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TMI Blog2025 (3) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the Adjudicating Authority allowed the IA No.3602 of 2022 filed under Section 65 of the IBC and has also recalled the order dated 17.05.2022 admitting Section 7 application filed by the financial creditor. Vide impugned order, Show Cause Notice was issued on the financial creditors- M/s. Acute Daily Media Pvt. Ltd. & Ors. as to why penalty as stipulated under Section 65(1) should not be imposed. Company Appeal (AT) (Ins.) No.1608 of 2024 has been filed by Rockman Advertising and Marketing (India) Ltd., a shareholder of M/s. Sharp Eye Advertising Pvt. Ltd.- the corporate debtor. Company Appeal (AT) (Ins.) No.1606 of 2024 has been filed by two Appellants who had filed the application for intervention in IA No.3602 of 2022. Prayers made in both the appeals are to the limited extent which we shall notice hereinafter. It shall be sufficient to refer the pleadings and facts in Company Appeal (AT) (Insolvency) No.1608 of 2024 for deciding both the appeals. 2. Brief facts of the case giving rise to these appeals are as follows:- 2.1. An application under Section 7 was filed by Respondent Nos.1 to 6 claiming to be financial creditors of corporate debtor- M/s. Sharp Eye Advertising Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter. 2.3. An intervention petition being IA No.36 of 2022 was filed by Rakesh Arora and Ors. in IA No.3602 of 2022. Adjudicating Authority heard the parties on IA No. 3602 of 2022 as well as intervention petition and by order dated 10.09.2024, allowed the application and recalled the order dated 17.05.2022 held that the CIRP was initiated fraudulently. It is useful to notice paragraphs 16, 17 and 18 of the impugned order : - " 16. To sum up, we are of the considered view that the aforementioned insolvency proceedings in C.P.(IB)-50(PB)/2021 resulting in our order dated 17.05.2022 were initiated fraudulently and with malicious intent for a purpose other than the resolution of the insolvency of the Corporate Debtor. 17. As a sequel, we recall the order dated 17.05.2022 initiating CIRP of the Corporate Debtor, obtained fraudulently from the Tribunal in C.P.(IB)- 50(PB)/2021. The RP is directed to hand over the control and custody of the corporate debtor and its assets to the erstwhile management. The Financial creditors/Applicants in the C.P. (IB)-50(PB)/2021 are directed to pay the CIRP costs incurred so far within 7 days of this order. 18. Regarding action under Section 65( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oters of Corporate Debtor) (ii) Impose a penalty of Rs. One Crore on each of the Respondent Nos. 1 to 6 (alleged Financial Creditors) and Respondent Nos. 8 to 15 (promoters of Corporate Debtor) under Section 65, IBC; (iii) Award exemplary and compensatory costs in favour of the Appellant; and/or (iv) Pass any such other/ further orders, as this Hon'ble Appellate Tribunal may deem fit and proper in the facts and circumstances of the instant case. " 2.6. Notices were issued in these appeals and both the parties were heard. 2.7. It is relevant to notice that against order dated 12.06.2024 passed by the Adjudicating Authority in IA No.3602 of 2022, Company Appeal (AT) (Insolvency) No. 1480 of 2024 has been filed by financial creditors Respondent Nos.1 to 6 to this appeal which appeal was heard and dismissed by judgment and order of this Tribunal on 16.01.2025. 3. Counsel for the Appellants challenging the impugned order has contended that the Adjudicating Authority after having found that Section 7 application was initiated fraudulently, Adjudicating Authority ought to have imposed the penalty on the financial creditors as well as on the promoters of the corporate debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answering respondent conspired and colluded with Respondent Nos.1 to 6 in initiation of the CIRP. 5. We have considered the submissions of the counsel for the parties and perused the record. 6. The submission which has been advanced by the counsel for the parties is with regard to interpretation of Section 65 of the IBC. Section 65 of the IBC provides as follows:- "65. Fraudulent or malicious initiation of proceedings. - (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees. [(3) If any person initiates the pre-packaged insolvency resolution process- (a) fraudulently or with malicious intent for any purpose other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promoters can also be covered under the statuary scheme, the prayer of the appellants to impose penalty on the promoters cannot be accepted. Section 65 is a penal provision. Hon'ble Supreme Court in AIR 1954 SC 496- "Tolaram Relumal and Anr. vs. State of Bombay" laid down:- "........if two possible and reasonable constructions can be put upon a penal provision, the Court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty." 9. It is not competent to the court to stretch the meaning of expression used by the legislature in order to carry out the intention of legislature. Even the literal construction of Section 65 does not contemplates that penalty can be imposed on any person other than one who has fraudulently or maliciously initiated the proceedings. It is well settled that penal statute are to be strictly construed. We may refer to the judgment of the Hon'ble Supreme Court in "(2013) 8 SCC 71- Aparna A. Shah vs. Sheth Developers Pvt. Ltd. & Anr." where in reference to Section 138 of the NIA Act, the Hon'ble Supreme Court has occasion to consider the construction of penal provision. In paragraphs 15 & 16, follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven a show cause notice and reasonable opportunity to represent his or her or its case before the Bench or any officer authorised in this behalf. (2) In case the Bench decides to issue show cause notice to any person or company or a party to the proceedings, as the case may be, under sub-rule (1), the Registrar shall issue a show cause notice giving not less than fifteen days asking for submission of the explanation in writing within the period stipulated in the notice. (3) The Bench shall, on receipt of the explanation, and after oral hearing if granted, proceed to decide the matter of imposition of penalty on the facts and circumstances of the case." 12. Counsel for the Appellant is right in his submission that the expression "Act" used in Rule 59 has to take colour from the definition as given in Rule 2. Rule 2(1) defines the "Act" in following manner : - "2. Definitions.- (1) "Act" means the Companies Act, 2013 (18 of 2013); 13. When we read Rule 59 read with definition under Rule 2(1) of the NCLT Rules, 2016, it is clear that Rule 59 is procedure for imposition of penalty under the Companies Act, 2013. Under the Companies Act 2013, there are various provisions like ..... X X X X Extracts X X X X X X X X Extracts X X X X
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