A creditor who sets insolvency in motion through fraud can be thrown out of the process, but the process itself belongs to every creditor once admitted, the Supreme Court has held, reviving the insolvency of the developer behind Gurugram’s stalled Greenopolis housing project.
New Delhi: The Supreme Court on Wednesday, September 30, held that an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 has the power to recall the admission of an insolvency petition once it is found to rest on fraud and collusion, but that dismissing such a petition does not automatically terminate the corporate insolvency resolution process (CIRP), which may continue in the interest of other stakeholders [Orris Infrastructure Private Limited v. Rakesh Kumar Gupta and Others].
A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe set aside the NCLAT’s 2023 order that had wiped out the entire CIRP of Three C Shelters Pvt. Ltd., restored the proceedings before the NCLT, and directed it to decide whether they should continue.
Background of the case
Orris Infrastructure owns 47.218 acres in Sector 89, Gurugram, and in 2011 entered into a development agreement with Three C Shelters, the corporate debtor, for the Greenopolis project of 1,862 flats, to be shared 65:35 between the developer and Orris. With construction stalled, homebuyers formed an association and approached the Haryana RERA, which in October 2020 held that Orris, as landowner and licensee, bore primary responsibility for completing the project and directed that escrow funds be moved to a dedicated project account.
Meanwhile, Straight Edge Contracts Pvt. Ltd., claiming to be an operational creditor owed about Rs 29.95 crore, filed a Section 9 petition in October 2019. The developer’s director filed an affidavit admitting the debt, and the NCLT admitted the petition on July 20, 2020, appointing an IRP and declaring a moratorium on October 16, 2020. The homebuyers’ appeal alleging collusion was dismissed by the NCLAT in January 2021.
On later applications, including by the resolution professional of a shareholder company, the NCLT found in March 2022 that the petition was the product of active collusion: work at the site had stopped since 2016, the board resolution authorising a reply pre-dated the demand notice by 107 days, the MoU relied on was unregistered and an afterthought, and the directors who admitted the debt described themselves as an office boy and a pantry boy. It nonetheless held that it had no power to recall its admission order. In August 2023, the NCLAT held that such a power existed and set aside the entire CIRP, prompting appeals by Orris and homebuyers.
Finding of fraud affirmed
The Supreme Court noted that the findings of fraud and collusion had been affirmed by the NCLAT and were not contested before it, and that the suspended directors had withdrawn their own appeal challenging them. Affirming the findings, the Court observed:
“It is evident from the above findings that activities of M/s Straight Edge were anything but straight, in fact outright crooked. There is a clear collusion between M/s Straight Edge and the CD.”
Power to recall rests on jurisdictional facts
The Court held that the existence of a debt is a jurisdictional fact under the IBC, and relying on Carona Ltd. v. Parvathy Swaminathan and Shrisht Dhawan v. Shaw Brothers, explained that a tribunal cannot assume jurisdiction on facts procured through deception. It distinguished fraud in public law, which corrupts the decision-making process itself, from fraud in private dealings, and held:
“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.”
On the facts, the Court held that the debt was a “mirage”, portrayed only so that CIRP could be initiated and a moratorium imposed to block the remedies of homebuyers and other claimants, and that the NCLT had full power to recall the CIRP by dismissing the Section 9 petition.
CIRP becomes collective after admission
On whether recall must follow, the Court relied on GLAS Trust Company LLC v. Byju Raveendran to hold that proceedings are in personam until admission and in rem thereafter. Tracing the moratorium under Section 14, the transfer of management to the IRP under Sections 17 and 20, the collation of claims under Section 18, the Committee of Creditors under Section 21, the waterfall under Section 53 and the 90 per cent threshold for withdrawal under Section 12A, it held that the initiating creditor is merely the triggering creditor and not the proprietor of the CIRP. Requiring other creditors to begin afresh because the original applicant colluded with the debtor, it said, would defeat the very idea of resolution. The Court concluded that CIRP can continue even after a finding that the Section 9 petition was fraudulent and collusive.
Restating the governing principles, the Court held that where initiation is found to be based on fraud and collusion, the NCLT “shall disallow the original applicant from participating and may also initiate proceedings under Section 65 of the Act”. It added:
“If the AA is of the opinion that the CIRP proceedings that have commenced need to be continued to subserve the larger interests of resolving the corporate insolvency of the corporate debtor for which there are other stakeholders, it has the power and jurisdiction to take such a decision. For this purpose, it shall hear the RP, elicit the view of the CoC and also the other stakeholders.”
The Court clarified that the NCLT may still conclude, for reasons it records, that the CIRP cannot be allowed to continue. It faulted both forums below: the NCLT for wrongly holding it had no power of recall, and the NCLAT for treating recall of the entire CIRP as an automatic consequence without deciding whether it should continue.
Directions
Partly allowing the appeals of Orris, the Greenopolis Welfare Association and homebuyers Safalta Goel and another, the Court set aside the NCLAT’s judgment and restored CIRP No. IB-2721/ND/2019 to its original number. The NCLT must now decide whether the proceedings should continue in light of the conclusive finding of fraud and collusion against Straight Edge, taking into account all relevant facts, including ownership of the Greenopolis project, and after hearing the RP, the CoC and other stakeholders, including homebuyers who have pursued other statutory and judicial remedies. If it decides to continue the CIRP, it must conclude it expeditiously given the long pendency.
The Court expressly declined to rule on the question of Orris’s ownership and control of the project. The connected contempt petitions were closed.
Case Title: Orris Infrastructure Private Limited v. Rakesh Kumar Gupta and Others
Case Number: Civil Appeal Nos. 6797-6801 of 2023, with Civil Appeal Nos. 6792-6796 and 6802-6806 of 2023 and Contempt Petition (C) Nos. 249-253 of 2025
Citation: 2026 INSC 1070
Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe, Supreme Court of India
Date of Judgment: September 30, 2026
Appearance: Senior Advocates Ramji Srinivasan, Mukul Rohatgi and Krishnan Venugopal appeared in the matter