Shareholder Has Locus to Challenge Collusive CIRP: NCLAT Holds “Any Person Aggrieved” u/s 61 Must Be Read Widely, Distinguishes Park Energy Case [Read Order]
Since the appellant had challenged the initiation of CIRP on grounds of fraud, collusion, and misuse of Section 7 to bypass shareholder approval under Section 10, the Tribunal held that he clearly fell within the ambit of an aggrieved person
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has delivered a detailed and consequential judgment holding that shareholders can be “aggrieved persons” under Section 61 of the Insolvency and Bankruptcy Code (IBC) when alleging collusive and fraudulent initiation of the corporate insolvency resolution process (CIRP).
The ruling not only quashes the CIRP against Techindia Nirman Ltd. but also imposes a penalty of ₹25 lakh on Agri-Tech (India) Ltd., the financial creditor, under Section 65 of the Code.
The dispute arose after Agri-Tech (India) Ltd.,(the financial creditor) a related party of Techindia Nirman Ltd., (the corporate debtor) filed a Section 7 petition in October 2024 claiming a financial debt of ₹65 crore. This followed shareholder rejection of promoter‑backed resolutions in the annual general meetings of both companies in September 2024.
The appellant, Balkishan Shrikisan Baldawa, a shareholder in both entities, alleged that the petition was collusive, designed to bypass shareholder approval required under Section 10 of the Code, and aimed at wiping out public shareholding.
The NCLT, Mumbai, admitted the petition on 2 January 2025, but later dismissed Baldawa’s application under Sections 60(5) and 65 seeking recall of the order. The appeal before NCLAT challenged this dismissal.
The appellant, argued that the Section 7 petition filed in October 2024 was a collusive device. He pointed to AGMs held in September 2024 where public shareholders rejected resolutions relating to promoter appointments and related party transactions.
Immediately thereafter, Agri‑Tech filed the petition claiming ₹65 crore at 12% interest under a loan agreement dated 11.05.2021. The appellant contended that audited financials for FY 2021–22 to FY 2023–24 recorded nil interest and classified the advance as operational, with statutory auditors negating the existence of any loan agreement.
He alleged the agreement was backdated, unstamped, and used to bypass shareholder approval required under Section 10. He further argued that the CIRP order of 02.01.2025 suppressed related party status and AGM rejections, and that the filing was not disclosed to stock exchanges under SEBI LODR Regulation 30.
Agri‑Tech defended the petition, asserting the existence of a valid loan agreement with 12% interest, duly executed with board approval under Section 186 of the Companies Act and supported by Form MGT‑14 filings.
It argued that disbursement was evidenced by banking records and acknowledged in the audited financial statements of both FC and CD. Relying on Swiss Ribbons and Orator Marketing, it contended that interest‑free loans also qualify as financial debt under Section 5(8).
The respondent dismissed fraud allegations as hollow, noting that shareholders have no locus under IBC, citing Park Energy, Peninsula Holdings, and other precedents. It argued that insolvency is creditor‑driven, shareholder consent is irrelevant under Section 7, and that the appellant’s own annexed financials proved the debt.
The Tribunal examined whether shareholders have locus. While respondents relied on Park Energy to argue that shareholders cannot be aggrieved persons, the appellant cited Independent Sugar Corporation, where the Supreme Court held “any person aggrieved” must be read widely since CIRP is a proceeding in rem.
NCLAT distinguished Park Energy, noting it did not consider the Supreme Court’s broader interpretation. It held that Section 61 explicitly allows appeals by “any person aggrieved,” and that shareholders alleging fraud are directly affected. The Tribunal concluded that Baldawa had locus and the appeal was maintainable.
On merits, NCLAT found the Section 7 petition collusive. It noted that the loan agreement did not align with audited financials, which recorded nil interest and classified the advance as operational. Statutory auditors negated existence of any written agreement.
The petition was filed immediately after shareholders rejected promoter resolutions, and was not disclosed under SEBI LODR Regulation 30. The Tribunal observed that Section 7 was used to circumvent Section 10, which requires shareholder approval for voluntary CIRP.
It criticized omission of valuable assets from liquidation valuation and the dilution of public shareholding. Citing precedents such as Santoshi Finlease and Apnaghar Builders, it held that fraudulent initiation under Section 65 must be dealt with a heavy hand.
The approved resolution plan, valued at ₹25 crore, would reduce public shareholding from 82.44% to 5%, while providing only ₹18 crore to the related‑party financial creditor against its claimed debt of ₹86 crore. The Tribunal held that this pattern reinforced the inference that CIRP was initiated for purposes other than resolution.
The three-membered bench of Mohd. Faiz Alam Khan (Judicial Member), Arun Baroka (Technical Member) and Indevar Pandey (Technical Member) concluded that the CIRP was fraudulently initiated by related parties to wipe out public shareholding.
It held that shareholders are aggrieved persons with locus under Section 61, set aside the CIRP against Techindia Nirman Ltd., imposed a penalty of ₹25 lakh on Agri‑Tech under Section 65, and referred the matter to IBBI and MCA for further examination of the RP’s conduct and company affairs.
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