Section 65 allegations cannot be raised for the first time in appeal without foundational material.

Axis Trustee Services Limited, acting as debenture trustee, filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) against Talent Unlimited Online Services Private Limited (“Corporate Debtor”).

The Adjudicating Authority admitted the petition and initiated CIRP by order dated 12 June 2026, after finding the existence of financial debt and default based on the financing documents, bank records, notices, acknowledgments of liability and NeSL record of default

Affle 3i Limited, a shareholder and holder of compulsory convertible preference shares in the Corporate Debtor, had previously asserted contractual inspection rights and obtained orders from the Delhi High Court and SIAC concerning access to the Corporate Debtor’s records

It alleged that CIRP had been initiated fraudulently and maliciously to frustrate enforcement of the arbitral award and to misuse the moratorium.

Affle also claimed that it had proposed pre-CIRP funding and, after commencement of CIRP, offered to acquire the entire financial debt without a haircut

The appeal under Section 61 of the IBC challenged the admission order.

The Appellant also sought condonation of a 13-day delay, which the NCLAT allowed as the delay fell within the additional 15-day period permissible under Section 61(2)

The Respondents contended that Affle lacked locus, that debt and default had been established, and that the plea of fraudulent initiation under Section 65 had not been raised before the Adjudicating Authority

Whether the appeal filed by Affle was maintainable under Section 61 of the IBC and whether the delay in filing the appeal deserved to be condoned?

Whether the Adjudicating Authority correctly admitted the Section 7 application upon finding the existence of financial debt and default?

Whether the CIRP had been initiated fraudulently or maliciously for a purpose other than resolution of insolvency, thereby attracting Section 65 of the IBC?

Whether the plea of fraudulent or malicious initiation could be raised for the first time before the Appellate Tribunal when no foundational material had been placed before the Adjudicating Authority?

The Tribunal applied Section 61(1) and (2) of the IBC, under which an aggrieved person may appeal against an order of the Adjudicating Authority and delay may be condoned within the statutory additional period

Under Section 7, once the Adjudicating Authority is satisfied that a financial debt exists and a default has occurred, admission of the application is ordinarily mandatory, subject to the application being complete.

This principle was drawn from Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, and Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17

Section 65(1) empowers the Adjudicating Authority to impose a penalty where insolvency proceedings are initiated fraudulently or with malicious intent for a purpose other than resolution of insolvency

Relying on Beacon Trusteeship Ltd. v. Earthcon Infracon Pvt. Ltd., Civil Appeal No. 7641 of 2019, the Tribunal held that an allegation of collusion or fraudulent initiation must ordinarily be raised and examined before the Adjudicating Authority in the first instance

The Tribunal further held that fraudulent initiation under Section 65 requires specific foundational pleadings and cogent, unimpeachable material establishing deliberate wrongful intent.

The NCLAT found that the Adjudicating Authority had examined the relevant financing documents, disbursement records, outstanding liability, default notices, the Corporate Debtor’s acknowledgment of liability and the NeSL record of default.

These materials established both financial debt and default, satisfying the Section 7 threshold under Innoventive Industries and Swiss Ribbons

Although Affle alleged that the CIRP was engineered to defeat its inspection and arbitral rights, the Corporate Debtor’s conduct and Affle’s commercial disputes did not, without more, establish a dishonest design to defraud creditors or to initiate CIRP for an improper purpose

The Tribunal also noted that the Corporate Debtor had contested the debt and default before the Adjudicating Authority, but no cogent material demonstrating fraudulent intent had been placed before it

Since the Section 65 allegations were not raised and adjudicated at the first instance, the Appellate Tribunal declined to make a factual determination on fraud for the first time in appeal

Nevertheless, it preserved Affle’s right to pursue an appropriately supported Section 65 application before the Adjudicating Authority.

It upheld the admission of the Corporate Debtor into CIRP because the existence of financial debt and default had been established and no sufficient basis existed to interfere with the Section 7 order

The Tribunal rejected, at the appellate stage, the allegation that CIRP had been fraudulently or maliciously initiated, without deciding the merits of such allegation.

However, it granted Affle liberty to file a proper application under Section 65 before the Adjudicating Authority, which was directed to consider the allegations and the question of Affle’s locus in accordance with law

The appeal was disposed of without interference with the impugned order, with parties left to bear their own costs