NCLT can adjudicate fraud, debt disputes under IBC: Delhi High Court

The Delhi High Court recently held that the National Company Law Tribunal (NCLT) is fully empowered to adjudicate disputes relating to fraud, forgery, existence of debt and validity of assignment under the Insolvency and Bankruptcy Code, 2016 (IBC) [Roseland Buildtech v. Vihaan 43 Realty]..Justice Purushaindra Kumar Kaurav held that civil courts cannot be used to derail insolvency proceedings through parallel litigation.The Court further observed that the IBC vests wide jurisdiction in the NCLT under Sections 60(5), 65 and 75 and expressly bars civil court interference under Sections 63 and 231.“...first, NCLT‘s scope of adjudication under the IBC is significantly broader than that of the DRT under the SARFAESI Act; second, the IBC provides for specific provisions i.e., Sections 65 and 75 which deal with fraud, forgery, false information and malicious initiation; and third, the scope of interference under English mortgages is not in issue in the instant case,” the Court held..The dispute originated from a loan agreement dated October 31, 2006, where the plaintiff, Roseland Buildtech, availed a term loan of ₹80 crore. In 2020, a business transfer agreement (BTA) was executed, purportedly assigning this debt to Vihaan 43 Realty.Roseland Buildtech claimed that it had fully discharged its loan obligations through various payments and a separate share purchase agreement in 2024. Despite these claims, Vihaan 43 Realty filed a petition under Section 7 of the IBC before the NCLT, alleging a default in repayment. Aggrieved by this, Roseland Buildtech approached the High Court seeking a declaration that its debt was discharged and that the BTA was "fraudulent, forged, void ab initio and not binding".Roseland argued that since allegations of fraud and forgery were involved, only a civil court could adjudicate the dispute..The Court clarified that the NCLT possesses the exclusive jurisdiction and the necessary procedural tools to conduct deep factual inquiries."The provisions under the IBC and the NCLT Rules, 2016 cumulatively, leave no manner of doubt that the NCLT is institutionally equipped, both in terms of jurisdiction and procedure, to adjudicate complex disputes involving allegations of fraud, forgery, fabrication of documents, collusion and other serious factual controversies that may arise in connection with the initiation of CIRP.".The Court identified several key pillars of the NCLT's authority under the IBC:Fraud and malicious intent: Under Section 65, the NCLT has explicit power to adjudicate whether an insolvency process was initiated fraudulently or with malicious intent. The Court noted that "under Section 65 of the Code, the tribunal can delve into issues of fraud and collusion concerning the initiation of CIRP".Verification of evidence: Under Section 75, the tribunal is empowered to discover the veracity of statements. The Court held that the NCLT can "inquire into the circumstances within which a given information is supplied" to determine its truthfulness.Residuary jurisdiction: Section 60(5)(c) grants the NCLT wide powers to entertain any question of law or fact. The Court observed that this section "can act as bridge, giving the NCLT, the requisite powers to adjudicate upon...whether the information so furnished by a financial creditor is false".Fact-finding tools: The NCLT Rules, 2016 enable the tribunal to lead evidence and examine witnesses. The Court emphasised that these rules "evince a comprehensive scheme to enable the NCLT to undertake a full-fledged fact-finding exercise"..The Court lamented the "luxury litigation" that forced the delay of other bona fide cases. To establish deterrence, the Court imposed costs of ₹2,00,000 on the plaintiff, stating it has "become necessary to come down heavily on luxury litigation and use costs as a means to filter out superfluous litigation"..The plaintiff was represented by Advocates Tanmaya Mehta and Palash Singhai..Vihaan 43 was represented by Senior Advocate Darpan Wadhwa with Advocates Amek Vaid, Chanan Parwani, Shivam Shukla, Kaustubh Singh, Shubhi Agarwal and Rajat Sinha..Senior Advocate Pooja M Saigal and Advocates Shubham Jain, Ekta Kalra Sikri, Ajay Pal Singh Kullar and Prakhar Khanna appeared for various other defendants..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.