NCLAT held that the majority shareholder, as an investor, lacked locus standi to challenge the admission of CIRP under Section 61 of the IBC.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench led by Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey reviewed an appeal and observed that a majority shareholder, as an investor, lacks locus standi to challenge the admission of a Corporate Insolvency Resolution Process (CIRP) under Section 61 of the Insolvency and Bankruptcy Code, as they are not considered an "aggrieved person" in such proceedings unless their specific rights are directly impacted by the resolution process. The appeal was dismissed as the dispute involved a debt between the operational creditor and the corporate debtor, not between shareholders.
In a recent NCLAT ruling, Clarion Health Food LLP appealed the NCLT’s decision to admit a Corporate Insolvency Resolution Process (CIRP) against Goli Vada Pav Pvt. Ltd. (CD), initiated under Section 9 of the Insolvency and Bankruptcy Code (IBC) by Vista Processed Foods Pvt. Ltd. (Operational Creditor). Clarion, holding a 63.64% stake in the CD, was not a party to the proceedings and was unaware of the petition until after the CIRP admission. The appellant argued that as a majority shareholder, it was an "aggrieved person" under Section 61 of the Code, claiming that had it known of the petition earlier, it could have settled the debt to protect its investment. It also alleged collusion between the CD and the Operational Creditor, asserting that the CD failed to disclose the petition during other legal proceedings, constituting procedural fraud.
The respondents, however, contended that the appellant lacked locus standi to challenge the CIRP order, citing previous case law that shareholders cannot be considered “aggrieved persons” under Section 61. They also emphasized that the Operational Creditor had followed due process, issuing a valid demand notice under Section 8, and that the debt had been undisputed, leaving no grounds for contesting the CIRP’s initiation. The Tribunal considered the appellant’s claims of collusion and procedural lapses but ultimately found them unsupported by the original pleadings, dismissing them as irrelevant under settled legal principles.
The NCLAT ultimately held that the appellant, as a shareholder, lacked standing to appeal the CIRP admission. It referred to previous judgments, including Nirej Vadakkedathu Paul v. Sunstar Hotels & Estates Pvt. Ltd., which reaffirmed that shareholders do not have locus to challenge CIRP orders. The Tribunal also noted that disputes under Section 5(6) of the IBC must involve the corporate debtor and the operational creditor, not between shareholders. Consequently, the appeal was dismissed, reinforcing the principle that shareholders are not “aggrieved persons” in CIRP matters unless their specific rights are directly impacted by the resolution process.
Mr. Rakesh Kumar, Mr. Aditya Shukla, Ms. Preeti Kashyap, Mr. Ankit Sharma, Mr. Varun Pandit, Mr. Yash Tewari and Mr. Yash Dhawan, Advocates represented the Appellant.
Ms. Swarupama Chaturvedi, Sr. Advocate, Ms. Saumya Kapoor, Mr. Aayush Shivam and Ms. Kavita Chaturvedi, Advocates appeared for Respondent No. 1/RP.
Mr. Jehan Mehta, Mr. Akshay and Ms. Dyuti Ghai, Advocates appeared for Respondent No. 2.
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