NCLAT judge recuses self from case, cites pressure from higher judiciary

In a rare development, a judicial member of the National Company Law Appellate Tribunal (NCLAT) recused himself from hearing a case.

As per a report in the Indian Express, the judge noted in an official order that 'one of the most revered members of the higher judiciary of this country' had attempted to influence the outcome.

“We are anguished to observe, that one of us, Member (Judicial), has been approached by one of the most revered members of the higher judiciary of this country for seeking an order in favour of a particular party. Hence, I recuse to hear the matter,” Justice Sharad Kumar Sharma wrote in his order dated 13 August.

As per the IE report, The case in question relates to insolvency proceedings against Hyderabad-based real estate firm KLSR Infratech Ltd. The matter had been reserved for orders on 18 June, with both sides given an additional week to file written submissions.

KLSR Infratech had approached the NCLAT challenging a decision by the Hyderabad bench of the National Company Law Tribunal (NCLT), which had allowed A.S. Met Corp Pvt. Ltd, a creditor, to initiate the Corporate Insolvency Resolution Process (CIRP) against it.

According to records, A.S. Met Corp claimed that KLSR Infratech had defaulted on payments amounting to Rs 2,88,79,417, along with interest mutually agreed upon. Under the Insolvency and Bankruptcy Code, operational creditors — those supplying goods or services to a company — can trigger insolvency proceedings if payment defaults occur, provided no disputes exist regarding the debt.

KLSR Infratech, however, disputed the claim. The company argued that it had consistently reported an annual turnover of more than Rs 300 crore over the past five years, making it financially sound and “not insolvent”. 

It further pointed out that an FIR was registered on 30 June 2022 against directors of A.S. Met Corp, alleging misconduct, and claimed the directors were absconding. This, the company contended, indicated the existence of disputes, thereby making insolvency proceedings unwarranted.

The creditor countered by stating that the FIR was filed only after the demand notice had been issued and therefore could not be considered a pre-existing dispute. It clarified that its directors had been granted anticipatory bail by the Telangana High Court and were not absconding. Additionally, a petition seeking to quash the FIR was pending before the high court.

The NCLT accepted these arguments and allowed insolvency proceedings against KLSR Infratech. That decision was subsequently challenged before the appellate tribunal, where the extraordinary recusal took place.