Suspended management lacks legal authority to independently commission forensic audits to challenge admitted claims during CIRP.

In brief

The question

Whether the suspended management of a Corporate Debtor has the legal authority or locus standi under the IBC to independently conduct a forensic audit during the CIRP

The court held

The NCLAT dismissed the appeal and affirmed the Impugned Order

It also directed

It held that there is no provision in the IBC for suspended directors to conduct a private forensic audit, and such a report cannot be used to interfere with the CIRP

The court ruled that if any claim was wrongly admitted, the proper remedy lies with the aggrieved party, not the suspended management

No order as to costs was made

01Facts

The Corporate Debtor (CD) was admitted into Corporate Insolvency Resolution Process (CIRP) on 27.02.2023

p. 2

The Resolution Professional (RP) appointed PNAM & Co. LLP as Transaction Auditor and subsequently filed avoidance applications (IA 701/2024 and IA 1068/2024) against the Appellant-suspended management

p. 3

While these were pending, the Appellant commissioned a private audit through Baker Tilly ASA India LLP, which allegedly found that the RP wrongly admitted claims worth ₹114 Cr.

p. 3

The Appellant filed IA 151/2025 seeking to place this private report on record, dismiss the RP’s audit report, and direct a fresh audit

p. 3

The Adjudicating Authority (NCLT Chandigarh) dismissed the application, holding that the suspended management lacked the locus to conduct such an audit

p. 7

The Appellant challenged this dismissal.

02Issues

i.Whether the suspended management of a Corporate Debtor has the legal authority or locus standi under the IBC to independently conduct a forensic audit during the CIRP

p. 7 / para. 10

ii.Whether a report commissioned by an interested party (suspended management) without CoC approval can be used to challenge the RP’s verification of claims or avoidance applications

p. 9 / para. 10

03Law Applied

The court primarily applied Section 18(1)(b) of the IBC regarding the RP's duty to receive and collate claims

p. 4

Regulation 14 of the IBBI (CIRP) Regulations, 2016.

p. 4

It further relied on the principle that the IBC contains no provision enabling suspended directors to bypass the Committee of Creditors (CoC) to conduct an independent "forensic audit"

p. 7 / para. 10

The court reinforced the doctrine of the RP’s independence and the CoC’s commercial wisdom in overseeing the resolution process, noting that any challenge to claim admissions must be filed by the aggrieved creditor, not the suspended management

p. 7 / para. 10

04Reasoning

The Tribunal reasoned that the Baker Tilly report lacked legal sanctity as it was commissioned without CoC approval and was essentially a "ghost report" lacking signatures, stamps, or auditor particulars

pp. 7-8

The court noted that the report was replete with exhaustive disclaimers that rendered it "toothless" and unreliable

p. 8

Legally, the court found that allowing suspended management to control the audit process using selective data violates confidentiality and creates an inherent conflict of interest/bias

p. 9

The court observed that the RP had already followed the statutory process by forming an opinion and filing avoidance applications based on an independent auditor's report

p. 9

It concluded that the Appellant’s actions were a "clever ploy" to derail the resolution process after the CoC had already approved a resolution plan with a 99.21% majority

pp. 9-10

05Holding

The NCLAT dismissed the appeal and affirmed the Impugned Order

p. 10

It held that there is no provision in the IBC for suspended directors to conduct a private forensic audit, and such a report cannot be used to interfere with the CIRP

p. 7, 9

The court ruled that if any claim was wrongly admitted, the proper remedy lies with the aggrieved party, not the suspended management

p. 7

No order as to costs was made

p. 10

LawLens.NCLAT

Original Court PDF