Third Party Cannot Be Allowed To Participate In Pre-Admission Stage Of Petition U/S 7 Of IBC: NCLT Mumbai

The National Company Law Tribunal, Mumbai Bench of justice of Shri Kuldip Kumar Kareer (Judicial Member) and Shri Anil Raj Chellan (Technical Member) held that no third party can be allowed to participate in the pre admission stage of a petition under section 7 of the Insolvency and Bankruptcy Code (IBC).

Brief Facts

This application under section 60 of the IBC was filed by Vijayalaxmi Developers,the petitioners. They sought to intervene in the matter already pending under section 7 of the IBC between LIC Housing Finance (Respondent No.1) against Ishwar Constructions Pvt. Ltd. (Respondent No. 2), the Corporate Debtor. The petitioner contended that mortgage over their property was created illegally in favour of the respondent. It was claimed that no consent was taken for this. They also argued that there was a collusion between the financial creditor and the corporate debtor for defeating their rights over the property. It was claimed that section 7 petition should be stayed and a penalty under section 65 of the IBC should be imposed on the financial creditor.

NCLT's Analysis

The NCLT found no substance in the present application. The tribunal referred to the judgments of the NCLAT in Deb Kumar Mujumdar Vs. State Bank of India(2019) wherein it was held that no third party intervention is allowed at pre admission stage of a section 7 petition. The tribunal noted that only the corporate debtor is allowed to be heard at this stage.

The tribunal further noted that at pre admission stage, only role of the tribunal is to see whether any debts exist and there is a default on the part of the corporate debtor. Once these two conditions are satisfied, the corporate debtor is admitted into insolvency.

The tribunal referred to another NCLAT judgment in Vekas Kumar Garg Vs DMI Finance Pvt. Ltd. & Anr. (2021) wherein it was held that no party other than financial creditor and corporate debtor is permitted to participate in the pre admission stage proceedings.

The tribunal concluded that the applicant had no right to intervene and to be heard in the ongoing proceedings. The tribunal further observed that remedies for the violation of the rights of the applicant if any would be addresses after the admission of the corporate debtor into insolvency.

Accordingly, the present intervention application was dismissed.

Case Title: Vijayalaxmi Developers and Anr.

Case Reference: IP. No. 28/2024 in C.P.(IB) No. 336/MB/C-II/2024

Court: NCLT, Mumbai

Judgment Date: 08/10/2024

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