Separate Legal Personality Can't Shield Related Party From Disclosing Information on Corporate Debtor: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has held that a related party cannot rely on its separate legal personality to refuse disclosure of financial information sought by a Resolution Professional where the information has a direct nexus with the corporate debtor's transactions and arrangements.

A coram of Judicial Member Justice N. Seshasayee and Technical Members Indevar Pandey and Arun Baroka observed,

“Separate legal personality cannot become a shield against disclosure, where the information sought bears a direct nexus with transactions and arrangements connected with the Corporate Debtor.”

The ruling came while dismissing an appeal filed by Mega Mall Management Services Pvt. Ltd. against an order of the National Company Law Tribunal, Kolkata. The NCLT had directed the company to furnish details of rent and parking charges collected from Avani Riverside Mall for the financial years 2021-22 and 2022-23. The Resolution Professional of Avani Projects & Infrastructure Ltd., which is undergoing the corporate insolvency resolution process, sought the information as part of his statutory duties to examine transactions connected with the corporate debtor.

Mega Mall argued that it was an independent third-party mall management company and had no ownership, operational or financial nexus with the corporate debtor after agreements executed in January 2018. It contended that parking rights had been transferred to Aster Buildtech Pvt. Ltd. and that the information sought related to its own financial records.

The Resolution Professional, however, argued that under the original arrangement, Mega Mall collected revenue on behalf of the corporate debtor. It submitted that the 2018 agreements diverted valuable revenue streams away from the corporate debtor. Relying on a transaction audit, the Resolution Professional alleged diversion of about ₹117 crore and informed the tribunal that separate avoidance proceedings concerning those transactions are pending.

The tribunal held that the NCLT's order did not determine whether the revenue belonged to the corporate debtor or Mega Mall. Nor did it decide the validity of the 2018 agreements. It merely directed Mega Mall to disclose information sought by the Resolution Professional. Noting that the financial dealings relating to the mall are already under examination in pending avoidance proceedings, the tribunal held that the request for financial information could not be treated as speculative or unnecessary.

It observed, “The information sought in the present case pertains to rental income and parking collections generated from a mall admittedly developed by the Corporate Debtor and managed by the Appellant pursuant to arrangements entered into with the Corporate Debtor. The request for such information is therefore directly connected with the discharge of statutory duties and cannot be treated as a fishing or roving inquiry.”

The tribunal also clarified that directing disclosure did not amount to deciding the parties' rights over the revenue or the validity of the agreements. It held that production of records merely enables the Resolution Professional and the adjudicating authority to ascertain the true factual position, and that disclosure is "a preliminary step towards adjudication and not an adjudication in itself."

Finding no error in the NCLT's direction, the tribunal dismissed the appeal.