1. Application under Section 65 of IBC alleging fraudulent and malicious initiation of insolvency proceedings. (Para 1 , 2 )
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2026 Supreme(Online)(NCLT) 3022
NATIONAL COMPANY LAW TRIBUNAL
Dr. Vijay Vohra – Appellant
Versus
Himalaya Food International Ltd. – Respondent
IA(I.B.C.)/900(CH)2025
Advocates:
For the Petitioner:Vishav Bharti Gupta
For the Respondent:APS MADAAN
For the Petitioner:Vishav Bharti Gupta
For the Respondent:APS MADAAN
Section 65 of the IBC requires clear material to establish fraudulent or malicious initiation of insolvency proceedings; mere allegations of collusion or internal disputes are insufficient.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 65(1) - NCLT Rules, 2016 - Rule 11 - Allegation of fraudulent and malicious initiation of CIRP - Applicant, a director and shareholder of Corporate Debtor, sought dismissal of Section 7 petition and initiation of proceedings under Section 65 against Financial Creditor for fraudulent initiation. (Paras 1, 5)
(B) Related party transactions under the Code are not per se prohibited if debt is genuine, disbursed, and due - Mere existence of common management or related party status does not infer fraudulent initiation of CIRP. (Para 8)
(C) Satisfaction of charge only signifies release of security interest, not discharge of underlying debt unless supported by evidence of full payment - Suppression of charge satisfaction does not automatically amount to fraud. (Para 10)
(D) Section 65 is a penal provision requiring clear material showing insolvency proceedings initiated fraudulently or maliciously for purposes other than insolvency resolution - Mere allegations of collusion or internal disputes are insufficient. (Para 12)
Facts of the case:
The Applicant, a director and shareholder of A.P.J. Laboratories Ltd., filed an application under Section 65 of the IBC alleging that the Section 7 petition filed by Himalaya Food International Ltd. was initiated fraudulently and with malicious intent. The Applicant alleged fraudulent creation of credit facilities after the Corporate Debtor became NPA, related party transactions, and suppression of charge satisfaction. The Respondent contended that debt and default were established from bank transfers and acknowledgment in financial statements.
Findings of Court:
The Adjudicating Authority found that the Applicant failed to make out a case under Section 65. The transfer of funds was undisputed, the debt was acknowledged in financial statements, and the agreement remained unchallenged. The allegations were based on suspicion and internal disputes without sufficient material to establish fraudulent or malicious initiation.
Issues: - Whether the Financial Creditor's Section 7 petition was initiated fraudulently or maliciously under Section 65 of the Code.
Ratio Decidendi: Section 65 requires clear material establishing fraudulent or malicious initiation. Mere allegations of collusion, related party transactions, or internal disputes do not satisfy the threshold. The burden lies heavily on the applicant to establish fraud with specificity and supporting evidence.
Result: Application rejected and disposed of.
Legal Category Hierarchy
Table of Contents
2. Applicant alleges fraud, collusion, related party transactions; respondent contends debt and default are established and undisputed. (Para 2 , 3 )
3. Application under Section 65 rejected; no fraudulent or malicious initiation established. (Para 15 )
4. What standard must be met to establish fraudulent or malicious initiation of CIRP under Section 65 of the IBC?
The applicant must provide clear material with specificity and supporting evidence; mere allegations of collusion, related party transactions, or internal disputes do not satisfy the threshold. (Para 8 , 11 , 12 , 13 , 14 )
5. What evidentiary value does acknowledgment of debt in financial statements have in insolvency proceedings?
Consistent reflection of debt as long-term borrowings in balance sheets constitutes a clear acknowledgment of liability and carries evidentiary value, especially when undisputed. (Para 6 )
6. Does satisfaction or removal of a charge automatically discharge the underlying debt under the IBC?
No. Satisfaction of charge only releases the security interest and does not automatically discharge the underlying debt unless supported by evidence of full payment or novation. (Para 10 )
7. Can a High Court order describing conduct as mischievous and directing removal of a charge be used to establish fraud under Section 65?
No. Such an order does not adjudicate extinguishment of the debt nor declare the underlying financial transaction fraudulent; it pertains to separate compliance issues. (Para 9 )
8. Are related party transactions per se prohibited or invalid under the IBC?
No. Related party transactions are not per se prohibited; they are valid if the debt is genuine, disbursed, and remains due and payable. (Para 8 )
ORDER
1. The present Application bearing No. IA(I.B.C.)/900(CH)2025 has been filed by Dr. Vijay Vohra, who is a Director and Shareholder of A.P.J Laboratories Ltd., (hereinafter referred to as “Applicant”), under Section 65 (1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”) read with Rule 11 of NCLT Rules, 2016 seeking appropriate directions against the Respondent for fraudulent and malicious initiation of insolvency proceedings.
FACTS AND SUBMISSIONS OF THE APPLICANT
2. The submissions made by the Applicant in its Application are summarized hereunder:
(i) The present application has been filed under Section 65 of the Insolvency and Bankruptcy Code, 2016 by Mr. Vijay Vohra, a promoter shareholder and director of A.P.J. Laboratories Ltd. The applicant individually holds 7,34,000 equity shares of Rs. 10 each, constituting 18.37% shareholding in the Corporate Debtor. His wife, Mrs. Neelam Vohra, holds 2,08,666 equity shares of Rs. 10 each, constituting 5.22% shareholding. Further, his son, Dr. Vishal Vohra, holds 10,000 equity shares of Rs. 10 each, constituting 0.25% shareholding, while his daughter, Dr. Punita Vohra, holds 74,000 equity shares of Rs. 10 each, constituting 1.85% shareholding in A.P.J. Laboratories Ltd. The applicant is also stated to be serving as a director of the Corporate Debtor since 11.07.2005.
(ii) The grievance of the applicant arises from the filing of a petition under Section 7 of the IBC by Himalaya Food International Ltd. against A.P.J. Laboratories Ltd. in CP (IB) No. 161/Chd/HP/2023. Applicant alleged that the said insolvency petition has been initiated fraudulently and with malicious intent, for purposes other than for resolution of Insolvency, thereby attracting Section 65 of the Code.
(iii) It is alleged that the Financial Creditor fraudulently created and raised certain alleged credit facilities after the Corporate Debtor had already become a Non-Performing Asset (NPA), purportedly in violation of applicable SEBI guidelines. The applicant further submits that the financial distress of the Corporate Debtor was caused by mismanagement attributable to the petitioner, resulting in bank dues of approximately Rs. 48 crores.
(iv) Reference has also been made to proceedings before the Hon’ble High Court of Himachal Pradesh in CWP No. 7719/2021, wherein contempt notices were allegedly issued to the directors on failure to obey their commitment to pay the amount due to the bank. The High Court found the act of the petitioner as mischievous and as such directed to remove their charge on the assets of A.P.J Laboratories Ltd and the charges were duly removed. Copy of order annexed as Annexure-3 to the Application.
(v) The applicant further alleges suppression of material facts by the Financial Creditor, particularly regarding the circumstances under which earlier charges on the assets of the Corporate Debtor were removed. It is contended that this shows that the whole transaction was fraudulent. It is settled position of law that Section 65 application can be a ground for the dismissal of the petition even if the debt and default is established. In this regard reference is invited to the judgement of Hon'ble NCLAT, New Delhi in the matter of Wave Megacity Centre Pvt. Ltd. vs. Rakesh Taneja and Ors., wherein it was held that:
“In event conditions under Section 65 are fulfilled Section 10 Application can be rejected, even if debt and default is proved. Thus, Section 65 has to be read as enabling provision to reject an application even on proving of debt and default Section 10 Application is not to be obligatorily admitted. The present is a case where it has been held that Application under Section 10 has been maliciously and fraudulently initiated for the purpose other than for the resolution of insolvency. The Hon’ble Supreme Court in (2010) 14 SCC 38 - Ramjas Foundation and Anr. vs. Union of India and Ors. has held that a person is not entitled to any relief, if he has not come to
