NCLT Ahmedabad Dismisses Roselabs Voluntary Insolvency Plea, Imposes ₹10 Lakh Costs for Malicious Filing

The Ahmedabad Bench of the National Company Law Tribunal (NCLT) on 11 May dismissed a voluntary insolvency petition filed by Roselabs Limited under Section 10 of the Insolvency and Bankruptcy Code, 2016.

Judicial Member Shammi Khan and Technical Member Sanjeev Sharma held that the proceedings were initiated with malicious intent to stall recovery and regulatory actions rather than for genuine insolvency resolution, and imposed costs of Rs 10 lakh, directing that the amount be deposited with the Prime Minister's National Relief Fund. The Bench observed:

“The insolvency framework cannot be invoked for purposes inconsistent with the object of genuine insolvency resolution as a shield by errant promoters or corporate entities against consequences arising from recovery proceedings, regulatory actions and pending criminal proceedings.”

Roselabs Limited, a listed company, approached the Tribunal in 2024 seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against itself, citing defaults exceeding Rs 13.70 crore, including dues to Bank of Baroda, Reliance Capital (now Authum Investment & Infrastructure Ltd.), and penalties imposed by the Securities and Exchange Board of India (SEBI).

Its account had been classified as a Non-Performing Asset in 2014. Bank of Baroda obtained a Recovery Certificate in 2018 from the Debt Recovery Tribunal (DRT), while SEBI imposed penalties in 2019 followed by attachment proceedings. The Income Tax Department also reported outstanding dues exceeding Rs 62 crore across multiple assessment years.

Roselabs contended that it was under financial distress and entitled to invoke Section 10 of the IBC, arguing that pending recovery, regulatory, or criminal proceedings could not bar initiation of CIRP. It further relied on Section 238, submitting that the Code overrides inconsistent laws and that the moratorium under Section 14 would consolidate claims.

Bank of Baroda opposed the petition, alleging mala fide intent to frustrate recovery proceedings before the DRT and to misuse the moratorium under the IBC to obstruct lawful enforcement. It also invoked Section 65 seeking dismissal with penalty for fraudulent initiation.

SEBI stated that Roselabs understated liabilities at Rs 2.53 crore, while actual recoverable dues had risen to nearly Rs 4.97 crore with interest. The Income Tax Department reported substantial unpaid tax dues, describing them as difficult to recover due to lack of assets.

The Tribunal rejected the plea, noting that Roselabs had no business operations, employees, assets, or cash flow for several years and was not a going concern. It observed that the petition was filed only after recovery and enforcement actions had substantially progressed, indicating mala fide intent. It observed:

“The legislative object of Section 10 is to enable a genuine Corporate Debtor undergoing financial stress to voluntarily seek insolvency resolution in a bona fide manner. However, the provisions of Section 10 cannot be construed as conferring an unfettered and absolute right upon a Corporate Debtor irrespective of surrounding circumstances, conduct and intent behind filing of the petition.”

The Bench further noted the absence of any material showing operational viability, contracts, revenue generation, restructuring proposals, or investor interest, which could indicate a bona fide attempt at revival. It held that Roselabs' repeated reliance on the moratorium reflected an attempt to frustrate statutory recovery proceedings. It stated:

“This Tribunal cannot permit the insolvency jurisdiction to be converted into a mechanism for frustrating statutory recovery proceedings lawfully initiated by competent authorities after years of litigation.”

The Tribunal also held that Section 238 could not be invoked at the pre-admission stage to obstruct lawful proceedings and that incomplete disclosure of liabilities further weakened the petition. It invoked Section 65 of the IBC and concluded that Roselabs had initiated the proceedings in a fraudulent and malicious manner.

Accordingly, the NCLT dismissed the application and imposed costs of Rs 10 lakh, to be paid within 30 days, failing which the amount would be recovered as arrears of land revenue under the Gujarat Land Revenue Code, 1879.