Tribunal does not have jurisdiction to adjudicate issues of fraud, forgery, or fabrication of documents

NCLT Dismisses Insolvency Petition Over Alleged Fraudulent Transactions. Tribunal Declares Lack of Jurisdiction to Adjudicate Matters Involving Fraudulent and Forged Documents

In a significant ruling by the Mumbai Bench of the National Company Law Tribunal (NCLT), the insolvency petition filed by M/s. Progfin Private Limited against M/s. Ganesh Benzoplast Limited was dismissed on the grounds of alleged fraudulent transactions. The Tribunal, presided over by Sh. Sushil Mahadeorao Kochey and Sh. Charanjeet Singh Gulati, emphasized its lack of jurisdiction to adjudicate complex issues involving fraud and forgery, which necessitate detailed inspection and investigation typically suited for civil or criminal courts.

M/s. Progfin Private Limited, a non-banking financial company, had initiated proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking the commencement of Corporate Insolvency Resolution Process (CIRP) against Ganesh Benzoplast Limited, the corporate guarantor for its subsidiary, GBL Chemical Ltd. The financial creditor claimed a default in repayment of outstanding dues amounting to over Rs. 14 crore, alleging that the corporate debtor had failed to repay the loan disbursed into a disputed bank account.

However, Ganesh Benzoplast Limited contested the validity of the financial transaction, arguing that the documents underpinning the debt were forged and fabricated. The company highlighted pending civil and criminal proceedings that challenge the authenticity of the documents and the bank account involved. They argued that the transactions were conducted without proper authorization, implicating the former CEO and Director, Mr. Ramakant Pilani, in fraudulent activities.

The Tribunal, after reviewing the submissions, underscored its limited role in summary proceedings under the IBC framework, stating that disputes involving allegations of fraud and forgery require thorough examination and cannot be resolved within its jurisdiction. The decision aligns with precedents set by higher courts, reinforcing the stance that such complex issues are beyond the purview of summary jurisdiction and should be addressed in a regular suit.

This ruling reflects the importance of distinguishing between matters suitable for summary proceedings and those demanding detailed legal scrutiny, protecting entities from potential misuse of the insolvency process in cases involving fraudulent transactions.

Bottom Line:

Tribunal does not have jurisdiction to adjudicate issues of fraud, forgery, or fabrication of documents under its summary jurisdiction. Such disputes require detailed inspection and investigation, which are appropriate for civil or criminal proceedings.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 7, Indian Penal Code Sections 34, 406, 419, 420, 465, 468

M/s. Progfin Private Limited v. M/s. Ganesh Benzoplast Limited, (NCLT)(Mumbai Bench) : Law Finder Doc id # 2772228