Assignee of Debt from a Related Party Inherits Disqualification from CoC: NCLT Chennai - 2025-09-07

NCLT Chennai Upholds 'Related Party' Classification for Assignee, Bars Entry into CoC

CHENNAI, INDIA – In a significant ruling clarifying the scope of 'related party' disqualifications under the Insolvency and Bankruptcy Code (IBC), 2016, the National Company Law Tribunal (NCLT), Chennai Bench, has held that an entity acquiring debt from a related party of the corporate debtor also inherits the disqualification from being part of the Committee of Creditors (CoC).

The bench, comprising Shri. Jyoti Kumar Tripathi (Judicial Member) and Shri. Ravichandran Ramasamy (Technical Member), dismissed an application filed by Garg Iron and Energy Private Limited (GIEPL), which sought inclusion in the CoC of Bhadreshwar Vidyut Private Limited (BVPL). The Tribunal concluded that the debt assignment was a strategic maneuver to gain a "back door entry" into the CoC on behalf of the original, disqualified creditor.

Case Background

The case revolved around a claim of ₹103.39 crore filed by GIEPL against BVPL, which is currently undergoing Corporate Insolvency Resolution Process (CIRP). GIEPL acquired this debt in 2019 through an assignment agreement from OPG Power Generation Private Limited (OPGPG).

The Resolution Professional (RP), Mr. Hitesh Goel, admitted GIEPL's claim but classified it as a 'related party' of the corporate debtor, BVPL. This classification automatically disqualifies a creditor from participating and voting in the CoC, a crucial body that decides the fate of an insolvent company. GIEPL challenged this classification, leading to the present application before the NCLT.

Core Arguments Presented

Applicant's (GIEPL) Stance: GIEPL's counsel argued that it was an independent entity with no direct relation to the corporate debtor. The RP's classification was based on the premise that the original creditor, OPGPG, was a related party of BVPL because both were allegedly subsidiaries of the same holding company, Gita Power and Infrastructure Private Limited (GPIPL). GIEPL contended that GPIPL was not BVPL's holding company as it held only 46% of its shares, not the requisite "more than one-half." They argued that a disputed 5% shareholding was held by GPIPL in a 'fiduciary capacity' for another entity and should not be counted, citing an MCA circular.

Respondent's (RP) Stance: Senior Advocate Mr. M S Krishnan, representing the RP, countered that GPIPL effectively held 51% of BVPL, making it the holding company. The purported transfer of a 5% beneficial interest was non-est and void as it violated the terms of a Pledge Deed with BVPL's lenders, which required their prior written consent for any such transfer. Since OPGPG was also a subsidiary of GPIPL, it was undeniably a related party of BVPL. Consequently, the RP argued that GIEPL, by stepping into the shoes of a related party via assignment, also carries the same stigma and disqualification. The RP further contended that the assignment was a malafide attempt to circumvent IBC provisions and allow the related party's interests to be represented in the CoC.

Tribunal's Findings and Rationale

The NCLT meticulously examined the corporate structure and the nature of the transactions.

1. On the 'Holding Company' Status: The Tribunal found that the transfer of the 5% shares by GPIPL was executed without the mandatory consent from lenders, as required by a pre-existing Pledge Deed. This made the transfer "illegal, non-est in law, and void ab initio."

"In light of the binding undertakings under the Pledge Deed, the purported transfer of beneficial interest of the said 5% shares... is illegal... Accordingly, Gita Power/ GPIPL continues to be the holding company and a related party of BVPL," the order stated. This confirmed that GPIPL held a controlling 51% stake in BVPL, establishing it as the holding company.

2. On the Assignee Inheriting Disqualification: The Tribunal concluded that since GPIPL was the holding company of both BVPL and OPGPG, the assignor (OPGPG) was correctly identified as a related party of the corporate debtor. The pivotal question was whether GIEPL, as the assignee, would also be disqualified.

Citing the Supreme Court's judgment in Phoenix ARC Pvt. Ltd. vs. Spade Financial Services Ltd. and NCLAT's ruling in Rare Asset Reconstruction Ltd. v. Avishek Gupta , the Tribunal held that assignments designed to circumvent the disabilities under Section 21(2) of the IBC are not bona fide.

The bench found no evidence that consideration for the assignment was paid, leading it to suspect the transaction's genuineness.

"...this Court has reason to suspect that, the Assignment Transaction... was not in ordinary course of business and same is now under the attempt of being used as a tool to dilute the Voting Share of the Genuine Creditors in the CoC, thereby gaining a back door entry through the applicant who would represent the interest of the OPGPG who is disqualified as Related Party," the Tribunal observed.

The Final Verdict

Based on these findings, the NCLT dismissed GIEPL's application, affirming the RP's decision to classify it as a related party. The Tribunal ruled that GIEPL, "who comes in the shoes of OPGPG, a related party based on assignment of debt will also be considered as Related Party" and is therefore disqualified from being a member of the CoC. This judgment reinforces the judiciary's intent to prevent related parties from influencing the insolvency resolution process through strategic assignments or corporate restructuring.