Debt Appears "Collusive", Says NCLAT While Dismissing Insolvency Application: Khaitan & Co. Analysis
NCLAT has set a binding precedence with respect to related party transactions and resultant fraudulent initiation of insolvency.
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Khaitan & Co. Update
On July 27, 2022, the National Company Law Appellate Tribunal upheld the order of the National Company Law Tribunal, New Delhi dated May 17 2022 dismissing an application to initiate Corporate Insolvency Resolution Process on the ground that the debt appeared suspicious and collusive in nature.
This judgement, in interpretation, possibly enlarges the scope of preferential transactions under Section 43 to the extent of vitiating transactions between related parties with the malicious intent of initiating CIRP proceedings under the Code.
It further brings about a binding precedence with respect to related party transactions and resultant fraudulent initiation of CIRP, to a line of judgements that have allowed a discretionary observation over and above the two-year lookback period as prescribed under Section 43 of the Code.
The parties are entitled to file a statutory appeal to the Supreme Court of India in terms of the Code against this judgment.
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