Intervention Petition by Workman Alleging Fraudulent CIRP Under Section 65 Cannot Be Rejected for Lack of Locus, Rules NCLAT
- REEDLAW
- Aug 28
- 3 min read
REEDLAW Legal News Network reports: In a significant clarification, the National Company Law Appellate Tribunal (NCLAT) ruled that allegations of fraudulent initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 65 of the IBC cannot be rejected merely for want of locus. The Tribunal held that such intervention petitions, particularly when filed by a workman representing employees, must be assessed on their merits by the Adjudicating Authority.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, held that an intervention petition filed by a workman representing employees and alleging fraudulent initiation of CIRP under Section 65 of the IBC cannot be dismissed solely on the ground of lack of locus. The Tribunal emphasised that the Adjudicating Authority must examine such petitions on their merits to ensure that fraudulent or malicious proceedings are not permitted to proceed unchecked.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson), delivered a judgment on an appeal challenging the order of the NCLT, Guwahati Bench, which had rejected an intervention petition filed by a workman representing 129 other employees of Kitply Industries Ltd. The intervention application had sought dismissal of a Section 7 petition filed by SREI Equipment Finance Ltd. against Kitply Industries Ltd., alleging fraudulent and collusive initiation of the insolvency process under Section 65 of the IBC. The Appellant contended that the Adjudicating Authority erred in holding that the workers lacked locus standi and in failing to consider allegations of malicious initiation of CIRP on the merits.
The Tribunal noted that the Adjudicating Authority relied on earlier precedents, including Deb Kumar Majumdar v. State Bank of India, to hold that third parties have no right to intervene in Section 7 proceedings and that only the financial creditor and the corporate debtor are necessary parties at the admission stage. It further observed that the NCLT had not examined the allegations raised under Section 65 but dismissed the application solely on the ground of lack of locus. The Appellate Tribunal distinguished the present case from earlier rulings by emphasising that the Appellant was not a stranger but represented 130 workers of the corporate debtor, who are stakeholders in the insolvency process and whose livelihood would be affected by any collusive or fraudulent CIRP.
The NCLAT held that the IBC explicitly prohibits fraudulent or malicious initiation of proceedings and provides a mechanism under Section 65 to address such allegations. Referring to the Supreme Court judgment in Beacon Trusteeship Limited v. Earthcon Infracon Private Limited, REEDLAW 2020 SC 02503, the Tribunal reiterated that whenever such allegations are raised, the Adjudicating Authority is obliged to examine them on merits. It concluded that rejecting the application solely on the ground of locus standi was unsustainable. Consequently, the appeal was allowed, and the matter was remitted to the Adjudicating Authority for fresh consideration of the Section 65 application in accordance with law.
Mr. Krishnendu Dutta, Sr. Advocate, with Ms. Aakansha Prasad, Ms. Kirti and Mr. Harsh Gurbani, Advocates, represented the Appellant.
For the Respondent/ Defendant: Mr. Sanjiv Sen, Sr. Advocate, with Mr. Surjadipta Seth, Mr. Aditya Kanodia, Ms. Suparna Sarda, Ms. Anjali Singh and Mr. Prahalad Balaji, Advocates, appeared for the Respondent No. 1.
Mr. Sanjay Batt and Mr. Sarthak Bhandari, Advocates, appeared for the Respondent No. 2.
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