NCLAT Refuses To Halt Carnival Techno Park CIRP, Says Fraud Plea Cannot Reopen Finding Of Default

The National Company Law Appellate Tribunal (NCLAT) has refused to halt insolvency proceedings against Carnival Techno Park Pvt. Ltd., holding that Canara Bank cannot challenge the existence of debt and default through a plea alleging fraudulent initiation of the process.

A Bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra said the bank failed to show any fraud in the initiation of the process.

Emphasising the scope of the provision, the tribunal observed: “Law is well settled that admission order Section 7 is not a reason for not considering Section 65 application on its merits. Section 65 application is a power given to the adjudicating authority to terminate a proceeding initiated under Section 7 or Section 9 provided it is satisfied that insolvency resolution proceedings have been fraudulently or with malicious intent has been initiated.”

The dispute traces back to a Rs. 75 crore loan sanctioned in January 2017 by Reliance Capital Ltd. to the company. Following a court-approved restructuring, the lending business moved to Reliance Commercial Finance Ltd. (RCFL), which later claimed a default of over Rs 201 crore and initiated insolvency proceedings in 2023. The Mumbai bench admitted the case in 2024 after recording that “the Corporate Debtor is in default of a debt due and payable.”

Canara Bank, holding about 28 percent voting share in the committee of creditors, later argued that the process itself was flawed. It relied on an addendum allowing assignment of the loan and claimed that the debt had been transferred in September 2020 to Asian Business Connections Pvt. Ltd., leaving no liability in favour of RCFL.

It also questioned how a Rs 75 crore loan had led to a claim exceeding Rs 201 crore.

The appellate tribunal was not persuaded. It noted that the same plea on assignment had already been raised by the corporate debtor at the stage of admission and rejected. The bench observed that Canara Bank was effectively seeking “re-adjudication of the issue of debt and default,” which cannot be done through a Section 65 application.

The tribunal also found no material to support the alleged assignment. It pointed out that the conditions required under the addendum were not shown to have been triggered and that the financial creditor was not a party to the transfer. The company's financial statements continued to reflect the lender as a creditor for several years.

The bank's own conduct was also noted. It had filed its claim, participated in creditor meetings, and engaged with the process for months before invoking Section 65. Having done so, it could not later challenge the very basis of the proceedings.

Finding no evidence of fraud or malicious intent, the tribunal upheld the refusal to terminate the insolvency process.

In a connected appeal, Authum Investment & Infrastructure Ltd., which stepped into the shoes of RCFL, succeeded in challenging the direction for a forensic audit. The tribunal held that once the plea of fraud had been rejected, there was no basis to order such an audit, especially when it had not been sought.

With this, Canara Bank's appeal stands dismissed, while the audit direction has been set aside. The insolvency proceedings will continue.