NCLT Chandigarh on Insolvency Ethics: Distinguishing Collusion from Fraudulent Intent
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The NCLT Chandigarh has ruled that high evidentiary standards are required to prove fraudulent intent in insolvency cases, cautioning against using vague allegations of collusion to stall legitimate corporate restructuring.
The National Company Law Tribunal (NCLT) Chandigarh, in a significant ruling on June 18, 2026, has underscored the necessity of high evidentiary standards when alleging fraudulent intent in insolvency proceedings. The tribunal clarified that "collusion" cannot be used as a vague or unsubstantiated claim to stall legitimate corporate restructuring under the Insolvency and Bankruptcy Code (IBC).
The case centered on Section 65 of the IBC, which provides for penalties against parties who initiate Corporate Insolvency Resolution Processes (CIRP) with fraudulent or malicious intent. The NCLT observed that while the IBC aims to protect creditor rights, it must not become a tool for litigants to obstruct the resolution process through baseless accusations of bad faith. The ruling highlights that "fraud" requires a higher degree of proof than mere "collusion," as the former implies a deliberate attempt to deceive or cause wrongful loss.
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