The New Delhi Bench of the National Company Law Appellate Tribunal on 17 March, held that initiating the Corporate Insolvency Resolution Process of a corporate debtor to evade tax liabilities amounts to fraud under Section 65 of the Insolvency and Bankruptcy Code, 2016.
A Bench comprising Judicial Member Justice Ashok Bhushan and Technical Member Barun Mitra observed:
“Thus, what seems to underpin the reason for triggering CIRP proceedings was clearly to circumvent the tax liability. It is clearly evident from the timing of CIRP admission that the moratorium provision was being put to use by the Appellant to shield themselves from their tax liabilities and not as a genuine resolution tool.”
Gopal Trading Company, the Operational Creditor, filed an appeal against the Ahmedabad Bench of the National Company Law Tribunal's order dated 15 December 2025, which terminated the insolvency process of Matrushri Fibres Pvt. Ltd., the Corporate Debtor.
Gopal Trading filed a petition claiming an operational debt of Rs. 3.80 crore. The NCLT admitted the petition on 25 September 2023 and commenced the Corporate Insolvency Resolution Process.
The Committee of Creditors included only two members, the Assistant Commissioner of GST and the Assistant Commissioner of State Tax, holding 95.01 per cent and 4.99 per cent voting shares respectively.
The Resolution Professional faced constant non-cooperation from the suspended management, which refused to provide statutory records. Gopal Trading also delayed depositing CIRP costs, eventually paying Rs. 2 lakh only after contempt proceedings.
With the insolvency process stalled, the Resolution Professional filed two applications. One sought termination of the process and discharge of the Resolution Professional. The other sought a declaration that Gopal Trading filed the petition fraudulently and requested a penalty of Rs. 10 lakh.
The NCLT, in a single order, terminated the CIRP, imposed a Rs. 10 lakh penalty on Gopal Trading, and directed it to pay Rs. 6 lakh as CIRP costs in addition to the earlier deposit.
Gopal Trading argued that it was a small company facing financial losses and that the fees and CIRP costs imposed by the NCLT caused grave and irreparable harm. It also claimed that it did not cause the stagnation, which resulted entirely from the non-cooperation of the suspended management. The company further submitted that the NCLT could not hold the petition fraudulent after admitting the CIRP.
The NCLAT observed that Section 65 empowers authorities to prevent misuse of insolvency proceedings at any stage. The Bench said, “there is no ring-fencing in terms of timing as to when the Adjudicating Authority can initiate Section 65 proceedings.”
The Bench further noted that after the petition was admitted and the moratorium began, Gopal Trading “surprisingly slipped into a hibernation mode” and did not file any claim even after the Resolution Professional made a public announcement.
The Bench stated, “The Adjudicating Authority had rightly concluded that the intent behind filing the Section 9 application was not genuine in view of the fact that the Appellant who had initiated the Section 9 application, for inexplicable reasons, absented themselves from further participation in the CIRP proceedings including abstention from the filing of claims.”
The NCLAT also noted that Gopal Trading was closely related to the director of Matrushri Fibres, as they were real brothers, and that the appellant had previously served as a director. The Bench held that this relationship, combined with Gopal Trading's past role, reinforced the inference of collusion.
Accordingly, the Bench dismissed the appeal and upheld the NCLT's order.
For Appellants: Advocates Karan Valecha and A Dwivedi