Implication Of Classifying Corporate Debtor As "Fraud" During Corporate Insolvency Resolution Process

The recent decision of the Hon'ble National Company Law Tribunal, Mumbai Bench, in the case concerning Rolta India Limited (Corporate Debtor herein), wherein it upheld the right of the Bank of India (Financial Creditor) to classify the Corporate Debtor's account as "fraud" during the pendency of the Corporate Insolvency Resolution Process (CIRP), has given rise to significant issue regarding its wider implications on the insolvency framework under the Insolvency and Bankruptcy Code, 2016 ("IBC").

This decision arose from an application filed by the Resolution Professional (RP) of Rolta India seeking a restraint against the Bank of India, which had classified Rolta India's account as fraudulent on account of default of Rs. 616 crore and declared as NPA. The RP argued that such a classification would negatively impact the ongoing CIRP against the Corporate Debtor and jeopardize the interest of stakeholders. The Hon'ble Tribunal, however, dismissed the application