Tribunal rules that internal accounting and related-party transactions fail to establish independent financial debt; Resolution Professional's claim verification upheld in Corporate Insolvency Resolution Process
In a significant judgment delivered on September 1, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, dismissed the appeal filed by Somani Worsted Limited against the unilateral rejection of its admitted financial claim by the Resolution Professional (RP) during the Corporate Insolvency Resolution Process (CIRP) of Celebration City Projects Private Limited.
The matter arose from a dispute over the financial claims submitted by Somani Worsted Limited ("Appellant") during the CIRP of Celebration City Projects Private Limited ("Corporate Debtor"). The Appellant claimed that it had advanced Rs. 9.77 crores towards booking commercial space in the RED Mall project developed by the Corporate Debtor. Initially, the Resolution Professional admitted this claim and included the Appellant as a Financial Creditor in the Committee of Creditors (CoC). However, upon receiving objections from a related party financial creditor, the RP conducted further verification and subsequently rejected the claim, removing the Appellant from the CoC without prior permission from the Adjudicating Authority.
Somani Worsted Limited challenged this action before the National Company Law Tribunal (NCLT), which dismissed their application. Aggrieved, the Appellant approached the NCLAT, contending that the RP had acted beyond his statutory powers by revisiting and rejecting a previously admitted claim without due process.
The NCLAT bench, comprising Mr. Justice N. Seshasayee, Mr. Arun Baroka, and Mr. Indevar Pandey, meticulously analyzed the facts and documents. It was established that the original payment of Rs. 13.60 crores was made by the Appellant to AEZ Infratech Private Limited (now ADTV Communications Private Limited), a related entity under common management with the Corporate Debtor. The alleged transfer of Rs. 9.77 crores to the Corporate Debtor was supported mainly by internal inter-corporate memos, ledger entries, and balance sheets.
However, the Tribunal noted several critical points:
1. Common Management and Related Party Transactions: The entities involved shared common directors and addresses, and there was substantial cross-shareholding, indicating related-party transactions rather than independent dealings.
2. Lack of Direct Fund Transfer Evidence: No contemporaneous bank statements, cheque copies, or RTGS transaction records were provided to prove actual disbursement of funds directly to the Corporate Debtor.
3. Nature of Documentary Evidence: The ledger entries and balance sheet acknowledgments were internal accounting adjustments rather than proof of legally enforceable debt.
4. Preliminary Memorandum of Understanding (MoU): The MoU dated October 7, 2010, was a tentative understanding lacking essential contractual elements such as specific commercial unit details, payment milestones, or a definitive builder-buyer agreement.
5. Conduct of the Appellant: Despite knowledge of the project's occupancy certificate, the Appellant never sought possession or initiated action against the Corporate Debtor but pursued arbitration solely against AEZ Infratech Limited, securing an arbitral award against the latter.
The NCLAT upheld the Resolution Professional's authority to verify and update claims during CIRP under Regulation 13 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. It clarified that the RP's role is to verify claims based on available material and not to adjudicate disputed rights. The unilateral rejection was deemed an exercise of the RP's statutory duty and not an overreach of power.
Further, the Tribunal dismissed the Appellant's argument that simultaneous arbitration proceedings against AEZ precluded the RP from rejecting the claim in CIRP. It emphasized that the Appellant failed to establish an independent and legally enforceable financial debt against the Corporate Debtor, rendering the rejection of the claim lawful.
This ruling reinforces the principle that mere internal accounting entries and related-party arrangements cannot establish financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC), and underscores the need for clear evidence of actual financial transactions for claim admission during insolvency proceedings.
The appeal was dismissed with no order as to costs.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Resolution Professional is vested with the responsibility to verify and update claims during the Corporate Insolvency Resolution Process (CIRP) and cannot mechanically admit a claim without due diligence.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 5(8)(f), 60(5); Insolvency and Bankruptcy Board of India (CIRP) Regulations, 2016 Regulation 13
