NCLAT held that mere affirmation of CIRP admission did not preclude the Adjudicating Authority from examining the Intervention Application's merits.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra & Arun Baroka (Technical Member) was hearing an appeal and observed that the Appellant had sufficient legal standing (locus standi) to file the Intervention Application. The Appellate Authority noted that despite the earlier affirmation of the CIRP admission by the NCLAT, the Appellant's allegations of fraudulent initiation of CIRP warranted closer scrutiny. The Bench observed that mere affirmation of CIRP admission did not preclude the Adjudicating Authority from examining the Intervention Application's merits. Allegations of fraudulent initiation of CIRP, particularly concerning round-tripping of funds, necessitated a thorough investigation by the Adjudicating Authority.
The Appeal challenged the rejection of an Intervention Application filed by a home buyer against an Order passed by the National Company Law Tribunal (NCLT) in a matter related to a Corporate Insolvency Resolution Process (CIRP). The home-buyer, claiming to be affected by the CIRP of a sister company of the Corporate Debtor, filed an application seeking various reliefs, including dismissal of the CIRP and imposition of penalties for alleged fraudulent initiation of CIRP.
The NCLT rejected the Intervention Application citing a lack of locus standi for the home-buyer to oppose the admission of CIRP, which had been affirmed by the National Company Law Appellate Tribunal (NCLAT). However, the Appellant argued that the initiation of CIRP was based on fraudulent transactions, alleging round-tripping of funds between related parties on the same day.
The crux of the decision lies in two key legal determinations:
Locus Standi of the Appellant: The appellate authority held that the Appellant had sufficient legal standing (locus standi) to file the Intervention Application. Despite the earlier affirmation of the CIRP admission by the NCLAT, the Appellant's allegations of fraudulent initiation of CIRP warranted closer scrutiny.
Examination of Fraudulent Initiation: The appellate authority emphasized that the mere affirmation of CIRP admission did not preclude the Adjudicating Authority from examining the Intervention Application's merits. Allegations of fraudulent initiation of CIRP, particularly concerning round-tripping of funds, necessitated a thorough investigation by the Adjudicating Authority.
The Appellate Authority found that the rejection of the Intervention Application was premature and erroneous. It held that the Appellant had locus standi to file the application and that the allegations of fraudulent initiation of CIRP required deeper examination.
The decision underscores the importance of considering the merits of allegations of fraudulent initiation of insolvency proceedings, irrespective of prior affirmations by appellate bodies, and the need for a diligent examination of such claims by the Adjudicating Authority.
The Appellate Tribunal set aside the NCLT's order and directed reconsideration of the Intervention Application. It clarified that no opinion was expressed on the merits of the allegations, leaving it to the NCLT to decide in accordance with the law.
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