Delhi High Court Bars Parallel Civil Suits in Insolvency, Upholds NCLT’s Wide Powers
Delhi High Court Bars Parallel Civil Suits in Insolvency, Upholds NCLT’s Wide Powers
Introduction
The Delhi High Court has held that the National Company Law Tribunal (NCLT) is fully empowered to adjudicate disputes involving fraud, forgery, existence of debt, and validity of assignment arising in insolvency proceedings. The Court underscored that civil courts cannot be invoked to stall or sidestep the IBC’s time-bound insolvency framework.
Factual Background
The dispute traces back to a loan agreement dated October 31, 2006, under which Roseland Buildtech availed a term loan of ₹80 crore. In 2020, a Business Transfer Agreement (BTA) was executed, purportedly assigning the debt to Vihaan 43 Realty.
Roseland claimed that it had fully discharged its liabilities through payments and a separate share purchase agreement in 2024. Despite this, Vihaan 43 initiated proceedings under Section 7 of the IBC, alleging default. Roseland approached the High Court seeking declarations that the debt stood discharged and that the BTA was fraudulent, forged, void ab initio, and non-binding.
Procedural Background
Vihaan 43’s Section 7 application was pending before the NCLT when Roseland instituted civil proceedings before the Delhi High Court. Roseland argued that allegations of fraud and forgery could only be adjudicated by a civil court. The matter came before Justice Purushaindra Kumar Kaurav, who examined the scope of NCLT’s jurisdiction under the IBC and the bar on civil court interference.
Issues
1. Whether allegations of fraud, forgery, and invalid assignment oust the NCLT’s jurisdiction under the IBC.
2. Whether civil courts can entertain parallel proceedings to challenge the initiation of CIRP.
The scope of NCLT’s powers under Sections 60(5), 65, and 75 of the IBC, read with Sections 63 and 231 barring civil court interference.
Contentions of the Parties
Plaintiff: Roseland contended that since the dispute involved serious allegations of fraud and forgery, only a civil court could conduct a detailed trial and grant declaratory reliefs. It argued that the NCLT’s role is limited and ill-suited for complex factual inquiries.
Defendant: Vihaan 43 submitted that the IBC confers exclusive and expansive jurisdiction on the NCLT to decide all questions connected with insolvency, including fraud and malicious initiation, and that civil suits seeking to derail CIRP are expressly barred.
Reasoning and Analysis
Justice Kaurav held that the IBC vests wide and exclusive jurisdiction in the NCLT, far broader than that of tribunals under other statutes. The Court emphasised that Sections 60(5), 65, and 75 collectively empower the NCLT to adjudicate questions of law and fact, probe fraud, forgery, false information, and malicious initiation, and verify the veracity of material placed by creditors.
The Court clarified that the NCLT Rules, 2016 provide robust fact-finding tools enabling evidence to be led and witnesses examined making the Tribunal institutionally equipped to handle complex disputes. It rejected the premise that fraud allegations necessitate civil court intervention, noting that Sections 63 and 231 of the IBC expressly bar such interference.
Decrying attempts to stall insolvency through parallel civil litigation, the Court cautioned against “luxury litigation” that burdens courts and delays bona fide matters. It stressed that allowing civil suits to proceed would undermine the IBC’s objectives of speed, certainty, and creditor protection.
Decision
The Delhi High Court held that the NCLT has exclusive jurisdiction to adjudicate disputes concerning fraud, forgery, existence of debt, and validity of assignment arising under the IBC, and that civil courts cannot be used to derail insolvency proceedings. Finding the suit to be an abuse aimed at stalling CIRP, the Court imposed costs of ₹2,00,000 on the plaintiff as a deterrent against superfluous litigation.
In this case the plaintiff was represented by Mr. Tanmaya Mehta and Mr. Palash Singhai, Advocates.
