NCLT must decide a third party’s Section 60(5) application before finally deciding the Section 7 petition.

Respondent No. 2, Buldana Urban Cooperative Credit Society Ltd., initiated a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) against Respondent No. 1, Sachin Ghayal Sugar Pvt. Ltd., before the NCLT, Mumbai Bench. The Appellant, Shri Sant Eknath Co-operative Sugar Factory Ltd., was not a party to the Section 7 proceedings.

The Appellant had entered into a Collaboration Agreement dated 03.08.2015 and a subsequent agreement dated 28.10.2016 with Respondent No. 1 for the operation and management of its sugar factory. Under the agreements, Respondent No. 1 undertook certain financial obligations, including repayment of bank dues and indemnification of the Appellant against losses arising from non-payment.

Disputes between the Appellant and Respondent No. 1 were referred to arbitration, resulting in an award dated 27.11.2017, subsequently modified by a compromise order dated 30.07.2018/31.07.2018.

The Appellant alleged that the Section 7 proceedings were collusive and could adversely affect the Appellant’s sugar factory, its assets, approximately 18,000 farmer-members, and its employees.

On 25.09.2025, the Appellant filed an interlocutory application under Section 60(5) of the IBC read with Rule 11 of the NCLT Rules, seeking intervention, disclosure of pleadings, rejection of the Section 7 petition, and action under Section 65 of the IBC for allegedly fraudulent and malicious initiation of proceedings.

Whether the NCLT ought to have decided the Appellant’s application under Section 60(5) of the IBC before proceeding to finally determine the Section 7 petition, particularly when the Appellant alleged collusion and prejudice to its property and rights?

Whether the proceedings in the Section 7 petition should be deferred until adjudication of the Appellant’s interlocutory application, notwithstanding that the Appellant was not originally a party to the Section 7 proceedings?

The Court applied Section 7 of the IBC, which governs initiation of corporate insolvency resolution proceedings by a financial creditor, and Section 60(5), which empowers the NCLT to entertain and dispose of questions of law or fact arising out of or in relation to insolvency proceedings.

Rule 11 of the NCLT Rules, invoked by the Appellant, preserves the Tribunal’s inherent powers to pass orders necessary to secure the ends of justice.

The Court also considered the principle of natural justice, particularly the requirement that a person whose rights may be materially affected should receive a fair opportunity of being heard before a final decision is made.

Section 65 of the IBC was relied upon by the Appellant in seeking action against allegedly fraudulent or malicious initiation of insolvency proceedings.

The NCLAT acknowledged that the Appellant was not a party to the Section 7 proceedings and that the impugned order primarily concerned Respondent No. 1’s failure to file its reply.

Nevertheless, the Appellant had placed before the NCLT specific allegations that the Section 7 proceedings were collusive and that the insolvency process could prejudice its sugar factory, contractual rights, assets, farmer-members, and employees.

Since the Appellant’s Section 60(5) application directly sought intervention and adjudication of those alleged consequences, leaving the application undecided while proceeding towards a final determination of the Section 7 petition could defeat its purpose.

The NCLAT held that, in the interests of judicial fairness and natural justice, the NCLT should have considered the application before finally deciding the Section 7 petition.

The Court found no compelling urgency justifying the NCLT’s failure to first address the application.

The NCLAT directed the NCLT to first decide the Appellant’s interlocutory application bearing filing No. 2709138/09442/2025 under Section 60(5) of the IBC, if it had not already been decided, within three months.

The NCLT was directed to defer passing the final order in CP (IB) No. 990(MB)2024 until disposal of that application and thereafter proceed to decide the Section 7 petition on its merits.

All pending interlocutory applications before the NCLAT were closed.