NCLAT sets aside the KLSR Infratech insolvency, with ₹10 lakh costs: an institutional response to a serious approach

The matter that produced the 23 March 2026 disposition began as a Section 9 IBC petition filed by AS Met Corp before the NCLT Hyderabad against KLSR Infratech Ltd. over alleged unpaid operational dues of approximately ₹3.79 crore. The NCLT admitted the petition by an order dated 14 July 2023, triggering the Section 14 moratorium and the standard consequences of admission — interim resolution professional, public announcement, calls for claims.

The corporate debtor appealed to the NCLAT, and the appeal was assigned to the Chennai bench. In August 2025, a serious institutional event occurred: Justice Sharad Kumar Sharma, a judicial member of the NCLAT Chennai bench, recused himself from hearing the matter. The disclosure he made in support of the recusal was unambiguous — a litigating party had attempted to approach him through a former High Court judge to secure a favourable order. The disclosure was a textbook discharge of the judicial-conduct obligation that attaches to a member confronted with an attempt at influence.

The Supreme Court took notice. The matter was transferred from the NCLAT Chennai bench to the Principal Bench in New Delhi pursuant to directions of the Supreme Court. The appeal was then heard at the Principal Bench under Chairperson Justice Ashok Bhushan. On 23 March 2026, the appeal was allowed, the NCLT Hyderabad order of 14 July 2023 was set aside, and the insolvency proceedings were dismissed with costs of ₹10 lakh on the operational creditor, to be paid within 30 days.

The substantive disposition

The substantive question — whether the Section 9 admission was correct on the record — has been answered by setting aside the NCLT order. The reasons supplied in the operative order, on what is publicly available, focus on the underlying default question and on whether the threshold requirements of Section 9 had been made out.

The structural framework here is familiar: a Section 9 application requires the operational creditor to have served a Section 8 demand notice, to have not received the debt or notice of dispute in response, and to have approached the NCLT within limitation. The NCLT, before admitting, has to satisfy itself that a debt is due, that a default has occurred, and that there is no pre-existing dispute within the meaning of the Mobilox Innovations v. Kirusa Software (2018) framework.

Where the NCLAT has set aside a Section 9 admission, the reasoning generally tracks one or more of three points: the debt or default was not made out on the record; the limitation framework was not satisfied; or a pre-existing dispute was visible on the materials but had not been engaged by the NCLT. The reasoned KLSR order, when it is fully on the public record, will identify which of these — or which combination — drove the disposition.

The cost direction: an institutional message

The more consequential limb of the disposition, for the bar's reading of the tribunal architecture, is the cost direction.

₹10 lakh in costs on the unsuccessful operational creditor is not, in itself, an unusually large quantum in IBC appellate practice. What gives it institutional weight is the procedural backdrop: the matter had been transferred to the Principal Bench from the Chennai bench because a judicial member had been approached. The Principal Bench's disposition closes the substantive question on the record before it — but the choice of cost quantum and the public character of the order are calibrated to the institutional question as well.

The bar's reading should be that the Principal Bench is using the cost direction to signal three propositions:

• The integrity of the tribunal architecture is non-negotiable. Attempts to influence members through intermediaries — even where the intermediary is a former member of the higher judiciary — are matters that the appellate framework will not absorb in silence.
• The cost consequence attaches to the party whose application was the substantive vehicle. Whether or not the approach to the member was authorised by the operational creditor itself, the litigant whose application has been set aside on the merits bears the cost of having engaged the tribunal machinery on an unsupportable claim.
• The judicial member's disclosure is the model response. Justice Sharma's August 2025 recusal — with the disclosure of the attempted approach — has been institutionally vindicated. The Principal Bench's disposition implicitly affirms the conduct standard that the disclosure embodied.

What the order does not, on its face, do

It is worth being precise about the boundaries of what the cost direction accomplishes.

It does not adjudicate the question of contempt. Whether the attempt to approach the judicial member through a former High Court judge constitutes criminal contempt under the Contempt of Courts Act, 1971 is a separate question, and one that the cost direction does not pre-empt. The Supreme Court's directions in transferring the matter included a probe into the alleged attempt to influence; that institutional process runs alongside the appellate disposition.

It does not foreclose action against the intermediary. Where a former judge is alleged to have served as the channel for an attempt at influence, the institutional consequences may extend beyond the cost direction in the substantive appeal. The Bar Council and any relevant Supreme Court collegium-level monitoring processes are independent fora.

It does not collateralise the disposition. The fact that the appeal was transferred to the Principal Bench because of the influence allegation does not, on what is on the record, mean that the disposition reflects a finding of guilt against any specific identified party. The matter remains under investigation.

The reading for the IBC bar

For practitioners advising operational creditors in Section 9 applications, three operational guides emerge.

Section 8 demand notice discipline. The Section 9 application must be supported by a Section 8 demand notice that has been properly served and that addresses, in advance, any potential argument of pre-existing dispute. Where the demand notice is procedurally weak or where the underlying claim is contested in substance, the admission application is exposed to threshold-stage challenge — and to cost consequences on reversal.

Pre-existing dispute due diligence. The Mobilox framework requires the NCLT to consider whether the corporate debtor's response discloses a dispute that is not a "feeble legal argument or an assertion of fact unsupported by evidence." For operational creditors, the discipline of due diligence on the dispute question — before filing — is what differentiates a sound application from one that may be reversed with costs.

Conduct discipline. The KLSR disposition reinforces, in the clearest possible way, that any communication with the tribunal must be through proper channels. The cost on the operational creditor reflects the disposition on the merits, but the institutional context in which the cost was awarded is part of the precedent value of the order.

The Supreme Court's role

The role of the Supreme Court in directing the transfer of the matter from Chennai to the Principal Bench is the institutional architecture worth flagging for separate study. The Supreme Court's supervisory jurisdiction over the NCLAT — exercised in this instance through directions in a writ matter — is the constitutional check on tribunal independence that the framework relies on. The transfer order, the subsequent probe direction, and the appellate disposition together form a cohesive institutional response.

For the constitutional bar, the KLSR sequence is a useful case study in how the appellate tribunal architecture interacts with the Supreme Court's Article 32 / Article 226 jurisdiction in matters involving alleged interference with the integrity of tribunal proceedings.

The bottom line

KLSR Infratech is, on its face, an IBC threshold-stage reversal with a cost direction. Beneath the surface, it is an institutional statement: about the consequences of attempting to influence members of the appellate tribunal, about the appropriateness of the judicial member's recusal-with-disclosure response, and about the willingness of the Principal Bench to use cost directions as a signal of institutional posture. For the IBC bar, the substantive lessons are familiar — Section 8 / Section 9 / Mobilox discipline. For the tribunal bar generally, the more important lesson is that the institutional response to attempts at influence is now demonstrably more robust than it has been in the past.

Verify against the reasoned order when uploaded. The probe directed by the Supreme Court into the attempted approach is an ongoing institutional process and the appellate disposition does not foreclose it.