NCLAT found that the case was filed collusively, not with the goal of resolving the insolvency, but for other reasons. As a result, admitting the Application to prevent the Corporate Debtor from being dragged into the Corporate Insolvency Resolution Process with mala fide is not required.
In the instant case titled Hytone Merchants Pvt. Ltd. v. Satabadi Investment Consultants Pvt LtdThe issue that was raised before the NCLAT was:
Whether the Adjudicating Authority, relying on Section 65 of the code, has the power to reject a Section 7 application because it was filed collusively with malicious or mala fide intent and not for the purpose of Resolution or Insolvency, even if the application complied with all the section 7 requirements?
The rule of lifting the corporate veil will apply in this case since there is reason to believe that Hytone Merchants colluded with Satabadi Investment to commence CIRP, not for the purpose of the resolution, but to escape its liability as a corporate debtor. The NCLAT also analysed the interplay between Section 29A and Section 65 of the code and noted that although Section 65 of the code provides penalties for fraudulent or malicious initiation of the insolvency proceeding, “it does not mean that Section 65 will not be applicable to prevent such fraudulent or malicious initiation of proceedings. When a statute makes a provision for punishment for any wrong, it also contains deemed power to prevent it.” Recording these reasons, NCLAT decided to dismiss the appeal.
Hence, NCLAT determined that the Adjudicating Authority's decision to deny the application was correct. When compared to Section 9(5) of the IBC, which employs the word shall,' it is reasonable to claim that the Adjudicating Authority has been given some discretion under Section 7 of the IBC. This difference, however, is insufficient to support such a conclusion.