Non-Disclosure and Non-Valuation of Assets Vitiate CIRP Despite CoC Approval: NCLAT
- REEDLAW
- 4 hours ago
- 3 min read
The REEDLAW Legal News Network reports: The National Company Law Appellate Tribunal has held that a resolution plan approved without complete disclosure and valuation of the corporate debtor’s assets, including development rights and properties subject to security interests, cannot be sustained under the Insolvency and Bankruptcy Code. Emphasising transparency and statutory compliance, the Tribunal ruled that omissions affecting asset valuation strike at the root of the corporate insolvency resolution process.
The Appellate Tribunal, comprising a Judicial Member and a Technical Member, found that the Resolution Professional failed to discharge mandatory duties under the Code and CIRP Regulations by excluding several valuable assets from the Information Memorandum and assigning nil value to others. The Tribunal held that such lapses prevented the Committee of Creditors from exercising informed commercial wisdom and directed issuance of a fresh Form G with completion of the resolution process within a fixed timeline.
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order of the Adjudicating Authority approving a resolution plan while rejecting objections raised by a secured financial creditor. The Corporate Insolvency Resolution Process had been initiated on account of default, and a resolution plan was approved by the Committee of Creditors with a majority vote, though the secured financial creditor dissented.
The Appellate Tribunal examined whether the Resolution Professional had complied with statutory duties under Sections 25 and 29 of the Code, read with Regulations 35 and 36 of the CIRP Regulations. It was found that several valuable immovable properties, including land owned by third parties but subject to development rights and security interests, were either assigned nil value or entirely excluded from the Information Memorandum. The Tribunal held that development rights constitute “assets” of the corporate debtor and are mandatorily required to be valued, relying upon the decision of the Supreme Court in Victory Iron Works Limited v. Jitendra Lohia and Another, REEDLAW 2023 SC 03511.
The Tribunal further noted that assets seized and provisionally attached by the Enforcement Directorate prior to approval of the resolution plan were not disclosed to the Committee of Creditors, despite the Resolution Professional being aware of such proceedings. This omission deprived the Committee of Creditors of relevant information necessary for the exercise of informed commercial wisdom.
The Appellate Tribunal reiterated that the commercial wisdom of the Committee of Creditors does not extend to approving a resolution plan containing illegal or unlawful terms. Reliance was placed on 63 Moons Technologies Limited, Formerly Known as Financial Technologies (India) Limited v. The Administrator of Dewan Housing Finance Corporation Limited and Others, REEDLAW 2022 NCLAT Del 01621 and Jaypee Kensington Boulevard Apartments Welfare Association and Others v. NBCC (India) Limited and Others, REEDLAW 2021 SC 03527, holding that voting strength cannot cure illegality. Applying the principles laid down in Masatya Technologies Private Limited v. Amit Agarwal, Resolution Professional, REEDLAW 2023 NCLAT Del 12578, the Tribunal concluded that the non-disclosure and non-valuation of assets amounted to material irregularity in the conduct of the CIRP.
Accordingly, the resolution plan was set aside, a fresh valuation of assets was directed, and issuance of a fresh Form G was ordered, with a direction to complete the resolution process within a fixed timeframe.
Mr. Krishnendu Datta and Mr. Ashish Dholakia, Sr Advocates, Mr. Amish Tandon and Ms. Anushree Kulkarni, Mr. T.S. Sundaram, Mr. Ilam Paridi, and Mr. Rohan Chawla, Advocates, represented the Appellant.
For the Respondent/ Defendant: Mr. Sunil Fernendes, Sr Advocate, Mr. Rukma George, Mr Ashhab Khan and Mr. Mukund P. Unny, Advocates, appeared for the Respondents.
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