NCLT Cannot Adjudicate Shareholding or Property Disputes: Disclosure of High Court Litigation in Information Memorandum Upheld
- REEDLAW
- 2 hours ago
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REEDLAW Legal News Network reports: In a significant ruling delineating the jurisdictional limits of insolvency adjudication, the Appellate Tribunal held that disputes relating to shareholding rights and immovable property, including matters involving enforcement of High Court orders, fall outside the scope of proceedings under the Insolvency and Bankruptcy Code, 2016, and that statutory disclosure of pending civil litigation in the Information Memorandum is sufficiently safeguarded through the statutory duties cast upon the Resolution Professional.
The National Company Law Appellate Tribunal, Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a company appeal, held that the National Company Law Tribunal exercising jurisdiction under the Insolvency and Bankruptcy Code could not adjudicate disputes concerning shareholding rights or immovable property, nor undertake enforcement of orders passed by the High Court. The Tribunal further held that disclosure of pending civil litigation in the Information Memorandum stood adequately ensured through the statutory obligations imposed upon the Resolution Professional, and that no separate adjudication on such disputes could be undertaken within the CIRP framework.
The Appellate Tribunal considered an appeal filed against an order of the Adjudicating Authority whereby a specific prayer seeking restraint on the Corporate Debtor from negotiating or entering into any settlement or arrangement affecting the Appellant’s alleged 50% shareholding, directorship, and rights in immovable property, in purported violation of orders passed by the Hon’ble High Court, had been declined on the ground that such issues were to be governed by the provisions of the Insolvency and Bankruptcy Code, 2016. The Appellant contended that, notwithstanding rejection of the restraint prayer, the pendency of civil proceedings before the High Court and the interim orders passed therein were required to be expressly reflected in the Information Memorandum, and appropriate directions ought to have been issued to safeguard the Appellant’s interests.
The Tribunal noted that similar reliefs had earlier been sought by the Appellant through an intervention application, wherein directions were prayed for the incorporation of details of pending civil litigation and High Court orders in the Information Memorandum and for restraining the CIRP from affecting the Appellant’s claimed shareholding and rights. In those proceedings, the Interim Resolution Professional had categorically stated that under Section 25 of the Code, all material pending litigations and orders of courts were required to be disclosed in the Information Memorandum, and that the resolution professional was duty-bound to represent the Corporate Debtor in such proceedings. Recording this statement, the Tribunal had disposed of the earlier application, thereby addressing the very apprehension raised by the Appellant.
The Tribunal further observed that pursuant to the earlier order, communications had been addressed to the Resolution Professional and appropriate assurances had been given that all relevant pending litigation, including proceedings before the High Court and orders passed therein, would be duly reflected in the Information Memorandum. In light of these developments, the Tribunal held that the Appellant’s apprehension was misconceived, as the Resolution Professional had already undertaken to comply with statutory obligations under the Code, including disclosure of material litigation and court orders.
It was clarified that in the present appeal, the Tribunal was confined only to examining the correctness of the Adjudicating Authority’s decision insofar as Prayer-G was concerned, and no other issue arising from the insolvency proceedings was under consideration. Holding that the earlier orders of the Tribunal sufficiently safeguarded the Appellant’s concerns and that no further directions were warranted, the Tribunal declined to interfere with the impugned order and disposed of the appeal accordingly.
Mr. Krishnan Venugopal, Sr. Advocate, with Mr. Anuj Tiwari, Ms. Kaanchi Ahuja, Ms. Shalini Basu and Mr. Vaibhav Vats, Advocates, represented the Appellant.
Mr. Abhishek Anand, Mr. Karan Kohli and Ms. Palak Kalra, Advocates, appeared for the Respondent No. 1.
Mr. Suraj Dhawan and Sanampreet Singh, Advocates, appeared for the Respondent No. 2.
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