DMD Advocate Represented Respondent Creditors As NCLT Ahmedabad Bench Reaffirms Limits On Suspended Board’s Locus In CIRP; Upholds Financial Debt Classification

DMD Advocate Represented Respondent Creditors as NCLT Ahmedabad Bench Reaffirms Limits on Suspended Board’s Locus in CIRP; Upholds Financial Debt Classification

The leading law firm in India, DMD Advocate, represented Respondent Nos. 2 to 4 in proceedings before the Hon’ble National Company Law Tribunal, Ahmedabad Bench. The Tribunal, vide order dated February 26, 2026, dismissed an Interlocutory Application filed by the suspended director and shareholder of the Corporate Debtor in an ongoing Corporate Insolvency Resolution Process (CIRP). The application sought, inter alia, the removal of Respondent Nos. 2 to 4 from the Committee of Creditors (CoC), challenging the categorization of their claim as “financial debt.” The Hon’ble Tribunal upheld the classification of the claims of Respondent Nos. 2 to 4 as “financial debt” within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC), and consequently upheld their inclusion in the CoC.

Limits on Suspended Board’s Locus in CIRP

At the threshold, the Hon’ble Tribunal reiterated the settled legal position that upon initiation of CIRP, the powers of the Board of Directors stand suspended and the management of the Corporate Debtor vests in the Resolution Professional (RP). The suspended management is not entitled to interfere in the day-to-day conduct of the CIRP or in the commercial decisions taken by the CoC. The Tribunal held that the Applicant lacked locus standi to challenge the categorization of the claims of Respondent Nos. 2 to 4. It further observed that the IBC provides specific remedies and delineates limited grounds for judicial interference. An application seeking to assail commercial or procedural steps, absent any demonstrated statutory breach, would not be maintainable.

Tribunal Upholds Financial Debt Classification

On the issue of classification of the claims of Respondent Nos. 2 to 4, the Hon’ble Tribunal held that where parties have consciously structured their exposure as a repayable financial obligation, it would not be appropriate to disregard such characterization. The existence of a structured repayment obligation with interest constitutes a key indicator of the “time value of money.” The Tribunal observed that even if the original advances were linked to project execution, the subsequent agreements clearly reflected an intention to convert the existing exposure into a structured financial obligation. The liability was no longer contingent upon the performance of contractual milestones. Such restructuring, voluntarily undertaken by the parties, demonstrated that the exposure had assumed the commercial character of borrowing. Upon examining the material on record, the Hon’ble Tribunal concluded that the statutory ingredients of “financial debt” stood satisfied.

Legal Representation

Mr. Gopal Jain (Senior Advocate) along with Kuber Dewan (Litigation Partner), Neeharika Aggarwal (Associate Partner) and Kaustubh Srivastava (Associate) appeared on behalf of Respondent Nos. 2 to 4.

Conclusion

This ruling reinforces the established legal principle that once CIRP is initiated, the powers of the suspended board stand curtailed and commercial decisions of the Committee of Creditors cannot be lightly challenged without statutory grounds. The outcome also underscores the significance of the commercial substance of financial arrangements in determining “financial debt” under the IBC. DMD Advocate continues to represent clients in complex insolvency and restructuring matters, providing strategic legal guidance in high-stakes CIRP proceedings.

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