Tribunal Rejects Resolution Plan for Opaque Asset Management and Lack of Revival Vision; Emphasizes Judicious Commercial Wisdom and Fair Creditor Treatment
In a significant order dated 29th September 2026, the National Company Law Tribunal (NCLT), New Delhi Bench, presided over by Mr. Ashok Kumar Bhardwaj and Mr. Atul Chaturvedi, passed a ruling directing the liquidation of Stargaze Entertainment Pvt. Ltd. The decision comes after a detailed review of the Corporate Insolvency Resolution Process (CIRP) involving the company, which was initiated in May 2024 following a default on loan repayment amounting to over Rs. 70 crore by the Corporate Debtor.
The Insolvency and Bankruptcy Code (IBC), 2016 proceedings against Stargaze Entertainment revealed a fraught resolution process marred by critical procedural lapses. The Resolution Professional (RP), Mr. Ashok Kumar Gulla, faced challenges in taking control and custody of substantial assets of the Corporate Debtor, which included disputed security deposits worth Rs. 50 crore with the holding company and assets affixed in multiplex spaces under developer control. Despite repeated applications to recover these assets, the RP withdrew these applications, undermining the foundation of the CIRP.
Notably, the valuation reports submitted by two appointed firms reflected significant discrepancies and incomplete asset inclusion. The total estimated fair value of the company's assets hovered around Rs. 1.23 crore, vastly lower than recorded book values, with several assets' current status remaining unknown. The Information Memorandum (IM) prepared for the resolution process lacked clarity, particularly concerning the substantial security deposits and other financial assets, further clouding the transparency of the process.
The sole member of the Committee of Creditors (CoC) approved a revised resolution plan offering only Rs. 50.25 lakhs, a paltry sum compared to the outstanding debt and asset values. The Tribunal criticized the plan for lacking a credible revival framework and failing to comply with Regulation 38(3)(a) of the Insolvency and Bankruptcy Board of India (IBBI) Regulations, 2016. The Resolution Applicant's explanation for the default-liquidity crunch, stretched receivables, and higher borrowing costs-was not supported by a clear strategy for turnaround or sustainable financial management.
The NCLT emphasized that the RP's failure to take control of the Corporate Debtor's assets and the subsequent approval of an opaque and inadequate resolution plan amounted to a disregard of statutory duties under Sections 17 and 18 of the IBC, which require the RP to manage the debtor's affairs diligently. The Tribunal underscored that commercial wisdom exercised by the CoC must be judicious, explainable, and aligned with the broader objectives of the Code, including preservation of economic value, entrepreneurship, and equitable treatment of all creditors. It rejected the narrow commercial wisdom notion that "something is better than nothing," which in this case disproportionately favored the financial creditor at the expense of operational creditors and statutory dues.
Given the failure to cure the process defects even after remand and rejection of revised plans, the Tribunal found liquidation to be the only viable course. Mr. Gorang Moudgil was appointed as the liquidator to oversee the process, including pursuing previously withdrawn asset recovery applications.
Importantly, the Tribunal ordered that in the liquidation distribution, the financial creditor's recovery shall initially be limited to the amount it was to receive under the resolution plan, with any surplus directed first toward satisfying statutory authorities and other creditors, followed by further distribution according to Section 53 of the IBC. This reflects the Tribunal's intent to uphold fairness and balance in creditor treatment during liquidation.
The order further clarifies that the CoC will remain in place during liquidation and will have no further opportunity to restore the CIRP, ensuring finality in proceedings.
This ruling serves as a critical reminder of the stringent obligations on Resolution Professionals to secure and manage corporate assets transparently and the necessity for resolution plans to present viable revival strategies that align with the Code's objectives. The decision reinforces the judiciary's commitment to ensuring that insolvency processes are not mere debt recovery mechanisms but vehicles for sustainable economic revival and equitable stakeholder treatment.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Resolution plan rejected where CIRP process was found vitiated by failure of RP to take control and custody of material assets of Corporate Debtor, opaque valuation and incomplete Information Memorandum, and absence of a credible revival vision in the plan - Corporate Debtor ordered to be liquidated under Section 33(1)(b).
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 7, 17, 18, 29, 30, 33, 35, 52, 53; IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 Regulations 6(1), 13, 17, 29, 35A, 36, 36A, 38(3)(a), 38(3)(b)
Ashok Kumar Gulla, (NCLT)(New Delhi Bench) : Law Finder Doc Id # 2992088
