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National Company Law Appellate Tribunal (NCLAT)- The Coram of Justice Jarat Kumar Jain (Judicial Member), Ashok Kumar Mishra (Technical Member), and Alok Srivastava (Technical Member) while dismissing an appeal summarily without notice to the Respondent was of the opinion, that there was no need to interfere with the impugned order since the adjudicating authority had rightly held that the petition was not maintainable.

In the pertinent matter, it was alleged that the adjudication authority had erroneously dismissed the Petition as not maintainable. Appeal was filed by the Shareholder of the Financial Creditor Company, and it was submitted that the petitioner can initiate action on behalf of the Company if the same is in the interest of the Company and the Board is not pursuing the same, as per the doctrine of derivative action. The adjudicating authority was of the opinion that such person does not come within the definition of aggrieved person under Section 61 of the IBC. Therefore, the Appeal was not maintainable. The adjudicating authority held that no Board Resolution was filed in regard to advance loan to Corporate Debtor Company as required under Section 186 of the Companies Act, 2013.

The Tribunal held that

“we have considered the submissions, undisputedly there is no board resolution authorising the appellant to file the petition under Section 7 of the IBC and filed this Appeal as there is deadlock in the Financial Creditors Company”.

The Court further held that,

“The facts of the cited cases are quite different and in theses citations it is held that a shareholder has no locus standi to maintain the suit, affirmed one of the exceptions to the aforesaid rule that where a shareholder can show that the wrong doers are in control of the defendant company and hence the company would be unable to maintain the action. So far as the Petition under Section 7 of the IBC is concerned, there is a specific notification by the Central Government under sub-section (1) of Section 7 of the IBC that on behalf of the Financial Creditor a guardian, an executor or administrator of an estate of a financial creditor, a trustee and a person duly authorized by the board of directors of a company may file Application for initiation of CIRP against the Corporate Debtor. In such situation, doctrine of derivative action cannot be applied in Petition under Section 7 of the IBC.”

[M Sai Eswara Swamy v. Siti Vision Digital Media Pvt. Ltd., Company Appeal (AT) (Ins) No. 706 of 2021, decided on 09-09-2021]


Counsel for the Parties:

For Appellant:

Mr. P Nagesh, Sr. Adv. with Mr. Harshal Kumar, Mr. Shivam Wadhwa

For Respondent:

Mr. Arvind Nayar, Sr. Adv. with Mr. Shivam Singh, Mr. Abhinav Singh, Advocates


Agatha Shukla, Editorial Assistant has reported this brief.