Tribunal holds that Tropical Ventures controls Incab via step-down subsidiary, limits claim to principal amount excluding interest under FEMA norms, and affirms Vedanta’s resolution plan subject to ongoing appeals.
In a significant decision dated June 30, 2026, the National Company Law Appellate Tribunal (NCLAT) Principal Bench in New Delhi rendered a judgment in the Corporate Insolvency Resolution Process (CIRP) of Incab Industries Ltd., clarifying the scope of “related party” under the Insolvency and Bankruptcy Code (IBC), 2016, and addressing complex issues involving foreign exchange regulations.
The appeals arose from the CIRP of Incab Industries Ltd., a private limited company engaged in iron and steel manufacturing. Tropical Ventures Company Ltd., a Mauritius-based entity, was declared a ‘related party’ of Incab Industries by the Resolution Professional (RP) and the Adjudicating Authority (NCLT), a finding challenged by Tropical in multiple appeals.
The core issue pertained to the ownership and control structure. Tropical holds 63% shares in Leader Universal (Mauritius), which holds 51.2% shares in Incab Industries, making Incab a step-down subsidiary of Tropical. The Tribunal, relying on Section 5(24)(i) and (l) of the IBC and the Companies Act, 2013, upheld that Tropical qualifies as a ‘related party’ due to de facto control through the subsidiary chain and common beneficial ownership by Mr. Naresh Lakshmi Chand Asrani.
Regarding the financial claims, Tropical had filed a massive claim of approximately Rs. 2,000 crores, including principal and interest, assigned from Leader Berhad, a Malaysian guarantor who had honored bank guarantees for Incab’s loans from Indian banks (ICICI, Citibank, HSBC) during 2000-2001. While the RP admitted the claim as a secured financial creditor, Pegasus Assets Reconstruction Pvt. Ltd., another financial creditor, contested its validity on grounds including foreign exchange law violations.
The NCLAT examined the applicability of the Foreign Exchange Regulation Act (FERA), 1973, and the Foreign Exchange Management Act (FEMA), 1999, particularly RBI’s Notification dated September 26, 2000, which limits reimbursement by an Indian resident debtor to a non-resident guarantor to the rupee equivalent of the actual amount paid under guarantee. The Tribunal held that Tropical’s claim beyond the principal amount paid (approx. Rs. 85.79 crores) violates FEMA provisions and disallowed the interest component and any excess claim.
Further, the Tribunal clarified that security interest in immovable properties of Incab could not be transferred to Tropical or Leader Berhad without explicit RBI permission under Section 31 of FERA, which was not obtained. Consequently, Tropical cannot be treated as a secured creditor concerning immovable assets.
Despite ongoing disputes on claims, the NCLAT affirmed the approval of the resolution plan submitted by Vedanta Ltd., approved by 99.37% of the Committee of Creditors (CoC), emphasizing that the commercial wisdom of the CoC is paramount and not subject to judicial interference under Section 61(3) of the IBC. The Tribunal directed that disputed amounts allocated to Tropical under the resolution plan be held in an interest-bearing escrow account pending the outcome of appeals and instructed the Monitoring Committee to adjust distributions accordingly.
The Tribunal dismissed the appeals filed by Tropical challenging the related party status and the resolution plan approval but partly allowed Pegasus’s appeal to restrict Tropical’s admitted claim to the principal amount paid and disallowed secured creditor status over immovable property.
This decision reinforces the legal interpretation of related party under the IBC, the limits imposed by foreign exchange laws on claims by non-resident guarantors or their assignees in insolvency proceedings, and the sanctity of commercial wisdom exercised by the CoC in resolution plan approvals.
Bottom line:-
A company can be deemed a "related party" within the meaning of Section 5(24) of the IBC if it exerts control over a corporate debtor through a subsidiary or step-down subsidiary relationship, even if it does not hold direct shareholding in the corporate debtor.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 5(24)(i), 5(24)(l), 61(3); Companies Act, 2013 Sections 2(6), 2(46), 2(87); Foreign Exchange Regulation Act, 1973 Section 31; Foreign Exchange Management Act, 1999; RBI Notification No. FEMA 29/RB-2000 dated 26.09.2000; Indian Contract Act, 1872 Sections 140, 141.
