Fraud Claims On Insolvency Admission Must Be Raised In Appeal, Not In Later NCLT Pleas: NCLT Kolkata

The National Company Law Tribunal (NCLT) at Kolkata has recently held that allegations of fraud or collusion in the admission of insolvency proceedings cannot be raised months later through a fresh application and must be pursued through the appellate route provided under the law.

A bench of Judicial Member Bidisha Banerjee and Technical Member Siddharth Mishra said former promoters cannot use Section 65 of the Insolvency Code to challenge an admission order they never appealed.

“Disputes relating to admission of CIRP on grounds of fraud or collusion must be raised in a Section 61 appeal, not through a collateral proceeding under Section 65 filed months later. The Applicants did not file any appeal; instead, they seek to indirectly invalidate the admission order by invoking Section 65 belatedly. Such use of Section 65 is legally impermissible,” the tribunal said.

The dispute centers on Arcuttipore Tea Co. Ltd, which was admitted to insolvency on December 15, 2023, after its lender, Eastern Housing Udyog Finance Ltd, moved the tribunal.

The former promoters and board members, despite knowing about the admission, did not move the tribunal then. It was only in July 2024, nearly eight months later, that they approached the tribunal again, asking for the insolvency to be recalled and for action against the lender.

They claimed the proceedings had been triggered through fraud and collusion.

The tribunal said the Insolvency Code leaves little room for such delayed challenges. Once an admission order is passed, the only way to question it is by filing an appeal before the NCLT within the prescribed time. Claims of mala fide conduct, suppression of facts, or collusion, the bench noted, are meant to be examined in that appellate process, not through a separate application filed long after the process has moved ahead.

The bench also explained that Section 65 is meant to discourage genuinely fraudulent or malicious filings and not to reopen decisions that have already crossed the appeal stage.

Concluding that the application was legally impermissible and could not be entertained at that stage of the insolvency proceedings, the tribunal dismissed the plea.