CIRP irregularities and fresh valuation may be corrected, but open-ended restart of insolvency process is impermissible
Where a resolution plan is not found non-compliant under Section 30(2) of the Insolvency and Bankruptcy Code, 2016, corrective directions may still be issued to cure valuation and CIRP irregularities. However, the CIRP cannot be left open-ended by permitting the committee of creditors to decide whether the process should restart from the information memorandum stage or any undefined stage, as this would conflict with the Code's timeline and liquidation framework under Section 33. After fresh valuation and related corrective steps, the successful resolution applicant remained eligible to participate in the fresh resolution process.
Issues: (i) Whether the direction permitting the committee of creditors to decide whether the corporate insolvency resolution process should resume from the stage of preparation of the information memorandum or from another stage was sustainable; (ii) Whether, in the facts of the case, the successful resolution applicant was entitled to participate in a fresh resolution plan process after removal of the noticed irregularities.
Issue (i): Whether the direction permitting the committee of creditors to decide whether the corporate insolvency resolution process should resume from the stage of preparation of the information memorandum or from another stage was sustainable.
Analysis: The impugned order proceeded on the footing that no non-compliance under Section 30(2) of the Insolvency and Bankruptcy Code, 2016 was found in the resolution plan, but certain irregularities in the conduct of the CIRP and valuation process required corrective steps. The record showed that the CIRP had commenced in 2019, the resolution plan had already been approved by the committee of creditors, and the approval application had remained pending for a substantial period. In that context, an open-ended liberty to restart the CIRP from the information memorandum stage or any other stage was inconsistent with the statutory scheme that emphasises completion of CIRP within the prescribed timeline and, failing that, movement to liquidation under Section 33 of the Insolvency and Bankruptcy Code, 2016.
Conclusion: The direction giving the committee of creditors liberty to decide whether the CIRP should resume from the information memorandum stage or any other stage was not sustained.
Issue (ii): Whether, in the facts of the case, the successful resolution applicant was entitled to participate in a fresh resolution plan process after removal of the noticed irregularities.
Analysis: The adjudicatory concern was confined to curing irregularities in valuation and related CIRP compliance, not to holding that the resolution plan failed the requirements of Section 30(2) of the Insolvency and Bankruptcy Code, 2016. Once fresh valuation and the relevant corrective steps were directed, the successful resolution applicant remained within the class of eligible resolution applicants and could not be excluded from the process merely because the matter was being reconsidered after the detected defects were addressed.
Conclusion: The successful resolution applicant remained entitled to submit a resolution plan in the fresh process.
Final Conclusion: The challenge to the impugned direction was accepted to the extent that the CIRP could not be left open-ended for recommencement from an undefined stage, and the matter proceeded on the basis of fresh consideration after curing the identified procedural irregularities.
Ratio Decidendi: Where a resolution plan is not found non-compliant under Section 30(2) of the Insolvency and Bankruptcy Code, 2016, corrective directions may be issued to cure valuation or CIRP irregularities, but the process cannot be kept open-ended by authorising a restart from any stage contrary to the statutory timeline and structure of the Code.
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