Back
NCLT Kolkata Rules , Not Actual , Determines Status for Abinandan Holdings
In a significant ruling under the , the , has clarified that a creditor may be classified as a based solely on the of a common director and his relatives, even without any evidence that the director exercised actual over the . The decision reinforces that the statutory under is an , independent of subjective analysis.
The tribunal was hearing an application filed by , which challenged its classification as a “ Financial Creditor” of , a undergoing the . The bench comprising Judicial Member Labh Singh and Technical Member Rekha Kantilal Shah dismissed AHPL’s plea, upholding the status based on the aggregate shareholding of director Prashant Damani and his relatives. However, the tribunal also faulted the (IRP) for unilaterally reclassifying AHPL after the had already been constituted.
Background of the Dispute
AHPL had submitted its claim of approximately ₹71.92 crore during HMCL’s insolvency proceedings. The IRP initially admitted the claim but treated AHPL as an . Subsequently, and another third party raised objections, prompting the IRP to commission a due diligence report from . Based on that report, the IRP reclassified AHPL as a financial creditor, a move that drastically reduced AHPL’s in the CoC.
AHPL argued that its transactions with HMCL were purely financial in nature. It contended that Prashant Damani had been appointed as a under a contractual arrangement, with his role limited to protecting AHPL’s financial exposure and monitoring the utilisation and repayment of funds. AHPL maintained that it neither exercised management or operational over HMCL nor participated in its day-to-day affairs. The IRP, however, relied on the (MOU), which granted Damani the same rights and privileges as other directors, including voting rights, and assigned him a role in overseeing and monitoring HMCL’s functioning.
The Core Legal Issue: Actual vs.
The tribunal drew a critical distinction between provisions of the IBC that require proof of actual influence over the ’s affairs and the provision under which AHPL was being classified. defines a “” in relation to a to include a person who holds more than 2% of the in the . The tribunal observed that this provision turns solely on whether the statutory is met, not on whether the director or the creditor actually exercised .
“Although the findings under Sections 5(24)(h) and 5(24)(m)(i) cannot be sustained merely on the basis of the nominee-directorship arrangement, the Applicant is nevertheless a of the under Section 5(24)(d) on the basis of the shareholding disclosed in its own records,” the bench observed.
The tribunal noted that AHPL’s own records showed Prashant Damani held 1.01% of HMCL’s shares, while Prashant Damani (HUF) held 12%, Deo Kishan Das Damani (HUF) held 10.06%, and the Estate of Deo Kishan Das Damani held 9.06%. AHPL’s affidavit established that Deo Kishan Das Damani was Prashant Damani’s father. The four holdings together amounted to 32.13%, well above the prescribed 2% threshold. The tribunal therefore held AHPL to be a under Section 5(24)(d). It found it unnecessary to decide whether the 37.73% holding of should also be counted.
IRP’s Reclassification Improper After CoC Formation
While affirming the status, the tribunal also addressed the procedural impropriety in the IRP’s reclassification. The CoC had been formed on , with AHPL holding a 25.60% voting share. The reclassification occurred on , after the CoC was already constituted. Relying on the judgment in Byju Raveendran v. Aditya Birla Finance Ltd. & Ors. (2025), the tribunal held that a disputed reclassification should have been placed before the rather than being unilaterally decided by the IRP.
The bench clarified that this finding did not give AHPL an automatic right to vote in the CoC contrary to the IBC. The tribunal’s observation was limited to the IRP’s lack of authority to alter AHPL’s status post-CoC formation. The proper course would have been for the IRP to seek directions from the NCLT.
Legal Implications and Analysis
The ruling has several important implications for insolvency practitioners and financial creditors. First, it establishes that the under Section 5(24)(d) is a . Creditors cannot argue that a ’s lack of should exempt them from classification if the director’s relatives collectively hold shares above the 2% threshold. This aligns with the IBC’s objective of preventing related parties from influencing the resolution process.
Second, the decision underscores that the IRP must follow due process when reclassifying claims. The IBC mandates that any dispute regarding the admission or rejection of claims, especially those affecting voting rights in the CoC, must be adjudicated by the NCLT. Unilateral reclassification by the IRP after the CoC is constituted undermines the statutory scheme and can lead to procedural challenges.
Third, the tribunal’s reliance on Byju Raveendran signals that courts will strictly enforce procedural timelines and the IRP’s limited powers. The IRP is not a quasi-judicial authority and cannot retroactively alter the composition of the CoC without judicial oversight.
Impact on Legal Practice
Insolvency professionals should take note that the analysis under the IBC is bifurcated. Provisions requiring actual (such as Sections 5(24)(h) and 5(24)(m)(i)) demand a fact-intensive inquiry, while the shareholding-based provision (Section 5(24)(d)) is a mathematical test. Practitioners must carefully evaluate the shareholding patterns of directors and their relatives, including through HUFs and estates, to determine status.
For financial creditors, the ruling serves as a warning that arrangements will not shield them from classification if the director’s family holds a substantial stake in the . Creditors should conduct thorough due diligence before advancing funds to companies where their nominee may be deemed to through familial holdings.
The procedural aspect also reinforces that any challenge to claim classification should be promptly raised before the . Delaying the reclassification until after the CoC is formed may lead to unnecessary litigation and delay in the resolution process.
Conclusion
The NCLT Kolkata’s judgment strikes a balance between strict statutory interpretation and procedural fairness. By affirming the objective for status, the tribunal has provided clarity to all stakeholders. At the same time, by faulting the IRP’s unilateral reclassification, it has reaffirmed the importance of judicial oversight in insolvency proceedings. The decision will likely influence future disputes over classifications under the IBC and reinforce the need for early adjudication of such issues.
