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Shareholder/Investor of Corporate Debtor cannot claim to be aggrieved person when CIRP already started

Cause Title : Nirej Vadakkedathu Paul vs Sunstar Hotels and Estates Private Limited, Company Appeal (AT) (CH) (Ins.) No. 142 of 2022, National Company Law Appellate Tribunal Chennai Bench

Date of Judgment/Order : 27.02.2023

Corum : Justice M. Venugopal, Member (Judicial) & Naresh Salecha, Member (Technical)

Citied: 

  1. P. Naveen Chakravarthy vs. Punjab National Bank, (W.P No. 27780 of 2019)
  2. Innoventive Industries Limited Vs. ICICI Bank, ((2018) 1 SCC 407)
  3. Periasamy Palani Gounder Vs. Radhakrishnan Dharmarajan, (2022 SCC OnLine NCLAT 86)
  4. Vidharbha Industries Power Limited Vs. Axis Bank Limited, Civil Appeal No. 4633 of 2021
  5. Axis Bank Vs. Lotus Three Developments & Ors., ((2018) SCC OnLine NCLAT 914)
  6. Naveen Chakravarthy Vs. Punjab National Bank, MANU/ TN/ 0376/ 2021
  7. ICP Investments v. Uppal Housing, 2019 SCC OnLine Del 12371
  8. Punit Garg . Vs. Ericsson India Pvt. Ltd. & Anr., Company Appeal (AT) (Insolvency) Nos. 255-256
  9. Satish Seth Vs. Ericsson India Pvt. Ltd. & Anr., Company Appeal (AT) (Insolvency) Nos. 257-258 of 2018
  10. Mr. Suresh Madihally Rangachar Vs. Ericsson India Pvt. Ltd. & Anr., Company Appeal (AT) (Insolvency) Nos. 259-260 of 2018
  11. Anant Kajare Vs. Eknath Aher & Anr., CA (AT) (Insolvency) No. 296 of 2017

Background

An application under Section 7 of the Insolvency & Bankruptcy Code, 2016 was filed by the Financial creditor (Respondent no. 1 herein) against Corporate Debtor - M/s McDowell Holdings Limited – Respondent No. 2 herein which was admitted by the NCLT. Subsequently interim applications were filed by the appellants herein along with others, seeking  intervention in the resolution process which was dismissed by the NCLT. Hence this appeal. The appellants had approached the Tribunal to intervene as shareholders of the Corporate Debtor.

It is the case of the Appellants that being shareholders, if CIRP is allowed to continue their financial interest will be adversely affected and therefore, they are aggrieved by the impugned order. The Appellants in their written submission prayed for liberty to pay all the dues of the corporate debtor.

One of the questions before the appellate tribunal was whether, the shareholder of the ‘Corporate Debtor’ has any locus in Section 7 application filed by the ‘Financial Creditor

Judgment

Looking into the various definitions under the I & B Code, the NCLAT held that :-
  • The definition of “person” has been given in Section 3(23) of the I & B Code, 2016 which includes an “individual”. This does not specifically mention “shareholder”. However, “individual” is wider term and can include “shareholder”.
  • As clarified in ICP Investments (supra), the Appellants even as “shareholders” cannot be aggrieved merely by the admission of the Corporate Debtor into CIRP. Such objection may render the object of I & B Code, 2016 illusory since any shareholder of any Corporate Debtor against which Insolvency proceedings have been initiated can then seek to maintain a derivative action and sabotage a valid CIRP initiated by the Adjudicating Authority.
  • there is no specific law which allows any shareholder of the Corporate Debtor to challenge the admission of CIRP of the Corporate Debtor, once the debt due and default is established by the Adjudicating Authority, in an application under Section 7 of the I & B Code, 2016.
  • there is no law which allows a third-party to settle the claims of the Financial Creditor on behalf of the Corporate Debtor, more so without any consent of the Corporate Debtor and in the teeth of opposition by the Financial Creditor. 
  • In Anant Kajare (Supra), it was held that an investor/shareholder in a Corporate Debtor cannot claim to be an aggrieved person for preferring an appeal against an order of the NCLT when the application under Section 9 of the ‘I&B Code’ was admitted. In fact, the Appellant being an investor is entitled to file its claim before the Insolvency Resolution Professional.  This judgment is applicable in this matter as well.




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