A shareholder is not an "aggrieved person" under the IBC to maintain such an application.
Shareholder's Bid to Reverse Insolvency Order Dismissed by NCLT Mumbai
Mumbai: The National Company Law Tribunal (NCLT) Mumbai bench has dismissed an application filed by Rajiv Agarwal, a shareholder of Krystal Stone Exports Limited, seeking to recall the Corporate Insolvency Resolution Process (CIRP) initiation order against the company. The tribunal ruled that shareholders do not qualify as "aggrieved persons" under the Insolvency and Bankruptcy Code (IBC) to challenge such orders.
The judgment, delivered by Shri Prabhat Kumar and Shri Sushil Mahadeorao Kochey, stated that the applicant lacked the locus standi to file the application as a shareholder. The decision aligns with previous rulings by the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court, which have consistently held that shareholders cannot maintain proceedings under the IBC to challenge CIRP orders.
Rajiv Agarwal, a member of the suspended board of directors and holder of a 10% share in Krystal Stone Exports Limited, sought to reverse the tribunal's May 3, 2024, order initiating CIRP against the company. Agarwal claimed the order was obtained through misrepresentation and fraud by the financial creditor, Stressed Assets Stabilization Fund, which led to a failure of justice.
The tribunal, however, found no merit in the allegations of fraud or misrepresentation. It emphasized that re-appreciation of evidence leading to the CIRP initiation order is not permissible under Rule 11 of the NCLT Rules, 2016, and such power is to be exercised sparingly, not as a tool for rehearing the matter.
Legal precedents from cases such as Clarion Health Food LLP v. Goli Vada Pav Pvt. Ltd. and Park Energy Pvt. Ltd. were discussed, reinforcing the position that shareholders do not qualify as "aggrieved persons" under the IBC. The tribunal's decision reflects a consistent interpretation that shareholders' interests are adequately represented by resolution professionals or liquidators appointed by the court, negating their need to independently contest CIRP initiation orders.
The judgment underscores the importance of maintaining the integrity and efficiency of the insolvency resolution process, preventing potential delays and abuses that could arise from shareholder-led challenges. As the tribunal dismissed the application, it reaffirmed its commitment to timely resolution of insolvency cases, vital for the sustenance of corporate governance and financial stability.
The dismissal of IA 2539 of 2025 concludes the shareholder's attempt to reverse the insolvency proceedings initiated against Krystal Stone Exports Limited, marking a significant reaffirmation of the legal position regarding shareholder challenges in insolvency cases.
