After recusal over attempt to influence member, NCLAT sets aside insolvency; imposes ₹10 lakh costs

The National Company Law Appellate Tribunal (NCLAT) on Monday set aside insolvency proceedings in a case that had earlier seen a tribunal member recuse after disclosing an alleged attempt to influence the outcome through a retired High Court judge. [Attluru Sreenivasulu Reddy, Suspended Director of KLSR Infratech Ltd v. AS Met Corp]

A Bench led by Chairperson Justice Ashok Bhushan allowed the appeal and overturned the National Company Law Tribunal (NCLT), Hyderabad order dated July 14, 2023, which had admitted a Section 9 application filed by AS Met Corp.

The NCLAT dismissed the insolvency proceedings with costs of ₹10 lakh, directing the operational creditor to pay the amount within 30 days.

It also directed that a copy of the judgment be forwarded to the Insolvency and Bankruptcy Board of India (IBBI) “to look into the matter and take appropriate measures.”

The dispute traces back to a Section 9 petition filed by AS Met Corp before the NCLT, Hyderabad seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor over alleged unpaid dues of about ₹3.79 crore.

It was contended that a large-scale fraud had taken place involving collusion between employees and suppliers, including the operational creditor. According to the corporate debtor, an internal audit initiated in December 2021 revealed discrepancies such as fake invoices, absence of vehicle movement and irregularities in transactions.

A first information report (FIR) was registered on June 30, 2022 alleging offences including cheating, forgery and criminal conspiracy.

By its order dated July 14, 2023, the NCLT admitted the petition, holding that an operational debt was due.

Aggrieved by the admission, the suspended director of the corporate debtor filed an appeal before the NCLAT. The appellate tribunal granted interim protection and stayed further CIRP proceedings pending the challenge.

The appeal had earlier come up before the NCLAT Chennai Bench in August 2025, when Judicial Member Justice Sharad Kumar Sharma recused from hearing the matter.

He disclosed in open court that a litigating party had attempted to approach him through a retired High Court judge to secure a favourable order. Justice Sharma referred to a message received on his mobile phone, showed it to counsel present, and stepped away from the proceedings.

Following the recusal, the matter was transferred to the NCLAT Principal Bench in New Delhi pursuant to directions of the Supreme Court.

The Appellate Tribunal found that the corporate debtor had raised a detailed and substantive dispute in its reply to the demand notice, prior to initiation of insolvency proceedings. It held that the insolvency mechanism under the IBC cannot be invoked in such circumstances.

The Tribunal emphasised that insolvency proceedings cannot be used as a substitute for recovery or as a tool to pressurise a corporate debtor where serious disputes exist.

Appellant were represented by Senior Advocate Arun Kathpalia with Advocates Honey Satpal, Mayan Jain, Prashant Reddy, Akash Agarwalla, Aman and Diksha Singh.

The respondents were represented by Senior Advocate Sanjoy Ghose with Advocates Rohan Mandal, Rahul Gupta and Siddharth Mishra.

[Read Judgment]