Resignation of directors before insolvency commencement precludes challenges to liquidation proceedings based on related party disqualifications.

The Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor (CD) commenced on April 6, 2022.

Following the dismissal of an appeal against the admission order and the subsequent failure of the CIRP, the Adjudicating Authority (NCLT, Cuttack Bench) ordered liquidation on September 14, 2022.

The Appellant, a suspended director, filed I.A. No. 13 of 2023 alleging that a related party was a member of the Committee of Creditors (CoC); however, this application was withdrawn on October 11, 2023, without liberty to file afresh.

The Appellant subsequently filed I.A. No. 26 of 2024 seeking to set aside the liquidation proceedings, alleging they were conducted in a prejudicial manner due to the involvement of Mr. M.S. Balaji, who purportedly held a 27% shareholding in the CD through Kasa Anlagen India Pvt. Ltd. while managing the CD’s affairs.

The NCLT rejected I.A. No. 26 of 2024 on October 15, 2025, and ordered the dissolution of the CD on December 19, 2025.

1. Whether the liquidation proceedings were vitiated by the presence of a "related party" in the CoC and the management of the CD?

2. Whether the Adjudicating Authority erred in dismissing the application to set aside liquidation and subsequently ordering the dissolution of the CD?

The court primarily applied the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) regarding the definition and disqualification of "related parties" in the context of the CoC and insolvency proceedings.

It focused on the temporal requirement of "related party" status, emphasizing that cessation of directorship and interest prior to the commencement of CIRP removes the bar associated with related party involvement.

The court also implicitly relied on procedural finality, noting that a second application on similar grounds after an unconditional withdrawal of a prior application is generally untenable.

The Tribunal examined the Appellant's contention that Mr. M.S. Balaji was a related party exercising control over the CD through a 27% shareholding via Kasa Anlagen India Pvt. Ltd.

The Tribunal relied on the NCLT's finding that Balaji had resigned from the CD on November 17, 2018, and from the Operational Creditor (OC) on April 1, 2019.

Given that the Section 9 application was admitted on April 6, 2022, the Tribunal concluded that Balaji held no directorship or disqualifying interest at the time of the insolvency or liquidation proceedings.

Regarding the shareholding allegations, the Tribunal noted that the MGT-7 returns for the financial years 2016-17 and 2017-18 did not list the Operational Creditor as a shareholder.

The Tribunal further observed that the Appellant's reliance on older MGT-7 forms (2017-2018) failed to prove related-party status at the time of the CIRP.

Consequently, the Tribunal found no evidence that the liquidation process was prejudicial or legally flawed.

The Tribunal affirmed that no grounds existed to set aside the liquidation or the subsequent dissolution order at the instance of the suspended director.

Both appeals were dismissed.