NCLAT Rules Against Undisclosed Related Party MoUs During CIRP

NCLAT Rules Against Undisclosed Related Party MoUs During CIRP

The National Company Law Appellate Tribunal (NCLAT) has delivered a significant judgment asserting that undisclosed related-party Memoranda of Understanding (MoUs) cannot permit the ongoing occupation of a corporate debtor's hotel property during the Corporate Insolvency Resolution Process (CIRP).

The NCLAT emphasized the statutory authority of the Resolution Professional (RP) to exercise control over the corporate debtor's assets, irrespective of any undisclosed agreements that may conflict with CIRP operations. This ruling aims to prevent exploitation of the corporate insolvency framework for unlawful purposes.

“Undisclosed related-party arrangements cannot override RP’s statutory control over corporate debtor’s assets during CIRP,” the NCLAT stated.

This ruling serves as an essential reminder for practitioners to ensure transparency in related-party transactions and uphold the integrity of the insolvency process, supporting a more equitable resolution framework.