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NCLT Chennai: SREI Finance Not of AMRL Hitech Under IBC Section 5(24)
The has delivered a significant ruling clarifying the boundaries of the "" definition under (IBC). In a judgment dated , the Bench held that mere commercial association, historical linkage, or institutional connection cannot, by itself, make an entity a of a corporate debtor. The decision set aside the classification of and as related parties of (the corporate debtor) and directed the Resolution Professional (RP) to include them in the with appropriate voting shares.
The Dispute: RP’s Exclusion of SEFL and SIFL from the CoC
The controversy arose when the RP, during the of AMRL Hitech City, classified SEFL and SIFL as related parties under Section 5(24) of the IBC. This classification resulted in their exclusion from the CoC, a decision that severely limited their ability to participate in the resolution process. The RP’s reasoning was based on an alleged chain of linking SIFL to the corporate debtor through a series of intermediary entities: SIFL held 51% of , which in turn managed the . SAIT, through its , held 58.61% of the shares in AMRL Hitech City. The RP argued that SIFL thus exercised indirect over the corporate debtor, bringing SEFL and SIFL within the related-party net.
The applicants—SEFL and SIFL—challenged this classification, contending that the chain of was broken at the TAIML-SAIT link. They argued that the relationship between TAIML (as ) and SAIT (as a trust) was one of agency, not , and that neither SIFL nor SEFL had the ability to direct the management or affairs of the corporate debtor.
Key Observations: ‘’
The NCLT, comprising Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy, examined the Investment Management Agreement between TAIML and SAIT. It found that TAIML’s powers were delegated by and derived from the of SAIT, and could not be exercised independently. The Tribunal observed:
“The material relied upon by the Resolution Professional undoubtedly establishes that the entities in question formed part of a broader commercial ecosystem and shared certain historical and institutional linkages. However, the existence of such linkages, by itself, does not answer the statutory enquiry. The enquiry required under Section 5(24) is not whether entities are connected in a broad commercial sense, but whether they stand related through a involving management, , decision-making authority or other circumstances specifically contemplated by the statute.”
The Bench further noted that in the shares of AMRL Hitech City vested with the of SAIT, while investment decisions were taken by an independently constituted Investment Committee. The regulatory framework governing Alternative Investment Funds (AIFs) under the required the to act in a towards investors, reinforcing that TAIML did not exercise over the trust’s investment decisions.
Judicial Precedent and the Test of ‘’
The NCLT referred to two landmark decisions: and . Relying on these authorities, the Tribunal held that while the related-party provisions must prevent abuse of the insolvency process, the concept of “” cannot be extended to every commercial association, influence, business relationship, or historical linkage. Legal , the Tribunal emphasised, requires the ability to determine, direct, or materially influence an entity’s management, policy, or affairs.
The Bench also rejected the RP’s reliance on transaction-audit observations and pending allegations in proceedings under (dealing with ). It held that such allegations, by themselves, could not constitute conclusive proof of related-party status without a substantive adjudication.
The Decision: Set Aside and Directed Reconstitution of CoC
Acceding to the applicants’ arguments, the NCLT set aside the classification of SEFL and SIFL as related parties and their consequential exclusion from the CoC. It directed the RP to reconsider their full claims—including interest and overdue instalments—and treat them as eligible financial creditors. The RP was further directed to reconstitute the CoC by including the applicants with the appropriate voting share within four weeks.
Implications for Insolvency Practice
This ruling has far-reaching implications for the resolution process under the IBC. The composition of the CoC is critical, as financial creditors with shape the resolution plan. Improper exclusion of a creditor on the ground of being a can skew the voting dynamics and delay the process. The NCLT’s strict interpretation of “” under Section 5(24) provides a clear benchmark for resolution professionals and adjudicating authorities.
First, it underscores that mere structural interlinkages—such as common ownership of an asset manager or historical business ties—do not automatically trigger related-party status. Second, it reinforces the principle that must be legally cognisable, not merely presumptive. Third, the decision highlights the need for RPs to conduct a granular factual inquiry rather than rely on surface-level corporate structures, especially when dealing with entities that are part of a broader commercial ecosystem.
The judgment also clarifies the position of investment managers and trustees within AIF structures. As the NCLT noted, an acting in a does not “” the trust or its underlying investments for the purposes of the IBC. This interpretation will be closely watched by the financial services sector, where such structures are common.
Conclusion
The NCLT Chennai’s ruling marks a measured and principled approach to the related-party provisions under the IBC. By rejecting an expansive interpretation that would sweep in every entity with a commercial or historical link, the Tribunal has preserved the integrity of the CoC and ensured that the insolvency process is not unduly disrupted by speculative classifications. For legal professionals, this judgment serves as a valuable reference point for arguing or adjudicating related-party disputes, particularly in cases involving complex holding structures and investment trusts. The direction to include SEFL and SIFL in the CoC with is a clear message that the IBC’s related-party test must be applied with precision, not presumption.
