Related Party Status Depends On Shareholding Threshold, Not Actual Control: NCLT Kolkata

The National Company Law Tribunal (NCLT) Kolkata has held that a creditor can be treated as a related party based on the shareholding of a common director and his relatives, even without proof that the director actually exercised control over the corporate debtor.

The tribunal held that the prescribed shareholding threshold is sufficient for determining related-party status.

It observed, “although the findings under Sections 5(24)(h) and 5(24)(m)(i) cannot be sustained merely on the basis of the nominee-directorship arrangement, the Applicant is nevertheless a related party of the Corporate Debtor under Section 5(24)(d) on the basis of the shareholding disclosed in its own records.”

The bench comprising Judicial Member Labh Singh and Technical Member Rekha Kantilal Shah made the observation while dismissing an application by Abinandan Holdings Private Limited (AHPL). The company had challenged its classification as a “Related Party Financial Creditor” of Howrah Mills Company Limited (HMCL).

AHPL had submitted its claim during HMCL's insolvency process. The Interim Resolution Professional (IRP) initially admitted about ₹71.92 crore but treated AHPL as an unsecured financial creditor.

Objections were later raised by JM Financial Asset Reconstruction Company Limited and another third party. The IRP subsequently obtained a due diligence report from D. Cirrus and classified AHPL as a related party financial creditor.

AHPL argued that its transactions with HMCL were financial in nature and that Prashant Damani had been appointed as a nominee director under a contractual arrangement. It contended that his role was limited to protecting its financial exposure and monitoring utilisation and repayment of funds. AHPL also submitted that it neither exercised management or operational control over HMCL nor participated in its day-to-day affairs.

The IRP relied on the August 14, 2020 MOU, which gave Damani the same rights and privileges as other directors, including voting rights, and assigned him a role in overseeing and monitoring HMCL's functioning.

The tribunal distinguished this issue from provisions where actual influence over the corporate debtor's affairs must be established. It held that the provision based on shareholding instead turns on whether the statutory threshold is met.

AHPL's own records showed Damani held 1.01%, while 12% was held by Prashant Damani (HUF), 10.06% by Deo Kishan Das Damani (HUF) and 9.06% by the Estate of Deo Kishan Das Damani. The tribunal noted that AHPL's affidavit established Deo Kishan Das Damani as Damani's father. The four holdings together amounted to 32.13%, well above the prescribed 2% threshold.

The tribunal therefore held AHPL to be a related party. It found it unnecessary to decide whether Natwar Hosiery Industries Pvt. Ltd.'s 37.73% holding should also be counted.

On the reclassification, the tribunal held that the IRP could not unilaterally alter AHPL's status after the CoC had already been constituted. The CoC was formed on August 9, 2026, with AHPL holding a 25.60% voting share, while the reclassification took place on August 19.

Relying on Byju Raveendran v. Aditya Birla Finance Ltd. & Ors., 2025 the tribunal held that the disputed reclassification should have been placed before the Adjudicating Authority. It clarified that this finding did not give AHPL an automatic right to vote in the CoC contrary to the IBC.