Introduction

The most controversial provision of India’s corporate insolvency legislation is Section 32A of the Insolvency and Bankruptcy Code (IBC), 2016. It has largely been in the limelight since it discusses granting protection to companies against being prosecuted for crimes committed prior to the initiation of the insolvency process. The concept is that when a new management comes in and a revival plan is sanctioned by the National Company Law Tribunal (NCLT), the company is supposed to have a “clean slate” so that it may begin anew. But this protection has put numerous questions with regards to how to balance the need for company revival with the need for accountability for historic crimes.

What is Section 32A?

Section 32A was brought in by the IBC Amendment Act of 2020. The prime purpose of this provision is to ensure that investors or bidders don’t hesitate to take over a failing or ailing company due to criminal liabilities incurred by the previous management. If protection were not provided, the majority of investors would refrain from bidding, and revival of companies would cease to be an effective process. Meanwhile, Section 32A is very specific that the immunity and protection are only for the company as an entity itself, not for the individuals who perpetrated the wrongdoing. Thus, while the company is being accorded immunity from prosecution and protection against asset seizure, the individuals behind past malfeasance remain accountable under the law.

Constitutional Validation of Section 32A

The validity of Section 32A under the Constitution was tested in the Supreme Court in the renowned case of Manish Kumar v. Union of India. Most believed that the section infringed key rights under Articles 14, 19, 21, and 300A of the Constitution because it appeared to accord unequal protection even if assets were traceable to crimes involving the Prevention of Money Laundering Act (PMLA). However, the Supreme Court did uphold the provision, stating clearly that the immunity is not complete. The Court emphasized that the protection can be extended only if there is a real change of management and the new management is not involved in the previous wrongdoing. The ruling pointed out that Section 32A was meant to enable the revival of corporate entities, bring in investors, and preserve jobs, but not by acquitting the culpable individuals for their wrongdoing. The most challenging among the issues concerning Section 32A is the co-existence of Section 32A with the PMLA. The IBC is more about the revival of companies, while the PMLA addresses crimes like money laundering and asset seizure for assets held as proceeds of crime. Due to this, numerous disagreements have arisen on whether the enforcement agencies such as the Enforcement Directorate (ED) can proceed with their actions against company assets after an approved resolution plan. This conflict between the two laws’ goals has resulted in a string of contradictory judgments, illustrating how intricate this branch of law is.

The Complex PMLA-IBC Interface

One of the most significant cases in this regard is Dunar Foods Ltd. V. Enforcement Directorate, ruled upon by the NCLAT in July 2025. Dunar Foods, a business enterprise which engaged in rice exports, fell into insolvency after failing to repay huge loans. Just a few days after the insolvency process started, the ED seized properties worth more than ₹177 crore, alleging they were connected to criminal activities of an associate firm. The NCLAT, in a comprehensive order, held that the Section 14 moratorium under IBC does not put on hold attachment proceedings under PMLA, particularly since investigations had already commenced prior to the insolvency. It also stated that IBC and PMLA operate in various areas and ED is not akin to a creditor but a law enforcement authority. This judgment revealed that insolvency laws cannot supersede PMLA operations automatically.

In contrast, a different strategy was adopted in the case of Vantage Point Asset Pte. Ltd. V. Gaurav Misra (Alchemist Infra Realty) was delivered in August 2024. In this case, the successful resolution applicant requested release from assets frozen by the ED so they could implement the resolution plan successfully. Though the NCLT initially declined to interfere, the NCLAT subsequently ruled that Section 32A indeed shields the assets of the company once the resolution plan is approved and conditions of new management are fulfilled. The NCLAT further noted that the NCLT has an obligation under Section 31 of IBC to facilitate smooth execution of the resolution plan. This case then put greater significance on the IBC’s goal of company revival over that of the enforcement steps under PMLA.

These competing judgments demonstrate the continued dilemma of addressing two competing objectives: the revival of ailing companies and the stringent enforcement of criminal legislations. At one end, courts have opined that safeguarding the corporate debtor under Section 32A needs to be done in order to lure investors and rescue businesses. Conversely, they have also reminded that money laundering and financial crimes cannot be left out of sight, particularly as India has global commitments to combat such practices under treaties such as FATF and UN conventions. This tug-of-war continues to define the destiny of Section 32A.

Conclusion

In conclusion section 32A is a courageous move by legislators to promote corporate rehabilitation, but it also carries many complexities. Though the provision has been held to be constitutionally valid, its interaction with other legislation, particularly PMLA, is still unresolved. Judgments in Manish Kumar, Dunar Foods, and Alchemist Infra Realty indicate that courts are still attempting to find the correct balance. Whether or not Section 32A succeeds will depend upon whether it is able to assure certainty and protection to the investor and not let the wrongdoer go easily. As India’s insolvency regime develops, Section 32A will also continue to be refined through legislation and legal precedents.

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1. Introduction

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, is designed to strengthen India’s insolvency framework by formally addressing the complexities of corporate groups. It fills a critical gap exposed when several related firms collapsed together but had to undergo isolated insolvency proceedings. The Bill enables the government to frame rules for joint hearings, shared professionals, and consolidated creditor committees—seeking greater efficiency while ensuring creditors’ interests remain protected.

2. Meaning of “Group Insolvency”

The 2025 Bill proposes a dedicated legal structure (added as Chapter VA in Part II of the Code) to deal with situations where multiple debtors are connected as part of the same corporate group. Provisions allow tribunals to transfer matters to a single bench, appoint one Resolution Professional for the group, convene a unified Committee of Creditors, and align timelines for claim verification and resolution. The intention is to move away from fragmented, duplicative CIRPs and encourage group-level solutions, while still respecting each company’s separate legal identity and ensuring minority creditors are not unfairly disadvantaged.

3. Judicial pronouncements on Group Insolvency

Indian tribunals have already confronted this issue. In SBI v. Videocon, the NCLT consolidated several proceedings and “ordered substantive consolidation of the Corporate Insolvency Resolution Processes of 13 out of the 15 Videocon group companies.”

In Giriraj Enterprises v. Regen Powertech, the NCLAT clarified the limits of judicial intervention: “Adjudicating Authority correctly held that it lacks equity jurisdiction under the IBC to order consolidation of CIRPs.”

Similarly, in Edelweiss v. Sachet, the tribunal accepted joint proceedings, holding that “where two corporate debtors collaborate to develop land, CIRP can be initiated jointly against both.”

4. Opportunities: Advantages and Future Scope

The introduction of group insolvency brings multiple benefits. It allows creditors to recover more value by avoiding fragmented asset sales, simplifies resolution by enabling consolidated bids, and reduces administrative expenses through common professionals and proceedings. This framework also strengthens bargaining power in creditor negotiations and streamlines decision-making. Looking forward, India may attract global investors to handle complex restructurings, encourage better coordination in multinational insolvencies, and improve governance standards across corporate groups—provided safeguards ensure that the rights of smaller creditors within each entity remain intact.

5. Challenges: Complexities, Limitations

Bringing in group insolvency will not be easy. The first challenge is deciding when companies are so closely linked that they should be dealt with together. This requires looking carefully at how they share money, management, and assets. There could also be fights over valuation, objections from creditors, and fears that debts of one company may unfairly fall on another. Having one process for many companies might also create conflicts for professionals, put extra pressure on tribunals, and become more difficult when foreign subsidiaries are involved.

For this system to work, there must be clear rules on when group insolvency applies, strong checks like independent valuations and creditor choices, and proper training for tribunals and professionals. If introduced carefully, the law can turn messy, scattered cases into one organised process that saves value. But if rushed, it may only lead to confusion and disputes.

6. Conclusion

The IBC (Amendment) Bill, 2025, brings group insolvency into focus as a tool to tackle linked corporate collapses. If applied with care, it can save business value and build investor trust. But the law’s true success will rest on clear rules, fair treatment, and strong institutional support.

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Introduction

Operational creditors under Insolvency and Bankruptcy Code, 2016 (IBC) are the ones who supply goods or services to the corporate debtor in exchange for operational debt. As per Section 5(20) of IBC, an “operational creditor” means a person to whom an operational debt is owed. Section 5(21) of IBC defines “operational debt” as

“a claim for the provision of goods or services, including employment, or a debt for the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government, or a local authority.”

Whenever, a default occurs by the corporate debtor, the Corporate Insolvency Resolution Process (CIRP) can be initiated either by a financial creditor, an operational creditor or corporate debtor itself.

Financial creditors may initiate the CIRP by filing an application u/s. 7 of IBC, 2016 before the Adjudication Authority i.e National Company Law Tribunal (NCLT) against the corporate debtor upon occurrence of a minimum default of Rs. 1 crore. However, an Operational Creditors must first issue a ‘Demand Notice/Invoice of Payments’ under section 8 of IBC, 2016 to the corporate debtor and has to wait for a period of 10 days to file an application before the NCLT to initiate insolvency proceedings.

Position of operational creditors after the initiation of CIRP –

After initiation of the CIRP, Committee of Creditors (CoC) is constituted under section 21 of the IBC. The CoC mostly consists of only financial creditors and the operational creditors have no voting rights, however in cases where there is no financial creditors, the operational creditors forms part of the CoC. The operational creditors are also stayed from taking any legal actions against the corporate debtor due to the moratorium u/s14 of IBC, 2016.  As moratorium is initiated to put a hold on any legal proceedings against corporate debtor. Though the operational creditors are invited to be a part of CoC meetings when the aggregate dues exceed 10% of the total debt owed by the corporate debtor, the invitation does not extend to any voting right. The voting powers given to the financial creditors under section 21 of the code, are effectively to dominate and discriminate against the operational creditors in the decision making.

Differential Treatment under Section 53 of IBC –

Section 53 of the IBC lays down the waterfall mechanism for distribution of assets during liquidation of the corporate debtor. It clearly distinguishes between secured financial creditors, unsecured financial creditors, and operational creditors, placing operational creditors lower in priority for distribution of proceeds from sale of assets.

A major concern arises where the operational creditors are provided only the “liquidation value” under a resolution plan based on a restrictive interpretation of Section 30(2)(b) of the IBC. If the operational creditors consistently receive minimal recovery, it may discourage suppliers and service providers from extending credit to the corporate entities. This could lead to a commercial environment where advance payments are demanded by the operational creditors for all the transactions, which would undermine business flexibility and adversely affect the broader economy.

Therefore, while the IBC emphasizes maximization of value and revival of the corporate debtor, a balanced approach between financial creditors and operational creditors is essential. Any resolution plan that is manifestly discriminatory or unfairly prejudicial to either class of creditors may be challenged as being contrary to the objectives and provisions of the IBC.

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The Insolvency and Bankruptcy Code (IBC) was introduced in 2016 which primarily aims at the resolution of corporate insolvency of corporate persons, partnership firms and individuals. The IBC framework is intended to facilitate the financially distressed corporate debtor and not as a mere recovery mechanism for creditors. Accordingly, proceedings before the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are resolution centred and not recovery centred.

In the real estate sector, we see that developers’ insolvencies include a large group of stakeholders which includes financial creditors, operational creditors, homebuyers, and regulatory authorities. Homebuyers, who are included in the class of financial creditors are statutorily recognised under the IBC and are entitled to participate in the Committee of Creditors through authorized representatives (AR). However, this statutory recognition does not extend to all homebuyer related entities which in particular are Resident Welfare Associations (RWAs) or cooperative housing societies, unless they independently meet the Code requirements are left out.

RWAs play a role in running the day to day affairs of residential complexes. Their functions usually include management of common areas, collection of maintenance fees, interaction with local authorities on behalf of residents, and advocacy for public services. RWAs often act as representatives of residents in issues related to living conditions and administrative coordination. Their role is primarily managerial and welfare-oriented and arises through local housing and municipal regulations, not insolvency law.

When a Real Estate company goes into insolvency we see RWAs often attempt to step in on behalf of the residents, particularly on matters relating to maintenance, possession, or completion of the project. At a practical level such association may raise concerns before the authorities or seek to represent the collective interest of the occupant, however once proceedings commence under the Insolvency and Bankruptcy Code, the rights and obligations of parties are strictly governed by the framework of the code, The NCLT and NCLAT, being statutory insolvency tribunals, operate within a limited jurisdiction and cannot entertain such types of issues which fall outside the ambit of the IBC.

Most Importantly, RWAs, merely by virtue of being representative bodies, do not qualify as financial or operational creditors unless they independently satisfy the requirements laid down under the Insolvency Code. Therefore, while RWAs may initially voice the concerns of residents, they do not possess an automatic or independent right to participate or intervene in insolvency proceedings when they are not recognised stakeholder under the IBC.

Hon’ble Supreme Court of India has settled this issue by holding that Resident Associations and cooperative housing societies do not have a determinative role in insolvency proceeding initiated against real estate developers. In the case of Elegna Co-operative Housing and Commercial Society Ltd. versus Edelweiss Asset Reconstruction Company Limited (2026 INSC 58) the Court examined that whether RWAs had a right to get involved in proceedings under Section 7 of the IBC. The Court in this instance put forth that insolvency processes are for the recognized stakeholders as per the Code. Allowing RWAs into these proceedings would introduce into the process issues which the statute did not provide for. Also, the Court made it clear that the objective of the resolution process is not to expand beyond what is contemplated under the Code.

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A major question that arises is whether the NCLT possesses the discretion either to accept or reject these applications even where it is apparent that the company is in a position where it owes money (debt) and has also failed to pay the same (default) amount.

The Vidarbha Industries case was still important to the decision because the Hon’ble Supreme Court attempted to scrutinously examine the provisions of NCLT that pertain to its powers and regarding how it has to construe the law. SC also understood that Section 7(5)(a) of the IBC employs the word “may” instead of “shall” in which case, the ‘NCLT is not bound to accept every application. This ruling proved that the NCLT has the discretion i.e. to accept or reject an application for initiation of the CIRP despite the presence of evidence of debt and default. However, this power has to be exercised most cautiously by the NCLT regarding the peculiarity of each particular case.

This decision in the Vidarbha Industries case was later questioned in another case, M. Suresh Kumar Reddy v. Canara Bank. In this case, the Supreme Court agreed with the decision made in Vidarbha Industries but cautioned that it should not be seen as conflicting with earlier cases like E.S. Krishnamurthy v. Bharath Hi-Tech Builders Pvt. Ltd. The court clarified that the discretionary powers discussed in Vidarbha Industries were specific and limit to the facts of that particular case.

Insofar as it remains, the law now bears witness to the fact that the discretion has vested in the NCLT in terms of Section 7(5)(a) of IBC to accept or reject a petition for initiation of the CIRP even if there is evident existence of debt and default. Nonetheless, discretion should be exercised well taking into account the specific facts of each case. The existing issue is that by the time the Supreme Court gives its verdict on the “Maganlal Daga Huf v. Jag Mohan Daga” case there are apprehensions regarding the effect of the Vidarbha Industries on the structure of the IBC, 2016. In light of the current legal position, the law reinforces that under S. 7(5)(a) of the IBC, the NCLT bears the discretionary jurisdiction to accept or reject a petition to initiate the CIRP. Despite there is evident proof of debt and default. Nonetheless, the issue is that this discretion has to be employed diligently, especially because each case may be entirely different from the other. That being the case, there is apprehension of shifting dynamics of the larger framework of IBC, 2016 as a consequence of the ruling in Vidarbha Industries Limited case, till the resolution of the case of the “Maganlal daga Huf & Anr. V. Jag Mohan Daga”.

Later on, in “Innoventive Industries Ltd. v. ICICI Bank”, SC appreciated the fact that once debt and default have been proved, and then the process of CIRP must begin and termed it as mandatory, cementing the urgency of the process for quick disposal of insolvency cases. While making its decisions the NCLT uses several factors in the process of making the final decision and granting the desired discretion. Such factors are the ability to pay by the debtor, the existence of some real issues as to the debt, and abuse of the application process. The NCLT also tends to the interests of creditors and employees as well as to the consequences of a given decision on the industry and economy.

Thus, the NCLT’s decisions are grounded in prior court precedents and the primary objectives of the Insolvency and Bankruptcy Code [IBC]. This means that in the consideration of the case, all the provisions of the IBC must be adhered to together with the fact that the tribunal has to dispense justice based on the facts of each specific case in a manner that does not stray from the legal provisions. An instance of how this plays out is the Vidarbha Industries ruling. Coupled with such cases as “Maganlal Daga Huf v. Jag Mohan Daga”, insolvency law is always in a state of dynamics. It demonstrates how the courts must scrutinize and offer directions to how the law is applied so that it remains relevant to the current occurrences and still useful.

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At its core, insolvency law navigates the delicate balance between creditor protection and debtor rehabilitation. Traditional methods rely heavily on human expertise to interpret vast amounts of financial data, assess risk, and formulate strategies. However, this approach is not without its limitations—subjectivity, inconsistency, and time constraints often plague the process. Here, AI emerges as a game-changer.

Moreover, AI augments risk assessment and prediction, providing insights that enhance the efficacy of insolvency proceedings. By analyzing historical data and market trends, AI systems can forecast potential outcomes, empowering stakeholders to devise proactive strategies and mitigate risks effectively. This predictive capability not only streamlines decision-making processes but also enhances the overall transparency and accountability of insolvency proceedings.

AI is incredibly helpful for litigants who have physically or electronically sat in court, experienced the weight of their clients’ needs, and diligently prepared for a hearing before a real judge, but it is in no way able to satisfy the court’s requirements on its own. A court may, for instance, interrupt the senior attorney with the most expertise during their closing arguments, ask any question, clarify anything, and then expect a convincing answer. There isn’t time to create your own response right now, nor is there time to check ChatGPT.

Furthermore, AI facilitates the automation of routine tasks, freeing up valuable human resources to focus on strategic initiatives and complex legal matters. Document review, case analysis, and compliance monitoring are just a few areas where AI-driven automation can significantly improve efficiency and reduce operational costs.

However, as with any technological advancement, the integration of AI into insolvency law is not without challenges. Concerns regarding data privacy, algorithmic bias, and regulatory compliance must be addressed to ensure the ethical and responsible use of AI in insolvency proceedings.

In conclusion, the convergence of insolvency law and artificial intelligence represents a transformative paradigm shift in the legal landscape. By harnessing AI’s analytical prowess and automation capabilities, stakeholders can navigate insolvency proceedings with unprecedented efficiency, accuracy, and transparency, ultimately fostering a more robust and resilient financial ecosystem.

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Challenges:

1. Legal Complexity and Interpretation: The I&B Code is a comprehensive legislation, but its implementation involves navigating complex legal interpretations and addressing ambiguities. Courts have been instrumental in interpreting provisions, which has led to delays and uncertainties in the resolution process.
2. Operational Delays and Backlog: One of the critical challenges faced in implementing the I&B Code is the operational delays and backlog of cases. The infrastructure for handling insolvency proceedings, including the National Company Law Tribunal (NCLT) and the Insolvency and Bankruptcy Board of India (IBBI), has faced capacity constraints, leading to delays in resolving cases.
3. Lack of Precedents and Case Law: Given the relatively recent introduction of the I&B Code, there is a scarcity of precedents and established case law. This has resulted in varied interpretations of the law and inconsistent outcomes in different cases, affecting the predictability and reliability of the resolution process.
4. Stakeholder Coordination and Cooperation: Effective resolution under the I&B Code requires cooperation among various stakeholders, including creditors, debtors, resolution professionals, and regulatory authorities. Coordination challenges among these stakeholders can hinder the timely resolution of insolvency cases.
5. Financial Sector Readiness: The effectiveness of the I&B Code is closely linked to the readiness and capacity of the financial sector to participate in the resolution process. Building capabilities among lenders and financial institutions to assess distressed assets and engage in restructuring efforts remains a challenge.

Opportunities:

1. Promoting a Culture of Corporate Discipline: The I&B Code has instilled a sense of corporate discipline by emphasizing the timely resolution of financial distress. Companies are incentivized to resolve their financial issues promptly to avoid stringent consequences under the insolvency process.
2. Enhancing Credit Availability: A robust insolvency framework improves credit availability by reducing the risk perception among lenders. Clearer resolution mechanisms under the I&B Code encourage creditors to extend credit with greater confidence, supporting economic growth and investment.
3. Encouraging Entrepreneurship and Innovation: The I&B Code provides a structured exit mechanism for failed businesses, allowing entrepreneurs to learn from failures and explore new opportunities. It promotes a dynamic business environment where innovation and risk-taking are essential components of economic growth.
4. Attracting Investment and Enhancing Market Confidence: A transparent and efficient insolvency framework attracts domestic and foreign investments by providing clarity and predictability in resolving distressed assets. This enhances market confidence and strengthens India’s position as an attractive investment destination.
5. Policy Reforms and Continuous Improvement: Recognizing the challenges faced in implementation, policymakers have been proactive in introducing reforms to streamline procedures and address operational bottlenecks. Continuous improvement in the regulatory framework and infrastructure can further enhance the effectiveness of the I&B Code.

Conclusion:

The Insolvency and Bankruptcy Code represents a paradigm shift in India’s approach to resolving financial distress and revitalizing businesses. While challenges such as legal complexity, operational delays, and stakeholder coordination persist, the I&B Code also presents significant opportunities for promoting corporate discipline, enhancing credit availability, and attracting investment. As implementation evolves and reforms are introduced, ensuring a balanced approach to addressing challenges while leveraging opportunities will be crucial in realizing the full potential of the I&B Code and supporting sustainable economic growth.

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Under the IBC, a “claim” is broadly defined in Section 3(6) as:

(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

Filing of claims is imperative for homebuyers when the CIRP is initiated against the Real Estate developer as it helps in-

Protecting Your Investment:

For allottees, the investment in a real estate project often represents life savings, borrowed funds, or a significant portion of their financial assets. When the project faces financial difficulties, the uncertainty can be overwhelming. Timely filing of claims ensures that allottees are formally recognized as creditors in the insolvency process, safeguarding their financial interests. This step is crucial to asserting their right to recover their investments and any associated dues.

Ensuring Fair Participation:

The insolvency process is designed to be fair and equitable to all creditors. By filing claims promptly, allottees ensure that their interests are represented in the Committee of Creditors (CoC). The CoC has significant influence over the resolution plan, which determines how the project will proceed and how dues will be settled. Without timely claim submissions, allottees risk being excluded from this critical decision-making body, which can directly impact their ability to influence outcomes that affect their investments.

Becoming a Stakeholder in Future Decisions:

Filing claims on time allows allottees to become active stakeholders in determining the future course of action for the corporate debtor. As members of the CoC, they gain a voice in key decisions such as whether the project should continue under new management, undergo restructuring, or be sold. This involvement ensures that the allottees’ interests are considered in shaping the resolution strategy, thereby directly influencing the future of the project and their investments.

Enhancing Chances of Dues Recovery:

The primary concern for allottees during CIRP is the recovery of their dues, which can include the invested capital, compensation for delays, or other agreed-upon financial terms. Timely filing of claims is the first step in this recovery process. It formally registers the dues owed to the allottees, making it a priority for the IRP and CoC when devising the resolution plan. Whether the project continues under a new management, is restructured, or sold, the filed claims ensure that allottees are considered in the financial distribution, enhancing their chances of recovering their dues.

Legal and Procedural Compliance:

The Insolvency and Bankruptcy Code (IBC) mandates strict timelines for various stages of CIRP. The IRP has a limited period to verify claims and prepare the information memorandum. Allottees who file their claims within these timelines help streamline this process, ensuring that their claims are validated and included in the official list of creditors. Failure to file claims on time can lead to legal and procedural complications, potentially resulting in the loss of the right to recover dues.

Mitigating Financial and Emotional Stress:

The financial uncertainty of a stalled real estate project can cause significant stress for allottees. The timely filing of claims provides a structured way to address this uncertainty. It not only ensures that allottees are part of the formal resolution process but also offers a sense of proactive engagement in protecting their interests. Knowing that their claims are being considered can provide emotional relief and a clearer understanding of their position in the recovery process.

Supporting a Fair Resolution:

By filing claims on time, allottees contribute to a fair and transparent resolution process. This action supports the IRP in efficiently managing the insolvency process, facilitating a comprehensive assessment of the project’s financial status and the formulation of a viable resolution plan. A well-organized and inclusive process increases the likelihood of equitable outcomes for all stakeholders, including allottees.

Conclusion: Taking Timely Action

For allottees in a real estate project undergoing CIRP, timely filing of claims is not just a procedural requirement. It is a crucial step towards protecting their investments and securing their financial future. By ensuring their participation in the insolvency process, allottees enhance their chances of recovering dues, influencing the resolution of the project, and shaping the future course of action for the corporate debtor. In a challenging and uncertain time, taking prompt and informed action is key to navigating the complexities of CIRP and achieving the best possible outcome for allottees.

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In a recent decision, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising of Justice M. Venugopal, Justice Sharad Kumar Sharma, and Shri Jatindranath Swain, delivered a significant verdict regarding the jurisdiction of tribunals in recalling orders. The case in question, titled Adv. (CA) V. Venkata Sivakumar v Hari S. Hari Karthik & Ors., arose from an application seeking the inclusion of Rayagada property of the Corporate Debtor in the liquidation estate.

The background of the case involves the admission of the Jeypore Sugar Co. Ltd. (“Corporate Debtor”) into the Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. Subsequently, the NCLT ordered the liquidation of the Corporate Debtor and appointed Mr. V. Venkata Sivakumar as the Liquidator. An application was filed by secured creditors seeking the inclusion of certain properties in the liquidation estate, leading to a series of legal proceedings.

One of the pivotal moments in this legal saga occurred when the NCLT replaced Mr. V. Venkata Sivakumar with Mr. Hari S. Hari Karthik as the new Liquidator. Following this change, the new Liquidator withdrew an appeal filed by the erstwhile Liquidator before the NCLAT. In response, the erstwhile Liquidator filed a review application before the NCLAT, seeking the recall of the order allowing the withdrawal of the appeal.

However, the NCLAT Bench, in its judgment, made a crucial distinction between the power to recall an order and the power to review a judgment. It emphasized that the power to recall an order could only be exercised if there was a procedural error in pronouncing the earlier order. Furthermore, the Bench clarified that the power to recall an order is not tantamount to re-hearing the case de novo or examining the judicial propriety of the earlier decision.

The Bench’s ruling underscores the principle that the power of review is not inherent in the Tribunal under the Insolvency and Bankruptcy Code (IBC). Without express statutory provisions granting such power, the Tribunal cannot exercise the authority to review its own decisions. Additionally, the Bench held that the erstwhile Liquidator lacked locus standi to file a review/recall application in this case.

This decision has significant implications for the legal landscape surrounding insolvency proceedings and the jurisdiction of tribunals in recalling orders. It reaffirms the importance of adhering to procedural rules and statutory provisions while also delineating the boundaries of tribunal authority.

In conclusion, the NCLAT Chennai Bench’s dismissal of the review application seeking the recall of an order serves as a reminder of the limited circumstances under which a tribunal may revisit its own decisions. It highlights the need for parties to avail themselves of available legal remedies and the importance of clarity in the interpretation of statutory provisions governing insolvency proceedings.

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In a significant ruling, the National Company Law Tribunal (NCLT) Kolkata, comprising Smt. Bidisha Banerjee (Judicial Member) and Shri D. Arvind (Technical Member), has upheld the admission of Corporate Insolvency Resolution Process (CIRP) proceedings against Shree Mahalaxmi Corporation Pvt. Ltd. (the Corporate Debtor) under the Insolvency and Bankruptcy Code, 2016 (IBC), despite a Provisional Attachment Order under the Prevention of Money Laundering Act (PMLA). The case, titled State Bank of India vs. Shree Mahalaxmi Corporation Pvt. Ltd., marks a pivotal moment in the intersection of insolvency laws and anti-money laundering measures.

The background of the case revolves around the initiation of CIRP proceedings by the State Bank of India (SBI), seeking to recover a substantial debt amounting to Rs. 563.44 crores from the Corporate Debtor. The debt stemmed from a loan default dating back to 29.12.2012. Despite the Corporate Debtor’s contention that all its assets were under the jurisdiction of the enforcement directorate due to a Provisional Attachment Order under PMLA, the NCLT Kolkata ruled in favor of admitting the CIRP application.

Central to the Tribunal’s decision was the clear distinction it drew between the objectives and mechanisms of the IBC and the PMLA. While the PMLA primarily aims at confiscating proceeds of crime to prevent individuals from benefitting from criminal activities, the IBC focuses on reorganizing and resolving corporate insolvency in a time-bound manner, safeguarding stakeholders’ interests and promoting entrepreneurship.

Drawing from precedent-setting judgments such as Kiran Shah, RP of KSL and Industries Ltd vs. Enforcement Directorate and Deputy Director of Enforcement, Delhi vs. Axis Bank & Ors., the NCLT emphasized the need to balance the objectives of both legislations while ensuring that legitimate claims are addressed appropriately. It highlighted that the attachment of assets under PMLA does not grant the enforcement directorate superior rights over the property in question vis-à-vis the resolution process under the IBC.

Referring to the principles laid down in the Delhi High Court’s decision of Rajiv Chakraborty Resolution Professional of EIEL vs. Directorate of Enforcement, the Tribunal underscored the availability of avenues for addressing claims and grievances within the framework of both statutes. It clarified that Resolution Professionals are empowered to seek relief from competent authorities under PMLA concerning properties tainted by criminal activity, while ensuring compliance with legal procedures.

The NCLT Kolkata’s decision reaffirms the principle that the admission of CIRP proceedings under the IBC cannot be impeded solely by the existence of a Provisional Attachment Order under PMLA. It underscores the importance of upholding the integrity and efficacy of insolvency resolution mechanisms while concurrently addressing concerns related to money laundering and illicit financial activities.

In conclusion, the ruling in the case of State Bank of India vs. Shree Mahalaxmi Corporation Pvt. Ltd. sets a precedent for the coexistence of insolvency and anti-money laundering laws, ensuring that the interests of creditors, stakeholders, and the broader financial ecosystem are duly protected and balanced within the ambit of legal frameworks.

Case Title: State Bank of India vs. Shree Mahalaxmi Corporation Pvt. Ltd.

Case No. : Company Petition (IB) No. 130/KB/2022

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