NCLT slaps a fine on financial creditor for fraud

NCLT slaps a fine on financial creditor for fraud

The penalty imposed under the Insolvency and Bankruptcy Code is Rs.50 lakhs

The Kolkata Bench of the National Company Law Tribunal (NCLT) has disposed of insolvency proceedings against Infinity Infotech Parks Ltd, the corporate debtor (CD), by ruling that the application was admitted based on fraudulent documents.

The bench comprising Rohit Kapoor (judicial member) and Harish Chander Suri (technical member) held Electroparts (India) Pvt Ltd, the financial creditor (FC), guilty of practising and committing fraud.

The tribunal stated, "The entire transaction as narrated in the Section 7 application, is plainly imaginary, concocted, and fraudulent. The CD does not appear to have had any genuine liability towards the alleged FC. The entire documentation has evidently been prepared by the alleged FC in collusion with Videocon Group entities. The documents disclosed in the supplementary affidavit of the alleged FC, far from helping its case, further demonstrate the fraudulent nature of the documents."

"In the circumstances, the alleged FC is guilty of practising and committing fraud on this tribunal. Therefore, as per Section 65 of the Insolvency and Bankruptcy Code (IBC), a penalty of Rs.50 lakh is imposed on the alleged FC and the Corporate Insolvency Resolution Process (CIRP) stands vitiated and terminated due to the fraud committed. In any event, even apart from the aspect of fraud, the Section 7 petition was not maintainable due to the prohibition in Section 10A of the Code," the bench added.

The interlocutory application was filed by Infinity Infotech, a 50 percent shareholder of Videocon Infinity Infrastructure Pvt Ltd. Infinity Infotech submitted that the FC obtained an order of the CIRP from the adjudicating authority (AO) by way of practising blatant fraud. The AO passed the order of CIRP to the corporate debtor in September last.

Infinity Infotech also submitted that an order of admission was obtained based on fraudulent and manufactured documents for a fictitious and imaginary transaction in collusion with unknown third parties. They claimed to represent Videocon without any authority and fraudulently admitted liability though there was none.

The tribunal noted that Electroparts and Videocon had obtained orders of CIRP fraudulently and in complicity with each other by filing a collusive petition and, later settled the matter by paying Rs.30 lakhs.

The bench ordered, "There is no question of allowing any 'settlement' to take place based on the alleged document. It is evidently a sham and a mala fide ruse to avoid adverse scrutiny by this tribunal on the wholly fraudulent action of the alleged financial creditor in instituting the section 7 petition and initiation of CIRP based thereon by practising fraud on the tribunal. The story of the settlement also clearly appears to be an afterthought."

The case dates to 2020 when Electroparts claimed a default of Rs.300 million by Videocon.

The NCLT admitted the insolvency petition. However, the bench observed that both parties had given a somewhat shady picture, which did not bring out the truth in the matter and needed further investigation.

The tribunal, thus, decided to refer the case to the Ministry of Corporate Affairs for further action. It stated, "It would be proper for a full investigation to be conducted into the transaction set up by the alleged financial creditor in the Section 7 petition."