TaxTMI 
TaxTMI 
2026 (4) TMI 1441
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....ellant: Mr. Krishnendu Datta, Sr. Advocate with Mr. Harshit Khanduja, Ms. Sujal Gupta, Mr. Pulkit Khanduja and Mr. Harsh Gurbani, Advocates, Mr. Neeraj Malhotra, Sr. Advocate with Mr. Abhinav Agarwal, Mr. Nimish Kumar Gupta, Mr. Piyush Bhardwaj, and Mr. Shivam Sen Gupta, Advocates For the Respondent: Mr. Krishnendu Datta, Sr. Advocate with Mr. Harshit Khanduja, Advocate for RP Mr. Abhijeet Sinha, Sr. Advocate with Mr. Raheel Patel, Mr. Himanshu Satija, Mr. Harsh Saxena, Mr. Shevaaz Khan, Ms. Ridhi Ranjan, Mr. Anshul Rao, Advocates Kamil Lokhandwala, Advocate for Liquidator COMMON JUDGEMENT Per Justice N. Seshasayee, Member (Judicial) 1.1 These appeals are preferred against the Order of the Adjudicating Authority (NCLT-I, Ahmedabad), dated 23.06.2025, in C.P.(IB) 69 of 2023, rejecting a resolution plan which the CoC had approved. 1.2 M/s Zep Infratech Ltd., the CD, underwent a CIRP process. It was partially successful in that the CoC had approved the resolution plan, but not the Adjudicating Authority. The CoC is aggrieved for whatever they along with the other creditors are entitled to receive is still at a distance. The Resolution Professional, someone who under ....
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....oa, Gujarat and Delhi properties. These were valued by two independent valuers, whose details are as below: Land and Building: Sl. No. Particulars of Asset Mr. Ronakkumar Rangani (Valuer - I) Fair Value (in Rs. ) Liquidation Value (in Rs. ) Market Value (in Rs. ) Liquidation Value (in Rs. ) 1. Block No.: D, Plot No.: 18, Basement and Ground Floor, Anand Niketan, Nr. Delhi University, Benito Juarez Marg, New Delhi - 110 021 5,57,66,147/- 3,90,36,303/- 5,53,30,000/- 3,87,31,000/- 2. Survey No.: 23/1, Villa No.6, Infinity Bay, Jairam Nagar, Dabolim, Goa - 403 801. 3,01,43,000/- 2,41,14,000/- 3,06,35,000/- 2,14,45,000/- 3. Office No.5-2, Navrang Complex, Swastik Char Rasta, Navrangpura, Ahmedabad 44,35,200/- 35,48,160/- 44,80,000/- 31,36,000/- 4. R.S. No.: 147/2, 147/2 Paiki 1, 262, 299/3, Sintex 16,78,099/- 15,10,289/- 16,78,099/- (Book Value) 16,78,099/- (Assumed at book value) Industries Ltd., Village Lunsapur, District: Amreli Total 9,20,22,446/- 6,82,09,152/- 9,21,23,099/- 6....
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....d its approval to the plan and remanded the plan back to the CoC. i) The points on which the Order of remand was made came to be discussed by the CoC, and as required by it, on 07.05.2024, the appellant in C.A.946 of 2025 submitted its modified plan. The value of the plan was Rs. 7.75 crores. The two-member CoC would approve it unanimously once again. It may have to be stated that earlier the SRA had provided an EMD of Rs. 25.0 lakhs and followed it a payment of Rs. 1,68,75,000/- vide two demand drafts towards performance guarantee. 2.2 The matter came before the Adjudicating Authority yet again for its approval. Throughout the process, no other stakeholder, creditor, governmental authority, or erstwhile management of the CD raised any objection or challenge to the Resolution Plan or the valuation. However, in its Order dated 23.06.2025 which is now impugned, the Adjudicating Authority rejected the Resolution Plan and directed liquidation of the Corporate Debtor. The Adjudicating Authority indeed has held that the CIRP has been used as a mask as the very initiation of CIRP is found to be suspect. The line of reasoning which prevailed on the Adjudicating authority for ar....
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....rty. Thirdly, the RP has not placed the complete Information Memorandum and it is doubtful whether all the PRAs have been served with the audited financial statements and the details of the assets of the CD. And, fourthly, the RP has failed to initiate any PUFE proceedings. 5. The learned counsel for the RP would contend: a) So far as the issue of valuation goes, none objected to it, including the suspended Directors of the CD (since they also evinced interest in participating in the bid). As many as 22 IBBI registered valuers were approached and quotations invited, and two valuers were appointed after ratification in the 2nd CoC meeting. Their reports were placed before and accepted by the CoC. No stakeholder objected to the valuation at any stage of the CIRP. At any rate, in the absence of objections from the stakeholders, the Adjudicating Authority cannot suo motu raise any issue of valuation. Reliance was placed on the ratio in Vashishth Builders and Engineers Ltd., Vs Trishul Dream Homes Ltd., [C.A.(AT)(Ins) 732 of 2025, dated 20.05.2025] b) Form G did disclose the Office property in Ahmedabad. What the RP has done is that he has described the property as ....
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....d it. Indeed, the plan value is Rs. 7.75 crores while the combined net worth of the partners of the SRA is Rs. 16.94 crores. Indeed, the SRA has demonstrated its capacity to implement the plan when it has deposited Rs. 25.0 lakhs as EMD and Rs. 1.68 crores as performance guarantee within the time stipulated. So far as the view of the Adjudicating Authority that the participation of SRA in another bid unrelated to the present CIRP would leave it with inadequate funds to implement the plan in this case goes, beyond the statement that the SRA has participated in bid in another CIRP proceedings, there is hardly any material to suggest that SRA might not have funds to implement the present plan. b) Even though Adjudicating Authority has held that the plan does not comply with Regulation 38(3) of the CIRP Regulations, it does not go to explain how and where the plan failed in complying with the said Regulation. Whilst clauses 3.4 and 4 of the plan provide the roadmap for the revival of the CD, the CoC has examined the feasibility and viability of the plan in its 4th, 5th and the 6th meetings. c) In its Order dated 09.04.2024, the Adjudicating Authority had raised the sa....
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....nst the RP, may now be listed: a) The CoC is blissfully unaware about the business of the CD including the nature of its activities and the prospects of revival as a going concern; b) That the Committee of Creditors failed to subject the Corporate Debtor to a forensic audit or otherwise undertake a deeper scrutiny of past transactions, despite the Corporate Debtor being non-operational for a considerable period prior to CIRP; c) That the Committee of Creditors approved the Resolution Plan without adequately appreciating the alleged absence of an effective revival strategy, thereby rendering the plan more in the nature of an acquisition of assets rather than a genuine resolution of insolvency; d) The CoC ought to have taken care to scrutinize the valuation of the two valuers as the value they reported does not show great difference. e) That the Committee of Creditors failed to meaningfully deliberate upon the magnitude of statutory claims, especially those of the Income Tax Department, and their impact on the resolution process; Another aspect which passed the scrutiny of the Adjudicating Authority when it tested the plan for its sustaina....
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....e three cases with none to oppose them, is multi-focal and layered. If the reasoning of the Adjudicatory Authority is filtered through the arguments of their respective counsel for decocting their essence, it becomes evident that their common contention is that: the Adjudicating Authority has overstepped the line of its own authority under Sec.31 IBC; the Adjudicating Authority may not have to subject the acts of CoC-RP to a forensic examination microscopically when its own domain of scrutiny is statutorily demarcated and judicially declared, and that at any rate, the facts do not warrant a conclusion that it has arrived. 12. But has the Adjudicating Authority overstepped its authority and has guided its approach while considering the resolution plan for its approval with suspicion? Broadly, when legislature has designed Sec.32A to shield the SRA against potential future claims of past liabilities of the CD, whether the mere fact a SRA will eventually have the benefit of Sec.32A can be a reason to suspect every resolution process? It may not, for that which the statute has enabled cannot be a source of suspicion. But the appellants contend differently. This ideally set the stage....
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....nk. Still the Code has constituted an Adjudicating Authority and enjoined it with certain responsibilities under Sec.31 and Sec.60(5). How, then to understand the role of an Adjudicating Authority in an insolvency resolution process from the nature of responsibilities assigned to it, when it is not part of the salvage team? 13.4 An Adjudicating Authority, like an umpire in the cricket-field, once calls 'play' with its order initiating a CIRP and appointing the IRP, is only required to watch the way the game is played by the CoC-RP combination, unless it is called upon to decide any issues in between but at the instance of any of the stakeholders to the insolvency resolution process - exactly what the umpire is required to do. In Torrent Power Ltd., Vs Ashish Arjunkumar Rathi & Others [(2026) ibclaw.in 109 (SC)], the Hon'ble Supreme Court has summed up the role the Adjudicating Authority as below: "1.1 The IBC recognises that decisions on viability, valuation, and acceptable haircuts are inherently commercial, not judicial. Courts, therefore, do not substitute their assessment for that of the CoC. The adjudicating authority performs a supervisory role, ensuring statutory....
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...." Accordingly, an Adjudicating Authority, like an umpire, howsoever knowledgeable and experienced it might be, cannot correct the bottom hand grip of a batsman or to advise him on how well a stroke could have been played, but to oversee whether the game is played in the spirit of the game, consistent with its rules, and to indicate whether a fair run is scored. In short, like an umpire, an Adjudicating Authority is part of the game, still it cannot play. 14. It may now be possible to deduce that when a resolution plan conforms to the statutory provisions and not proved to have been otherwise vested with any material irregularity^1 or fraudulent motives as to impair the integrity and purity of the resolution process, there silently operates a presumption that an approval to a resolution plan by the CoC is fair and legal, which in turn will minimize the role of the Adjudicating Authority to interfere with a plan. Any idea to the contrary may expose an insolvency resolution process, which in terms of the law expounded by the Supreme Court is primarily driven by the commercial wisdom of the CoC, to the peril of micro-scanning of the acts of CoC-RP combination by the Adjudicating ....
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....cal: an Adjudicating Authority is not a mere counter signatory to the CoC to lend its approval to a resolution plan, but a sentinel on the qui vive to uphold the spirit and objectives of the IBC. 15.2 Having stated thus, the bottom-line is that even though an Adjudicating Authority has the responsibility to ensure the purity and integrity of an insolvency resolution process, yet no Adjudicating Authority may scrutinize a resolution plan through a lens of inscrutable suspicion but only through demonstrable facts providing a logical basis for suspecting the same. 16. Therefore, on issues of misuse of the Code, despite the apparently limited jurisdiction under Sec.31 of the Code, an Adjudicating Authority is neither powerless nor is helpless to take cognizance of acts of fraud on statute and to respond to it appropriately. See: Omkara Asset Reconstruction Private Ltd., Vs Amit Vijay Karia [C.A.(AT)(Ins.) 914 of 2025 batch, dated 01.12.2025]. A classic example of deliberate misuse of IBC for masking the ulterior motives behind initiating it could be seen from the judgement of the co-ordinate bench of this tribunal in Sonal Sumit Mehta Vs Vinod Tarachand Agarwal, RP of Rexsona Til....
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....rcial choice, then the choice so made may not be interfered with as it falls within the realm of commercial wisdom of the CoC. b) Secondly, if any irregularity is alleged or found, then to examine whether any violation or breach of statutory provisions, which necessarily include the Regulations, constitute material irregularity. c) Then arises the last aspect. Beyond the visible statutory compliance, if there exist any tangible facts which on a logical analysis indicate that there may exist a case for statutory fraud or misuse of the Code which mars the integrity of the insolvency process, then an Adjudicating Authority has every right to probe the same. Impugned Order Tested: 18. The merit of the line of reasoning of the Adjudicating Authority is now required to be examined on the plane of law stated in earlier paragraphs. The issue here is in which slot the approach of the Adjudicating Authority should be fitted in. And, every evidently it has pitched its reasoning in paragraph 17(c) above. Earlier in paragraph 10, the Adjudicating Authority's criticism against the very commencement of the CIRP against the CD has been outlined since in its opinion the obje....
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....ny has been selling its assets since 2021-2022 fiscal year. This apart, CD had intangible assets of Rs. 8.77 lakhs as on 31.03.2021 and it was seen reduced to NIL. Besides, the CD had inventories worth Rs. 2.92 crores as on 31.03.2021, and this too was decreased to Nil as on 31.03.2022. And, the CD's cash and bank balance of Rs. 3.14 crores and 1.68 crores respectively as on 31.03.2021 also sees a reduction to Rs. 14.21 lakhs and 0.77 lakhs as on 31.03.2022. Turning to the head of other current assets of the CD it has seen an increase of Rs. 21.60 crores as on 31.03.2022 from Rs. 69.0 lakhs from the previous financial year. This increase is seen attributed to a slump sale but there is hardly any information about it. And this value sees a marginal reduction in the financial year 2022-2023. Here, it could be seen that the Profit and Loss account of the CD for the financial year 2021-2022 however, shows a gain on slump sale of Rs. 9.56 crores. Whereas the audited accounts of CD for the year 2021-2022 show that it had a revenue of Rs. 12.68 crores and Rs. 0.84 crores from the sale of shelters and towers and trading of yarn and other products, but this is apparently different from what....
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....Ventures India Private Limited Rs. 2.30 crores. Not much is known about these loans. i) The Resolution Plan is submitted by two entities, namely M/s Deepvir Enterprise and M/s Kanha Ventures. These entities, together, have five partners, and their combined net worth is Rs. 16,93,97,296 (as per the Resolution Plan filed on 19.06.2024). The same is shown as increased to Rs. 18,77,56,359 as per the Application filed by the RP оп 06.05.2025. The fluctuation in net worth of the SRA was felt to be inexplicable. 19.2 Besides, the Adjudicating Authority has also directed certain aspects against the RP, CoC and the SRA and they are listed in paragraphs 4,6, and 8 above. Based on its assessment, the Adjudicating Authority has held that it cannot remain a mute spectator and held that the material on record, including the very terms of the CoC-approved Resolution Plan dated 07.05.2024 (for an aggregate plan value of about Rs. 7.75 crore against admitted claims exceeding Rs. 267 crore, excluding very large contingent tax liabilities), display (i) incomplete and unreliable financial information pertaining to the Corporate Debtor, (ii) absence of proper examination of subs....
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....mmencing from 2020-2021, disappearance of substantial liability of about Rs. 440 crores which the balance sheets of the CD show as short term borrowings plus other liabilities, failure of the RP to hold an audit (call it a forensic audit, if so considered appropriate), and to place these facts before the CoC. Given the fact the petition under Sec.7 was filed on 10.03.2023 (during the financial year 2022-2023) and that the CD was admitted to CIRP on 31.07.2023 (in the following financial year), and the loss of real property and short term borrowings of Rs. 440 crores and its disappearance had taken place during the lookback period (which commences from 31.07.2021), a just question that naturally arises is that why CoC was not taken into confidence? In the first CoC meeting on 31.08.2023, it is minuted that the IRP had only gone through the raw tally statements and that he was yet to go through the final tally statements and the books of accounts of the CD, was it not necessary for him to bring the same to the notice of the CoC in the subsequent meetings? Going by the minutes of the CoC meetings, not a whisper is made on this aspect in any of the subsequent meetings of the CoC. And u....
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....uninspiring quality. 23. Where there are facts which on a logical analysis shakes the foundation of the integrity of the resolution process, it no more depends on the concession of a creditor-claimant for lending approval to the plan. Like Sita's agni-pravesh, this resolution plan and the process by which it came into being ought to have vindicated its purity, but as stated earlier the appellants are busy in dealing with isolated issues randomly without reference to the core concern of the Adjudicating Authority. Set in the context, while testing the viability of the plan fall within the domain of the CoC as held in Sreeram E-Techno School case [2019 SCC OnLine (NCLAT) 1148] but the issue has to be understood in the larger context of the larger issue. 24. The Adjudicating Authority has expressed its concern regarding non- compliance of Regulation 6A of the CIRP Regulation by the RP. The RP denies any violation and tries to draw our attention to the material he has produced, but what makes it significant is that if the balance sheets show other sundry creditors, then could not the RP identify those creditors and put them on notice about the commencement of CIRP against the CD?....
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....creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan." 161. These observations read with the observations in Essar Steel [Essar Steel India Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531: (2021) 2 SCC (Civ) 443] with reference to the reasons stated in the Report of Bankruptcy Law Reforms Committee of November 2015, make it clear that commercial wisdom of CoC is assigned primacy in CIRP for it represents collective business decision, which is arrived at after thorough examination of the proposed resolution plan and assessment made with involvement of experts by the body of persons who are most vitally interested in rapid and efficient decision making. *It follows as a necessary corollary that to be worth its name, the commercial wisdom of CoC would come into existence and operation only when all the relevant information is available before it and is duly deliberated upon by all its members, who have direct and substantial interest in the survival of corporate debtor and in the entire CIRP. 162. In light of the aforesaid position of law and its operation in relation to the decision-making proces....
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....parency and complete disclosure, an implied duty is cast on that creditor who is privy to both the CIRPs initiated against the principal borrower and corporate guarantor to share information in the CIRP of the one about what transpires vis-à-vis its own claim (as it may have a telling effect on the voting share of such creditor) in the other CIRP. The need for updating the claims either under Regulation 12A or 14 must be distinguished from the duty to share such information which might affect the transparency and the resulting fairness of the resolution process. The principal duty or responsibility of every stakeholder associated with an insolvency resolution process is to act in aid of establishing its fairness, its integrity and purity. Silence may not be a virtue when there is a statutory necessity to uphold fairness in the working of a statute. It is however, added that where there is a failure to disclose such information, it per se may not be a ground to reject a resolution plan unless it is established how it has fatally affected the transparency of a CIRP. Turning to the present case, disclosure of any information vis-à-vis the claim of the petitioning financi....