NCLAT Rules, Adjudicating Authority Must Consider Application U/S 65 Of IBC On Merits When Allegations Of Malicious Initiation Of CIRP Are Raised
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member), has held that once an application under Section 65 of the Insolvency and Bankruptcy Code, 2016 (IBC) is filed and allegations of malicious or fraudulent initiation of the Corporate Insolvency Resolution Process (CIRP) are raised, the Adjudicating Authority is duty-bound to examine the same on merits and cannot dismiss it merely on the ground of lack of locus standi.
The appeal was filed by Anil Singh, representing himself and 129 other workers of Kitply Industries Ltd., challenging the order of the National Company Law Tribunal (NCLT), Guwahati Bench, which had dismissed their intervention application filed under Section 65 of the IBC read with Rule 11 of the NCLT Rules, 2016. The NCLT had rejected the workers’ plea on the ground that they lacked locus standi in the Section 7 proceedings initiated by SREI Equipment Finance Ltd. (Respondent No. 1) against Kitply Industries Ltd. (Respondent No. 2).
The Appellants contended that the Section 7 application was filed fraudulently and collusively, as both the financial creditor and the corporate debtor were related entities. It was submitted that SREI Equipment Finance Ltd., through its group entities, had taken over Kitply Industries Ltd. in an earlier CIRP via a resolution plan approved in 2018 and that the subsequent loans advanced between related parties were part of a fraudulent circular transaction. The workers, as stakeholders of the corporate debtor, argued that such malicious initiation of CIRP adversely impacted their livelihood and deserved judicial scrutiny.
They further pointed out that the Administrator of SREI Equipment Finance Ltd., appointed by the Reserve Bank of India (RBI), had already filed an application under Section 66 of the IBC seeking avoidance of transactions between SREI and Kitply on the ground of fraud. However, while that application was still pending, SREI filed the Section 7 application against Kitply on the same transactions, prompting the workers to seek dismissal of the petition under Section 65 of the IBC.
The NCLT, however, dismissed the intervention petition holding that only the financial creditor and corporate debtor are entitled to be heard at the admission stage of a Section 7 proceeding, and that third parties, including workmen, have no right to intervene. It further held that allegations under Section 65 could only be raised by the corporate debtor through its authorised representative.
On appeal, the NCLAT found fault with the NCLT’s reasoning and observed that the Tribunal had completely failed to consider the substance of the Section 65 application. Referring to the Supreme Court’s ruling in Beacon Trusteeship Ltd. v. Earthcon Infracon Pvt. Ltd. & Anr. [(2020) SCC OnLine SC 1233], the Appellate Tribunal emphasised that when allegations of fraudulent or collusive initiation of CIRP are raised, the Adjudicating Authority must examine them in accordance with law.
The Bench noted that the application was not filed by an unrelated third party but by 130 workers of the corporate debtor, who are legitimate stakeholders in the insolvency process. It therefore held that dismissing their plea solely on the ground of lack of locus was unsustainable. The NCLAT remarked: “Insofar as Section 7 proceedings are concerned, there can be no quarrel that an intervenor, who may not be a necessary or proper party, cannot ordinarily intervene. However, when the prayer under Section 65 pertains to fraudulent or malicious initiation of CIRP, the Adjudicating Authority ought to have carefully examined such allegations.”
The Tribunal further held that the pendency of an application under Section 66 of the IBC (relating to fraudulent transactions) does not bar consideration of a Section 65 plea, as both provisions operate in different spheres. Referring also to precedents such as Hytone Merchants Pvt. Ltd. v. Satabadi Investment Consultants Pvt. Ltd., and Devashree Developers Pvt. Ltd. v. Aravali Cylinders Pvt. Ltd., the Bench reiterated that the Adjudicating Authority must exercise caution to ensure that the insolvency framework is not misused for any purpose other than genuine resolution of insolvency.
Accordingly, the NCLAT set aside the NCLT’s order dated 10 June 2025 and revived the intervention application filed under Section 65, directing the Adjudicating Authority to consider it on merits in accordance with law. The Tribunal clarified that it had expressed no opinion on the merits of the allegations and that the application could be heard simultaneously with the Section 7 petition pending before the NCLT. In conclusion, the NCLAT reaffirmed that when allegations of malicious or fraudulent initiation of CIRP are raised by legitimate stakeholders, the Adjudicating Authority cannot summarily reject such applications but must adjudicate them substantively to ensure justice and prevent misuse of the insolvency process.
Cause Title: Anil Singh Versus SREI Equipment Finance Ltd. & Anr.
Case No: Company Appeal (AT) (Insolvency) No. 1069 of 2025
Coram: Justice Ashok Bhushan, Mr. Barun Mitra (Technical Member)
