Related Parties Misused Insolvency To Wipe Out Public Shareholding, NCLAT Sets Aside Techindia CIRP

The National Company Law Appellate Tribunal (NCLAT) at Delhi has set aside insolvency proceedings against Techindia Nirman Limited, holding that the Corporate Insolvency Resolution Process was fraudulently and collusively initiated by a related-party financial creditor to wipe out public shareholding.

It imposed a cost of Rs 25 lakh on the financial creditor for abusing the insolvency framework.

A coram comprising Judicial Member Justice Mohd. Faiz Alam Khan and Technical Members Arun Baroka and Indevar Pandey held,

“We also conclude that FC and CD being related parties have collusively filed the Section 7 application and got CD admitted into CIR Proceedings and this is case of a fraudulent initiation of CIRP proceedings.”

The tribunal further said, “We thus conclude that the initiation of CIRP against CD has been done collusively with FC and as discussed herein earlier, it is a fraudulent initiation of CIRP and should be dealt with a heavy hand as per Section 65 of the Code.”

The appeal was filed by Balkishan Shrikisan Baldawa, a public shareholder in both Agri-Tech (India) Limited, the financial creditor, and Techindia Nirman Limited, the corporate debtor.

He had challenged an order of the NCLT Mumbai dated April 25, 2025 which dismissed his application seeking recall of the insolvency admission order and imposition of penalty for fraudulent initiation. Baldawa alleged that after public shareholders rejected promoter-backed resolutions and related-party transactions at the annual general meetings held in September 2024, the financial creditor filed an insolvency petition against its own related party company.

The financial creditor objected to the appeal on maintainability, arguing that a shareholder had no legal standing to challenge the admission of insolvency proceedings. Rejecting this objection, the Appellate Tribunal held that the law permits an appeal by any person aggrieved, especially where allegations of fraud are raised.

“The Code doesn't bar the Appellant to file an appeal. Section 61 of the Code clearly states that notwithstanding anything to the contrary contained under the Companies Act, 2013, “any person aggrieved to the NCLAT. The shareholders are the Appellant in this case and they are aggrieved by the order of the AA and interpreting the law in it widest terms and not in a restricted manner, we come to conclusion that the appellants have the locus to file an appeal and their appeal is maintainable” the tribunal said.

It also noted that once insolvency is admitted, the proceedings are in rem, meaning they affect the company as a whole and are not confined to disputes between individual parties.

On merits, the tribunal found several indicators of collusion.

It observed, “We observe that the CIRP initiation order dated 02.01.2025 does not reflect that the aspect of related parties (Directors and Shareholders) was considered by the bench.”

It also noted, “We also note that the same management proposes a settlement on behalf of the Corporate Debtor and that it is rejected by the FC which is also the same management. This indicates pre-determined course of action to ensure insolvency against the Corporate Debtor succeeds.”

The tribunal added, “All this indicates collusiveness between the FC and CD.”

The Appellate Tribunal further criticised the Adjudicating Authority for declining to recall the admission order despite recording doubts.

“Even though the Adjudicating Authority records in the Impugned Order dated 25.04.2025 that there may be substance in the contention that the Petition was filed to wipe out public shareholders, yet it refused to recall the CIRP order dated 02.01.2025 on the pretext that it cannot be assumed that promoters of Corporate Debtor will succeed.” the tribunal said.

It also held that using a creditor-led insolvency route in this manner defeated shareholder safeguards, observing, “Allowing such use of Section 7 of the Code, will render Section 10 (as well as the protections therein) otiose.”

Setting aside the insolvency proceedings, the tribunal held that the Corporate Insolvency Resolution Process had been initiated fraudulently. It accordingly quashed the proceedings initiated against Techindia Nirman Limited and imposed a cost of Rs 25 lakh on the financial creditor. 

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