Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), has directed a fresh valuation and reinitiation of the Corporate Insolvency Resolution Process (CIRP) of M/s Heera Construction Company Pvt. Ltd., after observing serious irregularities in the process, including non-disclosure and non-valuation of several assets belonging to the Corporate Debtor. The tribunal found that valuable properties were excluded from the CIRP process, security interests over third-party assets were extinguished without legal justification, and multiple assets seized by the Enforcement Directorate were omitted from the Information Memorandum. It held that such omissions constituted material irregularities under the Insolvency and Bankruptcy Code, 2016 (IBC).

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Background of the Case:

The appeal under Section 61 of the IBC was filed by IFCI Ltd. against the order dated March 31, 2023, passed by the NCLT Mumbai Bench, which had dismissed IFCI’s application challenging the approval of a resolution plan for the Corporate Debtor. IFCI had extended financial assistance of ₹50 crores to M/s Heera Construction Company Pvt. Ltd. under a corporate loan agreement, secured by multiple mortgages including:

• 5.46 acres of land at Attipra Village, Thiruvananthapuram (third-party asset),

• 0.60 acres at Poonithura Village, Ernakulam (corporate debtor’s asset), and

• Other properties belonging to the promoters.

Following default in repayment, IFCI filed a Section 7 IBC application, which was admitted by the NCLT Mumbai. The Committee of Creditors (CoC), consisting primarily of homebuyers (73.13% voting share) and secured creditors such as IFCI (20.55%), later approved a resolution plan with 74.19% votes, despite IFCI’s dissent.

Contentions of the Appellant:

IFCI contended that the Resolution Professional (RP) failed to value or include key mortgaged properties—particularly the Attipra and Poonithura lands—in the Information Memorandum. It was argued that the RP extinguished IFCI’s security interest over the Attipra land, a third-party property worth nearly ₹50 crore, without any legal authority. Further, the Poonithura land, owned by the corporate debtor and mortgaged to IFCI, was also not valued or included, despite existing sale deeds. IFCI also highlighted that several properties seized by the Enforcement Directorate (ED) were never disclosed to the CoC, despite the RP’s knowledge of the seizure and attachment orders.

Observations of the NCLAT:

The Appellate Tribunal noted that Regulation 35 of the CIRP Regulations, 2016 requires valuation of all assets of the Corporate Debtor, not merely fixed assets. Referring to Victory Iron Works Ltd. v. Jitendra Lohia & Anr. [2023 (7) SCC 227], it reiterated that “the expression ‘asset’ includes properties of every kind, including rights and entitlements arising out of property.” The bench observed that while the RP valued certain third-party properties, others of similar nature were assigned a Nil value without justification. It held that such inconsistency “resulted in removal of valuable parcels of immovable property from the CIRP process,” thereby undermining creditors’ interests.

The tribunal further pointed out that the ED’s provisional attachment order dated January 12, 2024, revealed multiple assets worth ₹23.35 crore belonging to the Corporate Debtor which were never included in the Information Memorandum. The RP’s claim of ignorance regarding these assets was rejected, as records showed his active involvement during the ED’s search and seizure operations. Referring to Section 25(2)(a) and Regulation 36 of the CIRP Regulations, the NCLAT observed that it was the RP’s statutory duty to take control of all assets of the Corporate Debtor and to disclose all material litigations and investigations. The bench held that “there was a failure on the part of the Resolution Professional on this account.”

The Tribunal also noted the inclusion of Clause 13.11 in the resolution plan, which allowed all undisclosed properties of the Corporate Debtor to remain vested in it “free and clear from all encumbrances.” The bench termed this clause contrary to law, referring to Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd. [(2022) 1 SCC 401], where similar provisions were disapproved by the Supreme Court.

Reliance on Precedents:

The NCLAT relied heavily on its earlier judgment in Masatya Technologies Pvt. Ltd. v. Amit Agarwal, RP for Vistar Construction Pvt. Ltd. [2023 SCC OnLine NCLAT 2395], where it was held that if new properties of the Corporate Debtor are discovered post-approval of a resolution plan, a fresh valuation and issuance of Form G must be carried out. Applying the same principle, the bench ruled that the omission of numerous assets from the CIRP and Information Memorandum constituted material irregularity warranting a complete revaluation and reinitiation of the process.

Holding that the RP had failed in his statutory duties and that the CoC’s commercial wisdom was exercised without access to full and accurate information, the NCLAT directed:

• A fresh valuation of all assets of the Corporate Debtor, including those discovered later or attached by the ED;

• Issuance of a revised Information Memorandum and Form G; and

• Completion of the entire process within three months, following the precedent in Masatya Technologies (supra).

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The Tribunal concluded that since critical information and assets were withheld from the CoC, the approved resolution plan could not be sustained. The appeals were accordingly allowed, with the CIRP ordered to be reinitiated after conducting a comprehensive revaluation of the Corporate Debtor’s assets.

Appearance

For Appellant: Mr. Krishnendu Datta, Mr Amish Tandon, Ms Anushree Kulkarni, Advocates.Advocate TS Sundaram for Promoters Directors Mr. Ilam Paridi, Advocate. Mr. Ashish Dholakia, Sr Advocate, Mr. Rohan Chawla, Advocate.

For Respondent: Mr. Sunil Fernendes, Sr Advocate, Mr Rukma George, Mr. Ashhab Khan, Advocates. Mr. Mukund P Unny, Advocate.

Cause Title: IFCI Ltd v. Raju Palanikunnathil Kesavan, RP of Heera Construction Co Pvt Ltd & Ors.

Case No: Company Appeal (At)(Insolvency) No.740/2023; Ia No.2500, 2504/2023 And 3307,8228 Of 2024

Coram: Justice Yogesh Khanna (Judicial Member), Mr. Ajai Das Mehrotra (Technical Member)