NCLT Mumbai Rules in Favor of Canara Bank, Allows Forensic Audit in CIRP Case

The National Company Law Tribunal (NCLT), Mumbai bench, has issued a significant ruling in the Corporate Insolvency Resolution Process (CIRP) case of Carnival Techno Park Pvt. Ltd. (CTPPL). The tribunal denied Canara Bank’s request to recall the CIRP admission but allowed a forensic audit to examine the claim made by Reliance Commercial Finance Ltd. (RCFL) and verify whether it qualifies as a secured financial debt.

Background of the Case

The dispute revolves around the insolvency proceedings of Carnival Techno Park Pvt. Ltd. (CTPPL) under the Insolvency and Bankruptcy Code, 2016. The case began when Reliance Commercial Finance Ltd. (RCFL) filed a petition against CTPPL, which led to its admission into CIRP by the NCLT Mumbai Bench on February 13, 2024.

Canara Bank, a secured financial creditor, claimed that CTPPL owed it ₹116.99 crore and challenged the CIRP process, alleging fraud and misrepresentation. The bank accused RCFL, the Resolution Professional (RP), and the Prospective Resolution Applicant of working together to manipulate the insolvency process.

Canara Bank’s Allegations

Canara Bank argued that:

• RCFL exaggerated its claim from an initial loan of ₹75 crore to ₹294.30 crore, significantly increasing its voting power in the Committee of Creditors (CoC).
• CTPPL was no longer a debtor to RCFL, as its obligation had already been transferred to Asian Business Connections Pvt. Ltd.
• The Resolution Professional (RP) failed to verify critical documents such as Registrar of Companies (ROC) records and financial statements, allowing RCFL’s inflated claim.

NCLT’s Ruling

The tribunal carefully reviewed Canara Bank’s complaints and financial documents before making a decision. The key observations were:

• The CIRP admission was legally valid, as NCLT had the authority under Section 7 of the Insolvency and Bankruptcy Code to admit CTPPL into insolvency proceedings.
• Canara Bank’s financial records did not conclusively prove that CTPPL had no outstanding debt to RCFL at the time of CIRP admission.
• There was insufficient evidence of fraud or misrepresentation to justify recalling the CIRP order.

Forensic Audit Approved

While Canara Bank’s plea to recall the CIRP order was denied, the tribunal approved a forensic audit to verify the validity of RCFL’s claim. It also directed the Resolution Professional (RP) to take legal action if the audit revealed fraudulent activity.

Conclusion

The ruling highlights the importance of thorough financial verification in insolvency cases and reinforces that CIRP orders cannot be recalled without concrete evidence of fraud or misrepresentation. While Canara Bank’s main plea was rejected, the forensic audit could provide more clarity on whether RCFL’s claims were inflated.