The NCLAT has directed the NCLT to consider a third-party intervention alleging collusion between financial creditor and corporate debtor before finalising insolvency order. Decision underscores procedural fairness in IBC process.
NCLAT Directs NCLT to Consider Alleged Creditor-Debtor Collusion
The National Company Law Appellate Tribunal (NCLAT) has directed the NCLT to hear and decide a third-party intervention plea alleging collusion between a financial creditor and the corporate debtor. The appeal arose from an insolvency proceeding where a third party, not originally part of the case, claimed that the resolution process was tainted by a pre-arranged scheme to defraud operational creditors.
The NCLAT emphasized the importance of procedural integrity under the Insolvency and Bankruptcy Code, 2016. It noted that if allegations of collusive behavior are not examined, the very foundation of fair and equitable debt resolution could be undermined. Citing Paramjeet Singh Arora v. Bajaj Steel Industries Ltd. (2020), the tribunal held that the NCLT has jurisdiction to entertain such intervention applications when they raise substantial questions of law or fact.
This decision enhances access to justice for affected stakeholders outside the primary parties to an IBC proceeding. Practitioners should anticipate greater scrutiny of settlement terms and may need to proactively disclose related-party dealings. Courts may increasingly permit intervention where systemic abuse of the IBC process is credibly alleged.
Citations
- Insolvency and Bankruptcy Code, 2016
- Paramjeet Singh Arora v. Bajaj Steel Industries Ltd. (2020)
