No. 742 of 2023 

Coram: Hon’ble Justice Ashok Bhushan, Barun Mitra (Technical Member)

Advocates for Appellant: Advs. Mr. Abhinav Vashisht, Mr. Kushal Bansal, Ms. Nidhi Yadav, Ms. Sonal Sarda 

Advocates for Respondent: Advs. Mr. Arvind Nayyar, Mr. Mohd. Shahan Ulla, Mr. Akshay Joshi, Mr. Shubham Pandey, Mr. Dhaval Deshpande Mr. Amir Arsiwala

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