Subsequent Liquidation Order Cannot Bar Plea Alleging Fraudulent CIRP: NCLT Allahabad

The Allahabad bench of the National Company Law Tribunal (NCLT) has held that a subsequent liquidation order cannot bar adjudication of allegations that an insolvency process was initiated fraudulently or with malicious intent.

The bench of Judicial Member Praveen Gupta and Technical Member Ashish Verma observed, “...the allegations under Section 65 were raised during the subsistence of the CIRP itself; they formed the basis of proceedings initiated by the erstwhile RP; and they remained unresolved at the time when liquidation came to be ordered. In such circumstances, the subsequent liquidation of the Corporate Debtor cannot operate as a bar to the adjudication of the present application.”

The Corporate Debtor, Diversification Agriculture Producer Company Ltd., was admitted into CIRP on October 6, 2023, on a Section 9 petition filed by Global New Energies and Technologies (GNET), an operational creditor.

The admission was ex parte as the Corporate Debtor neither filed a reply nor appeared before the tribunal. Liquidation was ordered on June 10, 2025 after the CIRP failed to conclude within the prescribed timeline.

The suspended management later alleged that GNET had fraudulently and maliciously initiated the insolvency process. It said the Corporate Debtor was part of a UPDASP project involving Japanese stakeholders to promote agricultural technology in Uttar Pradesh.

It alleged that GNET received Rs. 27,56,947 from the Japanese company towards project expenses and appropriated the amount without remitting it to the Corporate Debtor. It also alleged that GNET supplied low-quality Chinese products as Japanese products and relied on duplicate or fabricated invoices to inflate its claim.

The suspended management further alleged that GNET had suppressed pre-existing disputes and other material facts before the tribunal. The sole member of the Stakeholders' Consultation Committee supported the application and submitted that the CoC had formed a prima facie opinion that the CIRP warranted examination under Section 65.

The bench held that the application remained maintainable after liquidation. It noted that the allegations had arisen during the CIRP, been considered by the CoC and formed the basis of proceedings initiated by the erstwhile Resolution Professional.

“Significantly, Section 65(1) employs the expression 'insolvency resolution process or liquidation proceedings', thereby indicating that the jurisdiction of the Adjudicating Authority under the said provision is not confined to a particular stage of the insolvency process,” the tribunal observed.

On merits, the bench found that the relationship between GNET and the Corporate Debtor was not a conventional buyer-seller arrangement. The Corporate Debtor was part of a larger UPDASP project involving Japanese entities and acted as a distributor and facilitator, while GNET facilitated sales, logistics, maintenance, and payments.

The tribunal found that the supplies were linked to onward sales to farmers and financing arrangements with an NBFC. It also noted that these arrangements had not been disclosed when the Section 9 proceedings were initiated.

The Corporate Debtor's reply to GNET's demand notice had raised disputes over the quality, quantity and pricing of the products, along with its own claims against GNET. The tribunal observed that these disputes were within GNET's knowledge before the insolvency proceedings began.

The bench also relied on invoices and bills of entry indicating that the equipment had been imported from China despite being represented as Japanese. The 5th CoC meeting minutes recorded duplicate invoices inflating GNET's claim by Rs. 13.25 lakh and noted that the supplied machines remained unsaleable because of quality and pricing issues.

The bench found suppression of material facts, pre-existing disputes, reliance on disputed and allegedly fabricated invoices, inflation of the claim to cross the statutory threshold and non-disclosure of the actual business arrangement.

“The cumulative effect of these circumstances leaves little room for doubt that the insolvency process was not invoked as a genuine remedy for resolution of insolvency but as a means to pressurize the Corporate Debtor in relation to make recovery of amount claimed out of a seriously disputed commercial relationship by resorting to initiation of CIRP fraudulently as well as with malicious intent,” the tribunal observed.

The tribunal held that the CIRP had been commenced fraudulently and with malicious intent for a purpose other than resolution of insolvency. It found that the ingredients of Section 65 stood established.

The tribunal recalled and set aside both the CIRP admission and liquidation orders. It directed the Liquidator to hand over management to the suspended management and ordered GNET to pay the CIRP costs, fees and Liquidator's expenses within one week.

The tribunal also imposed a Rs. 5 lakh penalty on GNET, directing that the amount be deposited in the Prime Minister Relief Fund within one month. Its prayer for disciplinary action against the erstwhile IRP was rejected for lack of material showing misconduct or violation of the Code.