TaxTMI 
TaxTMI 
2026 (7) TMI 1132
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....by the Appellant i.e., Santosh R. Shetty who is the suspended Director and Promoter of the Sristi Hospitality Private Limited under Section 61 of the Insolvency and Bankruptcy Code, 2016 ("Code") against the Impugned Order dated 07.05.2024 passed by National Company Law Tribunal, Court-V, Mumbai Bench ("Adjudicating Authority") in I.A. No. 2141/2022 in C.P. (IB) No. 518(MB) of 2022 and against the Impugned Order dated 12.07.2024 passed by National Company Law Tribunal, Court-V, Mumbai Bench ("Adjudicating Authority") in I.A. No. 3612/2022 in C.P. (IB) No. 518(MB) of 2022. Mr. Rajan Deshraj Agarwal, who is the Resolution professional of Sristi Hospitality Pvt. Ltd., is the Respondent No.1 herein. Committee of Creditors of Sristi Hospitality Private Limited, is the Respondent No. 2 herein, comprises the sole financial creditor of the Corporate Debtor, namely Saraswat Co-operative Bank Ltd. Consortium of Admas Industries Pvt Ltd, Subh Ashish Exim Pvt. Ltd. and Mr. Amit Jatia, Hardcastle Restaurants Pvt. Ltd. is the Respondent No.3 herein. 2. We note that the Corporate Debtor was incorporated in the year 2003 under the Companies Act, 1956, and is also registered as an MSME ....
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....sfully, it faced severe financial difficulties due to grave personal issues, particularly the prolonged and serious illness of the Appellant's wife, Mrs. Rani Shetty (a personal guarantor), who unfortunately passed away on 14.06.2020. Consequently, the account became a Non-Performing Asset (NPA) and SARFAESI proceedings were initiated in 2019. The Corporate Debtor had proactively written to the Financial Creditor on 09.11.2021 expressing its willingness to sell the Subject Property and had even suggested investment options, but could not find suitable buyers due to the adverse impact of COVID-19 on the hospitality sector. 7. The Appellant stated that the Financial Creditor filed an application under Section 7 of the IBC bearing C.P.(IB) No. 518 of 2022 on 31.03.2022 claiming an amount of Rs. 28,30,42,444.42/-. The said application was admitted by the Adjudicating Authority on 27.02.2023, initiating CIRP. 8. The Appellant contended that after the first CoC meeting, he was deliberately given extremely short notices of barely 24 hours for subsequent CoC meetings, which made it practically impossible for him to attend most of the meetings. Since the CoC consisted of only one fina....
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....pplications against the Appellant alleging lack of cooperation, solely to harass him and mislead the Adjudicating Authority, while the Respondent No. 1 himself was acting in gross violation of the Code. 14. The Appellant contended that the most serious irregularity is the deliberate and gross undervaluation of the Subject Property orchestrated by Respondent No.1. Earlier valuations (2017 and 2020) clearly established a much higher fair market value (up to Rs. 76.72 Crore), yet the valuation obtained during CIRP was manipulated to enable Respondent No.3 to acquire the prime property at a throwaway price. This establishes collusion between Respondent No.1 and Respondent No.3. 15. The Appellant stated that the Subject Property is located in a prime commercial area of Vile Parle West. Even the 2020 valuation conducted by the Appellant is more than double the value offered under the approved resolution plan of Respondent No.3. Approving such an undervalued plan is unjust, contrary to the objectives of the code, and defeats the goal of maximization of value of assets. 16. The Appellant submitted that he is ready and willing to offer a substantially better resolution proposal whi....
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....submitted that Respondent No. 2 had filed a Petition under Section 7 of the Code, bearing CP (IB) No. 518 of 2022 against the Corporate Debtor, which came to be admitted by order dated 27.02.2023. Pursuant thereto, Respondent No. 1 was appointed as the Interim Resolution Professional ("IRP") of the Corporate Debtor. The Respondent No. 1 contended that throughout the CIRP period, the Corporate Debtor continued to operate as a going concern and all efforts were made by Respondent No. 1 to preserve and maximise the value of the assets of the Corporate Debtor. 23. The Respondent No. 1 submitted that immediately upon his appointment, a public announcement in Form A was issued on 02.03.2023 inviting claims from all stakeholders of the Corporate Debtor. Thereafter, claims received from financial creditors, operational creditors and other stakeholders were duly verified and collated strictly in accordance with the provisions of the Code and the CIRP Regulations. 24. The Respondent No. 1 submitted that claims aggregating to Rs. 32,41,40,546/- were admitted by Respondent No. 1 after due verification. The Respondent No. 1 specifically submitted that the list of creditors was always avai....
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....n at any stage of the CIRP. 29. The Respondent No. 1 submitted that after compliance with Section 30(2) of the Code, the three resolution plans were placed before the CoC for consideration. Ultimately, the resolution plan submitted by Respondent No. 3 came to be approved with 100% voting share in the Seventh Meeting of the CoC held on 05.08.2023. It was further submitted that none of the unsuccessful resolution applicants challenged the approval of the plan, thereby demonstrating the fairness and transparency of the process conducted by Respondent No. 1. 30. It was contended that the application seeking approval of the Resolution Plan was filed before the Adjudicating Authority on 10.08.2023. However, despite the CIRP process having concluded in August 2023, the Appellant chose to file I.A. No. 2141 of 2024 only in April 2024 after a delay of approximately eight months. Respondent No. 1 submitted that the conduct of the Appellant clearly demonstrates that the proceedings have been initiated with oblique motives and only to obstruct the resolution process. 31. The Respondent No. 1 submitted that the entire CIRP was completed within the statutory period of 180 days without s....
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....No. 1 filed I.A. No. 5841 of 2023 under Section 43 and I.A. No. 12 of 2024 under Section 66 of the Code for avoidance of preferential and fraudulent transactions. The said applications are presently pending adjudication. Respondent No. 1 submitted that the Appellant has neither appeared nor filed replies in those proceedings till date. 36. The Respondent No. 1 submitted that nine meetings of the CoC were convened during the CIRP and notices of the eight meetings, along with agenda, supporting documents and virtual meeting links, were duly served upon the suspended directors including the Appellant. However, despite receipt of notices, the Appellant attended only the first CoC meeting and deliberately abstained from all subsequent meetings. 37. It is contended that even when the Appellant expressed inability to attend the Fourth CoC meeting scheduled on 12.06.2023, Respondent No. 1 personally urged the Appellant to participate in the meetings in the interest of smooth conduct of the CIRP. Despite such requests, the Appellant voluntarily chose not to participate and cannot now be permitted to challenge a process in which he consciously refused to participate. 38. The Respond....
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....ovided copies of the Information Memorandum, Request for Resolution Plan ("RFRP"), Evaluation Matrix, names of registered valuers and details of EOIs received. Respondent No. 1 submitted that the Appellant was fully aware of every stage of the CIRP but consciously chose not to participate. 43. The Respondent No. 1 submitted that no inflated claims were admitted. It was contended that Saraswat Co-operative Bank had initially filed the Section 7 petition for Rs. 28,30,42,444.42/- as on 31.03.2022 and subsequently filed its claim for Rs. 29,78,73,126/- as on the insolvency commencement date in accordance with the loan documents and contractual terms. The said claim was duly verified and admitted in accordance with law. The Respondent No. 1 submitted that the list of admitted claims formed part of every CoC agenda circulated to the Appellant and was never challenged during the CIRP. 44. It is submitted that the Adjudicating Authority granted protection against coercive action and subsequently the Santacruz Police Station itself closed the complaint vide letter dated 16.01.2024, specifically observing that Respondent No. 1 had acted in accordance with the provisions of the Code an....
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....further submitted that Saraswat Co-operative Bank was the sole member of the CoC by operation of law and therefore exercised voting powers vested in it under the Code. The Respondent No. 1 submitted that statutory powers vested in the CoC cannot be characterised as collusion merely because the Appellant is dissatisfied with the outcome of the CIRP. 49. The Respondent No. 1 also denied the Appellant's contention that being an MSME, the suspended management had a first right to acquire the Corporate Debtor. The Respondent No. 1 submitted that while the Code grants limited exemptions to MSMEs from certain disqualifications under Section 29A, there exists no concept of "first right of priority" in favour of suspended management. The Appellant, despite having full opportunity, neither submitted an EOI nor participated in the resolution process and therefore cannot now seek to reopen the CIRP. 50. The Respondent No. 1 submitted that the Adjudicating Authority dismissed the Appellant's application on the ground of delay and laches. It is contended that the Appellant deliberately abstained from the CIRP process and approached the Adjudicating Authority only after the Resolution Plan ....
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....e outstanding dues. Consequently, the loan account of the Corporate Debtor was classified as a Non-Performing Asset ("NPA") on 30.03.2019. Thereafter, Respondent No. 2 issued a demand notice dated 11.04.2019 under Section 13(2) of the SARFAESI Act, 2002 calling upon the Corporate Debtor to repay the outstanding dues. 56. It was further submitted that despite issuance of the statutory notice, the Corporate Debtor failed and neglected to liquidate the outstanding liability. Accordingly, Respondent No. 2 took symbolic possession of the secured asset vide possession notice dated 17.06.2019. 57. The Respondent No. 2 submitted that owing to the continued default committed by the Corporate Debtor, it initiated CIRP proceedings under Section 7 of the Code for resolution of the outstanding financial debt amounting to Rs. 28,30,42,444.42/-. It was contended that the said petition came to be admitted by the Adjudicating Authority vide order dated 27.02.2023, whereby CIRP was initiated against the Corporate Debtor. 58. The Respondent No. 2 further submitted that pursuant to the admission order, Respondent No. 1 issued public announcement in Form A under Section 15 of the Code read wit....
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....or took any meaningful steps to protect the interests of the Corporate Debtor. The present Appeal has been filed only to unnecessarily delay the implementation of the approved Resolution Plan. 64. The Respondent No. 2 further submitted that even at the stage of the Section 7 proceedings, the Appellant neither filed any substantive reply nor raised any valid objections before the Adjudicating Authority. Similarly, despite being aware of the ongoing CIRP proceedings, the Appellant neither challenged the CIRP process nor participated in the same before approval of the Resolution Plan. 65. The Respondent No. 2 submitted that the valuation process was conducted transparently and strictly in accordance with law. It is specifically contended that two independent IBBI registered valuers carried out valuation of the land and building assets of the Corporate Debtor. The Respondent No. 2 further submitted that the suspended director Mr. Aditya Shetty himself participated in and assisted the valuation exercise and was fully aware of the process undertaken by the valuers. 66. The Respondent No. 2 submitted that the allegation regarding undervaluation of the property is entirely baseles....
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....a prayer for fresh valuation does not merit consideration so long as the procedure prescribed under the Code has been duly followed. Reliance was also placed upon Hem Singh Bharana v. Pawan Doot Estate Private Limited & Anr., Company Appeal (AT) (Insolvency) No.1481 of 2022 wherein it was held that after approval of a Resolution Plan by the CoC, neither the CoC nor any stakeholder can be permitted to revisit or reopen the process as the timelines prescribed under the Code are required to attain finality and certainty. 71. The Respondent No. 2 further relied upon the judgment of the Hon'ble Supreme Court in India Resurgence ARC Private Limited v. Amit Metaliks Limited [(2021) 19 SCC 672] wherein it was reiterated that the process of approval of a Resolution Plan lies within the exclusive domain of the commercial wisdom of the CoC and the scope of judicial review under Section 30(2) of the Code is extremely limited. 72. The Respondent No. 2 also relied upon the judgment of the Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Limited (Supra) wherein the Hon'ble Apex Court held that neither the Adjudicating Authority nor the Appellate Tribunal can trespass upo....
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.... CIRP proceedings, the Appellant chose not to participate in the process. The Respondent No. 3 submitted that the Appellant himself has admitted in the Appeal that he did not attend the meetings of the Committee of Creditors. Having remained absent throughout the process, the Appellant cannot now be permitted to challenge the same after approval of the Resolution Plan. 78. The Respondent No. 3 submitted that the valuation exercise was conducted through duly appointed independent registered valuers in accordance with Regulation 27 of the CIRP Regulations. It is contended that the CoC approved the appointment of registered valuers and the valuation reports submitted by the aforesaid registered valuers formed the basis for determination of fair value and liquidation value of the assets of the Corporate Debtor. 79. The Respondent No. 3 further submitted that the statutory process for inviting Expressions of Interest from prospective resolution applicants was duly followed. It is contended that Form G inviting Expressions of Interest was published on 16.05.2023 by Respondent No. 1. Thereafter, upon approval of the eligibility criteria, issuance of Request for Resolution Plan, eval....
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....held that only the valuation conducted by IBBI registered valuers appointed after commencement of CIRP is relevant for consideration by the CoC. The Respondent No. 3 submitted that any valuation conducted prior to commencement of CIRP has no relevance under the statutory framework of the Code. 84. The Respondent No. 3 further relied upon the judgment of the Hon'ble Supreme Court in M.K. Rajagopalan vs. Dr. Periasamy Palani Gounder & Anr., reported in (2024) 1 SCC 42, wherein it was held that once the CoC has considered and accepted the valuation process, allegations subsequently raised by erstwhile directors regarding irregularities in valuation are liable to be rejected. The Respondent No. 3 submitted that the ratio laid down in the aforesaid judgment squarely applies to the facts of the present case. 85. The Respondent No. 3 contended that it is now well settled that the commercial wisdom of the CoC is paramount and cannot be interfered with except within the limited parameters prescribed under Section 30(2) and Section 61 of the Code. It was submitted that neither the Adjudicating Authority nor the Appellate Tribunal can sit in appeal over the commercial decision taken by ....
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....) of the Code, particularly the objective of maximisation of value of assets under Section 30(2)(a) of the Code, since the Plan was based on a grossly undervalued property. It is the case of the Appellant that the Adjudicating Authority failed to independently apply its mind to the serious allegations of procedural irregularities and valuation manipulation before approving the Plan under Section 31 of the Code that the Appellant submitted that as a personal guarantor whose personal assets were attached, has a direct and material stake in the outcome of the CIRP, and was deprived of a meaningful opportunity to be heard prior to approval of the Resolution Plan and further the Resolution Plan as approved does not adequately provide for CIRP costs and operational creditors in accordance with the mandatory priority waterfall under the Code. The Appellant stated that Adjudicating Authority committed an error in approving a Resolution Plan that was tainted by the admitted violations of the Code. 89. Both the appeals have been heard together since they are arising from a common set of facts and involve overlapping legal question. We also consulted both the parties who also agreed for co....
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....t maintainable. 94. However, we find that even independently, the Appellant's position as a personal guarantor to the Corporate Debtor's debt creates a direct and quantifiable legal and financial stake in the CIRP outcome. His personal assets remain exposed to enforcement by the Financial Creditor thus, prima-facie the Appellant has locus. 95. This Tribunal is also guided by the earlier decision of Hon'ble Supreme Court in case of Vijay Kumar Jain v. Standard Chartered Bank & nr., (2019) 20 SCC 455, wherein the Hon'ble Supreme Court held that a former director who is also a personal guarantor is an "aggrieved person" entitled to notice and participation in CIRP proceedings. 96. We hold that the Appellant as the Suspended Director of the Corporate Debtor and as a personal guarantor of the debts owed to the Financial Creditor, constitutes a 'person aggrieved' within the meaning of Section 61(1) of the Code and has the locus standi to maintain these Appeals. 97. ISSUE II : Validity of the Order Dismissing I.A. No. 2141/2024 as Belated 98. The Company Appeal (AT) (INS) No.1378 of 2024 challenges the Adjudicating Authority's impugned order dated 07.05.....
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.... Commotrade Private Limited) versus JM Financial Asset Reconstruction Co. Limited and Anr. in Company Appeal (AT) (INS) No. 1359 and 1360 of 2023. 102. We are unable to accept the contention of the Appellant for the reasons. As per the scheme of the Code, as interpreted by the Hon'ble Supreme Court consistently, places a premium on time-bound resolution of insolvency. The Code deliberately creates a tight and tiered system of remedies at defined stages of the CIRP. Applications before the Adjudicating Authority are required to be made at the appropriate stage and with reasonable promptitude. It is not open to a party who has full knowledge of the CIRP proceedings including the valuation exercise and the CoC meetings to remain silent throughout the process and then file an isolated application seeking to nullify the entire CIRP at the very final stage when the Resolution Plan approved by 100% of CoC, is before the Adjudicating Authority for approval. 103. We have taken into consideration that the Appellant duly received notice dated 04.08.2023 together with agenda and notes on agenda items, which indicate that the Appellant was aware that in its meeting, the CoC was going to c....
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....P costs through valuations of non-existent assets; (iii) denial of the Appellant's right to propose a competing resolution plan; and (iv) non-cooperation by the RP in providing information to the Appellant; and (v) non sharing of Resolution Plan and valuation report; and (vi) non circulating of the 7th COC minutes ;and (vii) misconduct on the part of the RP. These allegations, if established, could potentially attract consequences under the Code and the IBBI (Insolvency Professionals) Regulations. 108. The Appellant places reliance of the complaint filed by him before the Insolvency and Bankruptcy Board of India, inter-alia, for not being supplied minutes of 7th CoC meeting. It has been brought out by the Respondent that the said complaint was filed with respect to all the issued raised by the Appellant in the appeals before us. It is observed that the complaint dated 23.08.2024 was filed to IBBI more than one year after the approval of the resolution plan by the CoC as CoC approved the Resolution Plan on 27.02.2023. It is noted that on 04.02.2025, the IBBI passed an order on the complaint that non-supply of minutes was a procedural lapse and there was no material irregulari....
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....asions spanning a period of over seven months. IA No. 3612/2023 was listed on 04.09.2023, 11.10.2023, 04.12.2023, 03.01.2024 and 05.04.2024. On each of these dates, as well as on the dates when orders were reserved, the presence of the Appellant was duly recorded. Thus, the Appellant was fully aware of the pendency of plan approval application. We are of the view that the Appellant was indeed entitled to receive the copy of the 7th CoC Minutes. The Appellant also filed complaint to IBBI on this issue at much later stage and IBBI noted this as a procedural issue and did not take any action against the Resolution Professional. We have noted that this order of IBBI has not been challenged by the Appellant, thus attained finality. Hence, although we are of the view that the Resolution Professional should have sent minutes of the 7th CoC Meeting to the Appellant, however we tend to agree with IBBI findings to be a procedural lapse. We can't treat a material irregularity. 112. We will now examine the issue of the Appellant that copies of the valuation reports were not provided by the Resolution Professional. We note that Regulation 35(2) of CIRP Regulations stipulates duty upon the Re....
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....e basis of such bare allegations by the Appellant. We note that under Section 60(5) of the Code, the Adjudicating Authority has the jurisdiction to entertain and decide any question of fact or law arising out of or in relation to the insolvency resolution, but the exercise of such jurisdiction must be on the basis of evidence properly adduced. We have gone through both the impugned orders and do not find any apparent error as alleged by the Appellant. 117. ISSUE IV: Valuation Challenge and Re-Valuation 118. The centrepiece of the Appellant's challenge is his contention that the sole property of the Corporate Debtor on the basis of which the entire CIRP was built was grossly undervalued, and that the Resolution Plan was consequently approved for a consideration that is much lower than the actual fair value of the property, defeating the very objective of the IBC of value maximisation under Section 30(2)(a) of the Code. 119. It is the case of the Appellant that there has been marked difference between the valuation reports of the Pre-Cirp and Post Cirp commencement. In this connection, we find that is it has been held the Hon'ble Supreme Court and this Hon'ble Appellate ....
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....he procedural propriety of the conduct of the valuation process. 121. It is the case of the Appellant that during the pendency of legal proceedings, the Appellant wrote to the Resolution Professional a letter dated 09.11.2021, wherein the Appellant sought intervention of the Resolution Professional to sell the property to buyer in the range of Rs.45-50 Crores and, also to find arrangements with third parties to pay the outstanding dues. The Appellant also contended that, in 2023, the property was attracting offers in the range ofRs.70-80 crores. The Resolution Professional, however denied these as contradiction to the Appellant's earlier inability to conclude a sale at Rs.45-50 crores in 2021, despite having options to sale the property as stated in his letter dated 09.11.2021. 122. It has been brought out that the subject property is an old and depreciated structure, originally constructed around 1950, and has suffered a continuous decline in value over time. The Resolution Professional also brought out that the diminishing value of the property is, in fact, the primary reason why the Appellant has been unable to effectuate its sale since the account was classified as a ....
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....eel India Ltd. (Supra) is that the commercial wisdom of the CoC in approving a Resolution Plan is non-justiciable, and the NCLT and NCLAT are not courts of equity empowered to second-guess the CoC's assessment of the commercial adequacy. 127. We are of the view that once the CoC is satisfied with the valuation and has approved the Resolution Plan such allegations of raised by ex-promoter of the Corporate Debtor, cannot be entertained. This is supported by judgement M.K. Rajagopalan (Supra) and Ramkrishna Forgings (Supra). 128. Moreover, the past valuations of the subject property can have no bearing; and neither can the subject property be evaluated based on valuation done during CIRP, as sought by the Appellant. This Appellate Tribunal in earlier case of Madhukar Shetty (Supra) and Praful Satra (Supra) has categorically held that only the valuation conducted by IBBI registered valuers appointed post commencement of CIRP is required to be considered by the CoC. The judgment passed by this Appellate Tribunal in Praful Satra (Supra) has also been upheld by the Hon'ble Supreme Court vide its order dated 07.11 .2025 in Civil Appeal No. 12613/2025. 129. The Respondent N....
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.... the Corporate Debtor's property, but that the Resolution Professional and the CoC failed to consider this option. 135. It is noted that the Appellant never submitted any Expression of Interest despite claiming benefits available to Micro, Small and Medium Enterprises ("MSMEs"). It is contended that if the Appellant genuinely intended to revive the Corporate Debtor, the Appellant could have participated in the CIRP by submitting an EOI and thereafter filing a Resolution Plan. However, the Appellant deliberately abstained from the process and chose to challenge the same only after approval of the Resolution Plan by the CoC with 100% voting share. 136. The scheme of the Code with respect to submission of resolution plans is governed by Section 25(2)(h) of the Code read with Regulation 36A and Form G of the CIRP Regulations. On the facts, the Appellant has not established that he or any investor connected to him submitted any resolution plan. Further, even if an eligible investor was in the background, a mere commitment letter from an investor does not constitute a resolution plan in the prescribed form. An investor commitment letter however genuine cannot substitute for com....
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....e Resolution Plan on grounds other than those specified in Section 61(3) of the Code. 142. Section 61(3) of the Code specifically provides that an Appeal under Section 61(1) shall not lie except on the grounds that the order of the Adjudicating Authority is against the provisions of the Code or any law for the time being in force or there has been a material irregularity in exercise of the powers by the Resolution Professional; or the debt owed to operational creditors has not been provided for in accordance with the provisions of the Code. 143. Section 31(1) of the Code empowers the Adjudicating Authority to approve a Resolution Plan that meets the requirements of Section 30(2). The Adjudicating Authority role at this stage is limited to verifying compliance with Section 30(2) of the Code. It is not required to and must not assess the commercial viability, feasibility or adequacy of the consideration offered in the Resolution Plan. This position has been consistently affirmed by the Supreme Court. In K. Sashidhar (Supra) the Hon'ble Supreme Court of India held that the commercial wisdom of the CoC has been given paramount status under the Code without any judicial interventi....