NCLAT Delhi Upholds Dismissal Of Plea To Initiate Proceedings Under Section 340 Of CrPC Against Allottees For Allegedly Filing False Affidavits

Proceedings under Section 340 of CrPC can be initiated when a person intentionally gives a false statement or fabricated false evidence at any stage of the judicial proceedings.

The Appellant alleged that the Section 7 petition was not filed by 100 'valid' allottees as required under Section 7(1) of IBC and the affidavits filed by Allottees were false and fabricated. The NCLT held that it cannot decide on the issue of forged affidavits and declined to initiate proceedings under Section 340 of CrPC.

Background Facts

M/s Mist Direct Sales Pvt. Ltd. (“Appellant”) entered into a Collaboration Agreement with M/s. Anand Infoedge Pvt. Ltd. & Ors. (“Corporate Debtor”), to develop a real estate project. However, the Project could not be completed within stipulated time.

On 11.10.2021, 143 homebuyers/allottees (“Financial Creditors/Allottees”) of the Project, filed a petition under Section 7 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor. The Section 7 petition was filed through Respondent No. 1, 2 and 3 as the Authorised Representative of the Allottees. The Appellant was also impleaded as a respondent.

The Appellant objected to the maintainability of Section 7 petition on the ground that the petition has not been filed by 100 valid allottees. The NCLT on 21.10.2022 held the petition to be maintainable, as it fulfils the threshold limit prescribed under Section 7 of IBC. The order dated 21.10.2022 was upheld by the NCLAT and the Supreme Court.

The Appellant filed an interim application before NCLT praying for dismissal of Section 7 petition and initiation of proceeding under Section 340 r/w Section 195(1)(b) of CrPC against the Allottees. The Appellant alleged that the Allottees filed false, fabricated and forged documents and affidavits before the NCLT.

On 05.01.2024, the NCLT dismissed the interim application while holding that NCLT cannot decide on the alleged issue of forged affidavits. It was further held that even of the affidavits are fake for arguments sake, the same would not affect the outcome of Section 7 petition where merely debt and default have to be proved.

The Appellant filed an appeal before the NCLAT against order dated 05.01.2024.

NCLAT Verdict

The Bench observed that the Appellant contended that affidavits filed by six Allottees (Applicants) were forged, as they are resident of Australia and it is not shown that they came to Uttar Pradesh to swear the affidavit. The Notary has given a certificate that these affidavits were not entered into the Register.

It was further observed that the Section 7 petition which was jointly filed by 143 allottees, was signed by only three persons as Authorised Representative of Allottees. These three Authorised Representatives (Respondent No. 1, 2 and 3) of homebuyers filed an affidavit which was drafted on the instructions of Financial Creditors (Allottees), stating themselves to be the Allottees' representative.

Further, the six applicants who had allegedly sworn false affidavit have also filed affidavit before the NCLT on 24.08.2023.

The Bench opined that that since the applicants have themselves stated on affidavit that they authorized Respondent No. 1, 2 and 3 to represent them in proceedings, there was no reason upon which NCLT could have initiated proceedings under Section 340 of CrPC.

“When six Applicants against whom allegations were made that they have not sworn the affidavit, have filed a fresh affidavit dated 24.08.2023 reiterating that they have authorised Respondent Nos.1, 2 and 3 to represent them in the proceeding, we do not find any reason for taking any the proceeding any further by the Adjudicating Authority. The Adjudicating Authority has rightly taken the view that present is not a case where any investigation under Section 340 CrPC needs to be initiated.”

Reliance was placed on the Supreme Court judgment in Amarsang Nathaji v. Hardik Harshadbhai Patel & Ors., Civil Appeal No. 11120 of 2016, wherein it was held that that Court has to form an opinion that it is expedient in the interests of justice to initiate an inquiry into the offences of false evidence and offences against public justice and more specifically referred in Section 340(1) CrPC.

The Bench while upholding the NCLT order dated 05.01.2024, has held that the NCLT has rightly not initiated proceeding under Section 340 of CrPC against the Applicants. It was noted that the NCLT has correctly opined that the intention of the Appellant is mala fide and objections are only raised to delay the adjudication of Section 7 petition.

The appeal has been dismissed.

Case title: M/s Mist Direct Sales Pvt. Ltd. v Mr. Nitin Batra & Ors.

Case No.: Company Appeal (AT) (Insolvency) No. 96 of 2024

Counsel for Appellants: Ms. Sonal Alagh, Mr. Harsh Mishra, Mr. Vijay Agarwal, Mr. N.P.S Chawla, Mr. Sujoy Datta, Mr. Surekh Kant Baxy, Ms. Mahima Shekhawat, Mr. Jaspeet Singh, Advocates.

Counsel for Respondent: Mr. Sahil Sethi, Mr. Samriddh Bindal, Mr. Vikash Kumar, Advocates.

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