The Supreme Court of India, comprising a Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe, has ruled that while the Adjudicating Authority has the power and jurisdiction to recall the admission of a Corporate Insolvency Resolution Process (CIRP) initiated through fraud and collusion, such dismissal does not inevitably require quashing the entire insolvency process. Holding that CIRP transforms from an in personam dispute into an in rem proceeding upon admission, the Court clarified that the National Company Law Tribunal (NCLT) possesses the discretion and jurisdiction to continue the resolution process to subserve the collective interests of creditors and stakeholders. Consequently, the Supreme Court set aside the order of the National Company Law Appellate Tribunal (NCLAT) that had quashed the insolvency proceedings of corporate debtor Three C Shelters Private Limited, and restored the matter before the NCLT to decide whether the CIRP should continue.
Background of the Case
The dispute arose out of a residential real estate development named the “Greenopolis” project comprising 1,862 flats across 47.218 acres in Sector 89, Gurgaon. Landowner Orris Infrastructure Private Limited (“Orris”) entered into a development agreement on November 2, 2011, with M/s Three C Shelters Private Limited (“Corporate Debtor” or “CD”) under a 65:35 flat-sharing arrangement. Under tripartite buyer agreements executed in 2012–2013, the Corporate Debtor was contractually bound to complete construction within 36 months, with a six-month grace period.
Following severe construction delays, homebuyers organized under the Greenopolis Welfare Association (“GWA”) approached the Haryana Real Estate Regulatory Authority (HRERA). HRERA and the Haryana Real Estate Appellate Tribunal (HREAT) concurrently found that construction had come to a standstill in early 2016. On October 7, 2020, HRERA held that the Corporate Debtor retained no development rights, declared Orris primarily responsible for project completion as licensee and collaborator, and directed that project funds in an escrow account with Kotak Mahindra Bank be transferred to a dedicated RERA account. Meanwhile, the National Consumer Disputes Redressal Commission (NCDRC) on July 20, 2020, held both entities responsible to their respective allottees.
Amid these regulatory developments, M/s Straight Edge Contracts Pvt. Ltd. filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) claiming an operational debt of approximately Rs. 29.95 crore. The NCLT admitted the petition on July 20, 2020, after taking on record an admission affidavit filed by a director of the Corporate Debtor, and formally imposed a moratorium and appointed an Interim Resolution Professional (IRP) on October 16, 2020.
Applications alleging fraud were subsequently moved before the NCLT, notably by the Resolution Professional of Three C Universal Developers Private Limited (a 38.25% shareholder of the CD). It was revealed that the two directors representing the Corporate Debtor, who admitted the liability and authorized responses, were merely a pantry boy and an office boy who had no knowledge of company affairs and were made dummy directors.
Upon inquiry, the NCLT entered explicit findings of fraud and collusion, noting that unauthenticated agreements and MoUs were fabricated, work had stopped long before the purported contracts, and the Corporate Debtor had failed to pay the contractor despite having over Rs. 53 crore in its escrow account. However, relying on NCLAT precedent in Adesh Jain, the NCLT held on March 29, 2022, that it possessed no statutory power under Section 65 or otherwise to recall or review its own admission order, and therefore the CIRP had to continue.
On appeal, the NCLAT reversed the NCLT on August 28, 2023, holding that the tribunal did have the power to recall an order obtained by fraud, and consequently set aside the CIRP entirely. Appeals were then preferred before the Supreme Court by Orris, the Greenopolis Welfare Confederation (GWC), and individual homebuyers who were aggrieved by the complete cancellation of the CIRP.
Arguments of the Parties
Appearing for the appellants, Senior Advocate Ramji Srinivasan submitted that the CIRP had reached an advanced stage and urged the Court to make its interim stay on the NCLAT order absolute so that the resolution process could proceed.
Senior Advocate Mukul Rohatgi contended that insolvency proceedings under the IBC can steer clear of the fraudulent initiation by Straight Edge Contracts Pvt. Ltd. by drawing upon the principles contemplated under erstwhile Rules 101 to 103 of the Companies (Court) Rules, 1959. He submitted that once initiated and admitted, CIRP proceedings operate strictly in rem.
Conversely, Senior Advocate Krishnan Venugopal argued that fraud and collusion vitiate the entire proceedings from inception and supported the conclusion of the NCLAT in setting aside the process altogether.
The Court’s Analysis
The Supreme Court framed and analyzed two primary questions of law:
1. Power of the Adjudicating Authority to Recall Admission
Affirming the concurrent factual findings of fraud, the Court observed that activities of M/s Straight Edge were anything but straight, in fact outright crooked. The Court held that the existence of a debt is a “jurisdictional fact”—a condition precedent without which an authority cannot assume statutory jurisdiction. Drawing from Carona Ltd. v. Parvathy Swaminathan & Sons and Shrisht Dhawan (SMT) v. M/s Shaw Brothers, the Bench held that assuming jurisdiction based on misrepresentation renders the order bad and ultra vires.
Distinguishing private fraud from fraud in public law, the Court observed: Those who invoke IBC proceedings are under a public law obligation and duty not to deceive or mislead. If jurisdiction is exercised on the basis of fraud or collusion, the Court or the Tribunal can undoubtedly withdraw the proceedings at any point of time. Jurisdictional facts affected by fraud or collusion cannot be the foundation for assuming jurisdiction, as such facts cannot continue to sustain jurisdiction.
The Court noted that in this case, the existence of debt is a mirage; none existed at all. In fact, it was fraudulently portrayed as if there was a debt so that the AA could initiate CIRP proceedings and impose moratorium, thereby blocking other legal remedies of the homebuyers and other claimants. Consequently, the Court held that the NCLT does possess the power and jurisdiction to recall an admission order procured through fraud and collusion.
2. Continuation of CIRP Post-Recall
Addressing the second issue, the Supreme Court held that the finding of fraud does not automatically necessitate recalling the entire insolvency process. Citing GLAS Trust Company LLC v. Byju Raveendran & Ors. and Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund, the Court explained that proceedings under Sections 7, 9, or 10 are inter partes or in personam only up to the point of admission.
Upon admission, the statutory architecture under Sections 14 (moratorium), 17 and 20 (vesting management in the IRP), 18 (collation of claims), 21 (Committee of Creditors), 25 (duties of RP), 30(2) (resolution plan requirements), 53 (waterfall mechanism), and 12A (restriction on unilateral withdrawal) fundamentally changes the character of the proceedings into an in rem regime.
The Court emphasized that the initiating creditor is merely the triggering creditor, and not the proprietor of the CIRP. Once claims are collated from numerous third-party creditors, the proceeding detaches from the original applicant and reorients towards the collective insolvency estate and asset maximization. Therefore, the Bench ruled that the insolvency resolution process can be continued even after a finding that the original application under Section 9 was initiated fraudulently and with active collusion of the suspended Directors of the corporate debtor.
The Court criticized both lower forums: the NCLT erred in concluding it had no power to recall its collusive admission order, while the NCLAT erred by assuming that recalling the collusive petition automatically required nullifying the entire CIRP without examining whether the process should be continued in the interest of other stakeholders.
The Decision
The Supreme Court summarized the guiding principles, holding that if the NCLT finds an application under Sections 7, 9, or 10 to be collusive, it must disallow the original applicant from participating and may initiate proceedings under Section 65 of the IBC. However, if continuing CIRP serves the larger objective of resolving the corporate debtor’s insolvency, the NCLT has the power and jurisdiction to continue the process after hearing the Resolution Professional, eliciting the views of the Committee of Creditors, and considering other stakeholders.
Disposing of the appeals, the Court issued the following directions:
- Civil Appeal Nos. 6797-6801 of 2023, Civil Appeal Nos. 6792-6796 of 2023, and Civil Appeal Nos. 6802-6806 of 2023 were allowed in part, and the NCLAT judgment dated August 28, 2023, was set aside.
- The CIRP proceedings (No. IB-2721/ND/2019) were restored to their original number before the Adjudicating Authority (NCLT).
- The NCLT was directed to decide upon the continuation of the proceedings in light of the conclusive finding of fraud and collusion by Straight Edge Contracts Pvt. Ltd., taking into account relevant facts including project ownership, and hearing the RP, the CoC, and other stakeholders such as homebuyers.
- If the NCLT decides to continue the CIRP, it was directed to conclude the proceedings expeditiously.
- Contempt Petition (C) Nos. 249-253 of 2025 and all pending applications were closed and disposed of.
Case Details:
Case Title: Orris Infrastructure Private Limited v. Rakesh Kumar Gupta & Ors.
Case No.: Civil Appeal Nos. 6797-6801 of 2023
Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
Date: September 30, 2026
