Shareholders, Including Majority Stakeholders, Have No Locus To Challenge Insolvency Proceedings: NCLAT
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT) has held that shareholders — including those holding majority or controlling stakes — cannot challenge the initiation of insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) unless they demonstrate a direct legal injury or creditor status. A Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Member Indevar Pandey, while upholding the order of the NCLT, Mumbai, ruled that a shareholder or preference shareholder without contractual debt rights does not qualify as a “person aggrieved” under Section 61 of the IBC.
Background
The appeal was filed by Peninsula Holdings and Investments Pvt. Ltd. (Peninsula Holdings), a majority shareholder in Hem Infrastructure and Property Developers Pvt. Ltd. (Corporate Debtor), challenging the admission of insolvency proceedings against the Corporate Debtor. The NCLT Mumbai, by its order dated July 14, 2025, had admitted an application under Section 7 of the IBC filed by JM Financial Credit Solutions Ltd. (Financial Creditor) against the Corporate Debtor for default in repayment of loans. The Financial Creditor had advanced credit facilities to Hem Bhattad, an entity whose obligations were secured by six corporate guarantees executed by the Corporate Debtor. Upon default by Hem Bhattad, the Financial Creditor invoked the guarantees and initiated insolvency proceedings against the Corporate Debtor.
Peninsula Holdings, holding both equity and preference shares in the Corporate Debtor, challenged the admission order before NCLAT, contending that the insolvency process was “legally unsustainable and procedurally flawed.” It claimed to be an “aggrieved person” under Section 61 of the Code, asserting that its majority shareholding and controlling interest in the Corporate Debtor gave it the right to appeal.
Appellant’s Submissions
The appellant argued that as a majority shareholder, it was directly affected by the initiation of insolvency and should be treated as an “aggrieved person” under Section 61 of the IBC. It also claimed that the admission of insolvency had been done without proper adjudication of facts, and that the Tribunal had failed to consider relevant submissions made by the Corporate Debtor before admission. The appellant further submitted that its preference shares amounted to a financial interest, and that dilution of shareholding value and loss of control over the Corporate Debtor constituted sufficient injury to grant it the right to appeal.
Respondent’s Submissions
The Financial Creditor opposed the appeal, arguing that Peninsula Holdings was neither a creditor nor a party directly aggrieved by the insolvency order. It contended that the right to appeal under Section 61 was strictly statutory, and could not be extended to shareholders merely because they held equity or preference shares. The respondent maintained that the insolvency process concerns the debtor and its creditors, and that allowing shareholders to challenge such orders would defeat the objectives of the Code by introducing unnecessary multiplicity and delay.
Tribunal’s Findings
The NCLAT considered whether a shareholder — irrespective of the extent of shareholding or control — could qualify as a “person aggrieved” for the purpose of filing an appeal under Section 61 of the IBC. Referring to Section 5(7) and Section 5(8) of the IBC, the Bench noted that “financial debt” involves a disbursal against consideration for time value of money, and shareholders’ investment in equity or preference shares does not create a financial liability on the company. The Tribunal observed: “The right to appeal under Section 61 is a statutory right, not an equitable one. It must be exercised strictly within the scope of the statute. The IBC restricts appellate jurisdiction to those ‘persons aggrieved’ whose legal rights under the Code are directly affected by the impugned order.”
It further held that a shareholder’s financial loss or dilution of share value during insolvency does not constitute a legal right under the IBC.“A shareholder’s financial loss or dilution of value does not constitute such a right; it is merely a consequence of the insolvency process,” the Bench remarked.
Preference Shares Do Not Create Creditor Rights
The Tribunal also examined the legal character of preference shares under the Companies Act, 2013, observing that they form part of a company’s share capital and not its debt obligations. Unless an express agreement exists converting such investments into financial debt, preference shareholders do not become creditors entitled to challenge insolvency. The order records:“The Appellant, being a shareholder or a preference shareholder without any contractual debt rights, does not fall within the category of ‘person aggrieved’ under Section 61.”
The Bench also referred to the appellant’s own pleadings acknowledging that it had no independent business operations, employees, or assets, and functioned solely as a passive investment vehicle. This, the Tribunal held, further weakened its claim to be treated as an aggrieved party.
On Managerial Control and Locus
Rejecting Peninsula Holdings’ contention of managerial control, the Tribunal emphasized that control over a company’s management does not create legal standing under the IBC unless the person’s own rights as a creditor or debtor are affected. It observed that granting shareholders locus standi to challenge insolvency orders would contradict the object and framework of the IBC, which aims to protect creditor rights and ensure timely resolution of stressed assets. The Bench remarked: “The sustainability of proceedings at the behest of the shareholder would not be a reasonable proposition. Permitting shareholders to pursue such proceedings would run contrary to the object of the Code, besides leading to multiplicity of proceedings.”
Finding that Peninsula Holdings had no locus standi and was not a “person aggrieved” under Section 61 of the IBC, the NCLAT dismissed the appeal, upholding the NCLT Mumbai’s admission of insolvency proceedings against Hem Infrastructure and Property Developers Pvt. Ltd. The Tribunal concluded that the right to appeal under the IBC is limited to parties directly affected in law, and not to shareholders merely suffering indirect financial impact due to insolvency. The appeal was accordingly dismissed with no order as to costs.
Appearance
For Appellant: Ms. Prachi Johri, Advocate
For Respondents: Mr. Shyam Kapadia, Mr. Aseem Chaturvedi, Mr. Ravitej, Mr. Arpit Kumar Singh, Ms. Mihika Jalan, Ms. Afreen Noor, Ms. Muskan Arora, Advocates.
Cause Title: Peninsula Holdings and Investments Pvt. Ltd. vs JM Financial Credit Solutions Limited & Ors.
Case No: Company Appeal (AT) (Ins.) No. 1393 of 2025
Coram: Justice Ashok Bhushan (Chairperson), Technical Member Indevar Pandey
