Third-party fraud allegation cannot be entertained under IBC: NCLAT
The National Company Law Appellate Tribunal (NCLAT) has dismissed a plea keeping a particular a plot of land out of the liquidation process of corporate debtors IVRCL saying that Insolvency and Bankruptcy Code (IBC) is not the right forum for redressal of fraud allegations against the corporate debtor.
The NCLAT has upheld the order of Hyderabad bench of NCLT, which had earlier dismissed a similar plea by the appellant, who entered into a contract with IVR Hotels and Resorts, an SPV created by IVRCL, to buy a plot of land.
The appellant, Vandana Parvez, had labeled fraud allegations on IVR Hotels and sought investigation into some financial transactions of IVRCL. The appellant also pleaded before the NCLT and later NCLAT to keep the said land out of the liquidation process.
The NCLAT dismissed the plea by arguing that the corporate debtor is in liquidation and that the liquidation proceedings are time bound proceedings. “In liquidation proceedings of the corporate debtor investigations with regard to the transactions relating to some other entity referred as SPV cannot be said to be relevant,” the NCLAT said in its order.
The appellate tribunal also said that if the Appellant has any grievances against the acts committed by the corporate debtor with regard to the SPV company, then she could always take appropriate legal recourse, but IBC is not the right forum for that.
The NCLAT further made the observation that proceedings under Insolvency and Bankruptcy Code is basically summary in nature and it is not possible to decide the claims of frauds by the appellant.
It also said that the proceedings of IBC cannot be so conducted, so as to make IBC unworkable.
Earlier, NCLT has observed that the applicant has no locus standi in the case to ask for investigation into IVRCL’s financial dealings with any other entity and that such allegations of frauds do not fall under the purview of IBC code.
