NCLAT Orders Reassessment of Resolution Plans Due to Asset Valuation Irregularities

Resolution Plan Rejected; Fresh Valuation and Form G Issuance Directed to Correct Material Irregularities in CIRP Process

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has ordered a fresh valuation and issuance of Form G in the insolvency resolution process concerning M/s Heera Constructions Company Pvt. Ltd. The judgment was delivered by Justice Yogesh Khanna and Mr. Ajai Das Mehrotra, addressing appeals filed by IFCI Ltd. and others against the approval of a resolution plan by the National Company Law Tribunal (NCLT), Mumbai Bench.

The controversy arose from the alleged irregularities in the Corporate Insolvency Resolution Process (CIRP) due to non-inclusion and improper valuation of certain assets. The Tribunal noted that the Resolution Professional (RP) failed to include valuable assets in the Information Memorandum and did not disclose ongoing Enforcement Directorate proceedings, which led to a material irregularity in the CIRP process.

Key assets, including Attipra Land in Thiruvananthapuram and Poonithura Land in Ernakulam, were not appropriately valued despite their significant worth. The Attipra Land was a third-party asset with developmental rights held by the Corporate Debtor, valued at approximately Rs. 50 crore. The RP assigned it a "Nil" value due to its third-party ownership and developmental rights, which led to the extinguishment of IFCI Ltd.'s security interest without proper justification.

Similarly, the Poonithura Land, owned by the Corporate Debtor and valued at Rs. 7.77 crore, was incorrectly categorized as a financial asset without proper valuation, despite mortgage documents indicating its status as a fixed asset. The RP's argument that the land was not capitalized in the Corporate Debtor's books was dismissed by the Tribunal, emphasizing that all assets should be valued irrespective of their categorization.

The NCLAT highlighted the failure of the Resolution Professional to exercise due diligence and comply with statutory duties under Sections 25 and 29 of the Insolvency and Bankruptcy Code, 2016. The Tribunal drew parallels with the precedent set in Masatya Technologies Pvt Ltd. v. Amit Agarwal, where similar irregularities warranted a fresh valuation and issuance of Form G.

The judgment underscores the importance of transparency and accuracy in the CIRP process. The Tribunal directed the RP to conduct a fresh valuation of all assets, including newly discovered ones, and issue a new Form G to attract higher-value resolution plans. The process must be completed within three months, ensuring fair consideration of all prospective resolution applicants.

This ruling serves as a reminder of the stringent standards required in insolvency proceedings and the necessity for thorough asset valuation to protect the interests of all stakeholders involved.

Bottom Line:

Corporate Insolvency Resolution Process (CIRP) - Resolution Plan irregularities due to non-inclusion and valuation of assets - Fresh Form G issuance directed to ensure fair consideration of Resolution Plans.

Statutory provision(s):  Insolvency and Bankruptcy Code, 2016 Section 25(2)(a), Section 29, Regulation 35 of CIRP Regulations, 2016

IFCI Ltd. v. Raju Palanikunnathil Kesavan, (NCLAT)(Principal Bench, New Delhi) : Law Finder Doc Id # 2806766