Gopal Trading Company Vs. Ravindra Kumar Goyal (RP) and Ors. - The Adjudicating Authority had rightly concluded that the intent behind filing the Section 9 application was not genuine in view of the fact that the Appellant who had initiated the Section 9 application, for inexplicable reasons, absented themselves from further participation in the CIRP proceedings including abstention from the filing of claims.

 NCLAT (2026.03.17) in Gopal Trading Company Vs. Ravindra Kumar Goyal (RP) and Ors. [(2026) ibclaw.in 326 NCLAT, Company Appeal (AT) (Insolvency) No. 222 of 2026] held that;

• The plain reading of Section 65 also leaves no doubts in our minds that there is no need of any formal application for its invocation and the Adjudicating Authority is well within its rights to take suo-moto cognizance of any such development at any stage of the proceedings.

• The Adjudicating Authority had rightly concluded that the intent behind filing the Section 9 application was not genuine in view of the fact that the Appellant who had initiated the Section 9 application, for inexplicable reasons, absented themselves from further participation in the CIRP proceedings including abstention from the filing of claims.

• Be that as it may, we tend to agree with the Adjudicating Authority that when the family links are kept in mind along with the fact that the Appellant was also an ex-director of the Corporate Debtor coupled with non-pursuit of their claims arising out of debt owed by the Corporate Debtor clearly establishes that the purpose was not resolution of insolvency but to prevent recovery proceedings by CGST and GST Department.

Excerpts of the Order;

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 (“IBC” in short) by the Appellant arises out of the Order dated 15.12.2025 (hereinafter referred to as “Impugned Order”) passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench-I) I.A. Nos. 1316(AHM)/2024 and 643(AHM)/2025 in C.P. (IB) No. 251/(AHM)/2022. By the impugned order, the Adjudicating Authority has allowed I.A. Nos. 1316(AHM)/2024 and 643(AHM)/2025. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant-Operational Creditor.

# 2. Coming to the brief facts of the case, Gopal Trading Company-Operational Creditor/Appellant had filed a Section 9 application under IBC which led to admission of the Corporate Debtor-Matrushri Fibres Private Limited into CIRP on 25.09.2023. The Interim Resolution Professional after verification and collation of claims constituted the Committee of Creditors (“CoC” in short). The IRP was later confirmed as Resolution Professional (“RP” in short). The CoC consisted only of two Operational Creditors viz. Assistant Commissioner of GST and Assistant Commissioner of State Tax holding 95.01% and 4.99% vote-share respectively. During the conduct of CIRP proceedings, the IRP had issued several communications to the suspended management of the Corporate Debtor seeking statutory financial records which did not elicit any response from the suspended management. The RP had also issued communications to the Appellant for deposit of CIRP costs which the Appellant did not initially deposit on grounds of financial constraints. This had led the RP to initiate contempt proceedings against the Appellant following which Rs. 2 lakh was deposited towards CIRP cost on 29.08.2024. On finding that the CIRP was not making much meaningful progress due to non-cooperation from the suspended management in making available necessary information/ documents/records of the Corporate Debtor, the Respondent No.1-RP preferred IA No. 1316 of 2024 against the members of CoC seeking directions for inter-alia the closure/termination of the CIRP; for direction to the CoC members to pay the RP fees and expenses incurred besides discharge of the RP from the CIRP of the Corporate Debtor. The Appellant was however not impleaded as party in IA No. 1316 of 2024. While the IA No. 1316 of 2024 was being heard, the RP-Respondent No.1 also filed an IA No. 643 of 2025, in which the Appellant was arrayed as a party, seeking directions of the Adjudicating Authority to declare that the Section 9 petition was initiated by the Appellant-Operational Creditor fraudulently with malicious intent and for purpose other than resolution of the Corporate Debtor and for levy penalty in terms of Section 65 on the Appellant. The Adjudicating Authority after hearing both IA No. 1316 of 2024 and IA No. 643 of 2025 disposed them of with a common impugned order terminating the CIRP of the Corporate Debtor alongwith direction to the Appellant to pay a penalty of Rs. 10 lakhs for fraudulent initiation of CIRP; pay CIRP related costs of Rs.6 lakhs which was in addition to the Rs. 2 lakhs which had already been paid earlier. Aggrieved by this impugned order, the present appeal has been preferred by the Appellant.

# 3. Submission was made by the Ld. Counsel for the Appellant that the Appellant was a small-time business entity which had already suffered business/financial losses and hence the cumulative burden of Rs. 18 lakhs toward penalty, RP’s fees and CIRP expenses imposed by the Adjudicating Authority vide the impugned order had caused grave and irreparable injury to the Appellant. Assailing the impugned order, submission was pressed that when the Adjudicating Authority had itself admitted the CIRP after due adjudication of the existence of the operational debt and default way back in 25.09.2023 and this CIRP admission order had already acquired finality, the impugned order by reversing its earlier order by holding the CIRP initiation to be fraudulent/malicious suffered from inconsistency and incongruity both in terms of fact and law. Stagnation of CIRP was the central reason on which the CIRP admission order was reversed by the impugned order. However, this stalemate was not caused by any act of omission or commission on the part of the Appellant but was entirely caused by persistent non-cooperation from the suspended management. Yet inspite of the purported non-cooperation from the suspended management, the RP did not take any coercive or corrective steps under Section 19(2) of the IBC to ensure cooperation of the suspended management. Hence, the RP being responsible for the slow and negligible progress of CIRP, it could not have held the Appellant responsible for contributing to the stagnation of CIRP and made liable to suffer penalty under Section 65 of IBC. Pressing further that the Appellant was not impleaded as a party in IA No. 1316 of 2025 which had been filed by the RP for closure/termination of the CIRP, the matter having been heard ex-parte against them, the Appellant was unfairly subjected to substantial and disproportionate financial liability by imposition of CIRP related costs and levy of penalty on the Appellant.

# 4. We have duly considered the arguments advanced by the Learned Counsel for the Appellant and perused the records carefully.

# 5. To commence with our analysis on the tenability of the contentions raised by the Appellant, we would like to begin by first outlining the prayers contained in I.A No. 1316 of 2024 and IA No. 643 of 2025. The prayers are as reproduced below:

I.A. No.1316 of 2024

“a. Pass appropriate orders to close/terminate the CIRP initiated against the Corporate Debtor and pass other and further consequential orders including in relation to discharge of the Applicant as Resolution Professional;

b. Pass appropriate orders directing the COC members of the Corporate Debtor to pay the RP fees and reimburse the CIRP expenses incurred by the Resolution Professional as mentioned at Annexure LL;

c. Pass any other order(s) that this Hon’ble Tribunal may deem fit.”

I.A. No.643 of 2025

“a. Pass appropriate order declaring that CP(IB) No. 251 of 2022 has been initiated by the Respondent fraudulently and/or with malicious intent for purpose other than for the resolution of insolvency of the Corporate Debtor and further this Adjudicating Authority be pleased to pass appropriate order levying penalty as per Section 65 of the IB Code on the Respondent;

b. Pass any other order(s) that this Hon’ble Tribunal may deem fit.”

# 6. Next, we advert our attention to the prayers urged by the Appellant as contained in the present appeal petition which is before us for our consideration which is as reproduced below:

“a. Be pleased to allow this Appeal.

b. Be pleased to quash and set-aside the Impugned Final Order and Judgment dated 15.12.2025 passed by the Ld. National Company Law Tribunal, Ahmedabad Bench, Court-I in I.A. No. 643/ 65/ NCLT(AHM)2025 IN CP(IB) No. 251/9(AHM)2022.

c. Be pleased to quash and set aside the imposition of penalty of Rs 10,00,000 and the direction fastening Resolution Professional fees and CIRP costs amounting to Rs 6,00,000 upon the Appellant, as directed under the Impugned Order;

d. Be pleased to pass such other or further or orders as may be necessary and expedient in the facts of this case.”

# 7. When we look at the prayers above, it is adequately clear that the Appellant has sought that the order of the Adjudicating Authority passed in IA No. 643 of 2025 be set aside. This order of the Adjudicating Authority which has been impugned held that the CIRP proceeding had been initiated fraudulently and/or with malicious intent for purpose other than insolvency resolution by the Appellant besides imposition of penalty of Rs 10 lakhs and fastening of fees of RP and CIRP costs amounting Rs 6 lakhs on the Appellant. The prayers in the present appeal, however, makes no reference to IA No. 1316 of 2024.

# 8. It is the case of the Appellant that the Adjudicating Authority had exceeded their jurisdiction in holding the initiation of CIRP to be fraudulent and malicious at a time when the same Adjudicating Authority had itself admitted the CIRP vide its order dated 25.09.2023 after recording existence of debt and default. In such circumstances, it was not correct on the part of the Adjudicating Authority to hold that the CIRP proceeding was fraudulently initiated. The Respondent No.1-RP had conducted the CIRP proceedings over a long period of two years during which several CoC meetings were also held. Thus, after CIRP had effectively run its course for two years, the invocation of Section 65 by the RP thereafter and holding the CIRP initiation to be fraudulent was arbitrary and untenable. It was also contended that Section 65 of IBC requires strict construction and IA No. 643 of 2025 could not have been admitted merely on the grounds of non-filing of claim by the Appellant-Operational Creditor. Further contention had been raised that when the Appellant had chosen to stay out of CoC proceedings and had also paid advance CIRP cost, they were being dragged into unnecessary litigation by the Respondent No.1 by filing IA No. 643 of 2025 under Section 65 of IBC. It was also their vehement contention that the Adjudicating Authority could not have directed the Appellant to discharge the CIRP costs as it is the CoC which is obligated to bear the fees of RP and CIRP expenses. The impugned order while imposing the penalty also failed to record reasons to justify imposition of such heavy penalty without disclosing the basis for quantifying the penal amount.

# 9. When we look at the material on record, we find that Respondent No.1-RP had filed IA No. 643 of 2025 in which a prayer had been clearly made that the CIRP initiation order having been fraudulently and maliciously initiated other than for purposes of resolution of insolvency of the Corporate Debtor, the Adjudicating Authority may order closure of the CIRP and levy penalty on the Appellant in terms of Section 65. At the very threshold, we would like to observe that insofar as IA No. 643 of 2025 is concerned, it is an undisputed fact that the Appellant had been impleaded as a party therein and therefore afforded an opportunity to appear before the Adjudicating Authority. The Appellant having also filed their reply in IA No. 643 of 2025 cannot claim any prejudice on grounds of breach of principles of natural justice.

# 10. Now we come to the main bone of contention as to whether the CIRP was initiated by the Appellant in a fraudulent/malicious manner which attracted Section 65 of the IBC. When we glance at the contours of Section 65 of the IBC, we find that this statutory provision embodies a clear legislative fiat that insolvency resolution process shall not be invoked fraudulently or with malicious intent for any purpose other than resolution of insolvency. This statutory provision therefore empowers the Adjudicating Authority to interdict the abuse of CIRP process at any stage, if the Adjudicating Authority is satisfied from the surrounding facts and circumstances on record, of fraud and/or malicious intent on the part of any party seeking admission of CIRP of the Corporate Debtor. Quite apart from the fact that Section 65 application can be entertained at any time or at any stage of the CIRP proceeding, the plain reading of Section 65 also leaves no doubts in our minds that there is no need of any formal application for its invocation and the Adjudicating Authority is well within its rights to take suo-moto cognizance of any such development at any stage of the proceedings.

# 11. When we look at the facts of the present case, it is an indisputable fact that the RP had filed the IA No. 643 of 2025 for declaring the CIRP as one tainted by fraudulent and malicious invocation. It is an undisputed fact that the statutory period of 180 days had already expired and the CIRP had entered into a phase of stagnation with no signs of registering further progress. It is the case of the Appellant that when the RP had continued on with the conduct of CIRP for a protracted period of 2 years, the RP could not have abruptly turned volte face thereafter to claim that the CIRP admission was fraudulent in nature.

# 12. We have already noticed in the preceding paragraph that in terms of the statutory construct of Section 65 of IBC, there is no ring-fencing in terms of timing as to when the Adjudicating Authority can initiate Section 65 proceedings. This coupled with the over-arching principle that the Adjudicating Authority is obligated to take necessary safeguard to ensure that the IBC framework is not abused or leveraged in any manner to perpetrate fraud, leaves no room for the Appellant to raise the bogey that the Adjudicating Authority could not have initiated the Section 65 proceedings after a period of two years. Merely because CIRP had been admitted and CIRP proceedings was thereafter continued by the RP, that clearly did not preclude the filing of a Section 65 application and the Adjudicating Authority is also not barred in any manner from adjudicating upon such Section 65 application.

# 13. Another defence taken by the Appellant is that they had at no stage acted in the manner which obstructed or delayed the CIRP process and that they had complied to all directions issued during CIRP including deposit of CIRP cost. It was contended that merely because the CIRP did not reach its logical culmination, this cannot constitute a valid ground for invocation of Section 65 of IBC. Moreover, the Appellant cannot be put to blame if the RP for his own shortcomings could not effectively proceed with the conduct of CIRP proceedings. It is the case of the Appellant that it was the RP who was responsible for the stagnation of the CIRP process since he failed to invoke the statutory remedy available to him under Section 19(2) of the IBC to take corrective steps against the suspended management of the Corporate Debtor for not cooperating with the RP in furnishing relevant information necessary for pursuing the CIRP proceedings.

# 14. The issue before the Adjudicating Authority was not what caused the delay in the CIRP proceedings but whether the CIRP proceedings had been fraudulently and/or maliciously initiated and was fit to be terminated in view of the same. The Section 9 application having been initiated by the present Appellant, the Adjudicating Authority has rightly focussed on the facts and circumstances on record to view the conduct of the Appellant.

# 15. We find that the Adjudicating Authority in the impugned order took notice of the fact that the Appellant had filed the Section 9 application on the basis of an outstanding operational debt of Rs 3.80 Cr. and that after the Section 9 application was admitted and moratorium had commenced, the Appellant surprisingly slipped into a hibernation mode and did not file any claim in pursuance of public announcement made by the RP. The reasons for not filing their claim have also not been disclosed before the RP by the Appellant. This glaring omission to file claims on part of the present Appellant had rightly arrested the attention of the Adjudicating Authority in finding the conduct of the Appellant to be unusual. This conclusion of the Adjudicating Authority was well justified as the standard and usual response of any operational or financial creditor is to file their claims as and when a Corporate Debtor is admitted into insolvency particularly so when it is their own Section 9 application which led to CIRP of the Corporate Debtor. The Adjudicating Authority had rightly concluded that the intent behind filing the Section 9 application was not genuine in view of the fact that the Appellant who had initiated the Section 9 application, for inexplicable reasons, absented themselves from further participation in the CIRP proceedings including abstention from the filing of claims. In this backdrop, the Adjudicating Authority did not commit any infirmity in proceeding to examine whether this omission on the part of the Appellant to file their claims was deliberate and whether this conduct was a pointer to the fact that the purpose of filing the Section 9 application was motivated by reasons other than corporate insolvency.

# 16. At this stage, it is also pertinent to note that the only claims filed in the CIRP process was from two entities viz. Assistant Commissioner of GST and Assistant Commissioner of State Tax, which were authorized to collect statutory taxes. The recovery of taxes by these two entities was no longer possible because of moratorium having come into play following the admission of CIRP. The outstanding tax liability also stands validated by the fact that the Tax Departments in their claims had submitted substantial amounts as statutory dues outstanding against the Corporate Debtor for past years. The Adjudicating Authority has therefore rightly noticed that the initiation of CIRP followed by moratorium barrier coming into existence under Section 14 coincided with pending recovery actions by the Tax Departments. Thus, what seems to underpin the reason for triggering CIRP proceedings was clearly to circumvent the tax liability. It is clearly evident from the timing of CIRP admission that the moratorium provision was being put to use by the Appellant to shield themselves from their tax liabilities and not as a genuine resolution tool.

# 17. This brings us to the ostensible reasons adduced by the Appellant for not filing claims. This was attributed by them to their ignorance of the scheme of IBC and CIRP procedures due to lack of education. We find that this plea has been duly considered by Adjudicating Authority in the impugned order. The Adjudicating Authority has correctly observed that if the Appellant could have pursued the Section 9 application with all vigour at their command and taken it forward to its logical culmination, it clearly denotes that the Appellant was fully aware of the IBC framework and its ramifications. Further, the Appellant by their own admission has also stated that they had issued a legal notice to the Corporate Debtor on 11.01.2022 as placed at page 399 of the Appeal Paper Book wherein they had called upon the Corporate Debtor to make payment of Rs 3.90 Cr. of outstanding operational debt. The issue of legal notice and lodging of police complaints by the Appellant also shows that the Appellant was meticulously preparing for the legal battle they had chosen to enter into. Given this background, the plea taken by the Appellant that they did not file the claims because of lack of legal awareness is an after-thought which lacks credibility. In this backdrop, the Adjudicating Authority cannot be said to have taken an arbitrary stand in not accepting this hollow plea of the Appellant to explain the non-filing of claims. Such opacity of reasons for invoking Section 9 and yet not filing claims justifies the finding returned by the Adjudicating Authority that the CIRP was initiated for fraudulent reasons which tantamount to a clear abuse of the insolvency framework.

# 18. The Adjudicating Authority has further noticed that the Appellant was related to the director of the Corporate Debtor and that this familial relationship was extremely close a relationship as they were real brothers. It has also been noticed by the Adjudicating Authority that the Appellant was also a director of the Corporate Debtor for some period of time. These facts have not been controverted by the Appellant except that it was pointed out that the Appellant was a director of the Corporate Debtor only for a very brief period. Be that as it may, we tend to agree with the Adjudicating Authority that when the family links are kept in mind alongwith the fact that the Appellant was also an ex-director of the Corporate Debtor coupled with non-pursuit of their claims arising out of debt owed by the Corporate Debtor clearly establishes that the purpose was not resolution of insolvency but to prevent recovery proceedings by CGST and GST Department.

# 19. Since Section 65 is designed to deter misuse and protect the integrity of the insolvency framework, the Adjudicating Authority was not off the mark in examining the overall conduct of the Appellant in the surrounding circumstances and in satisfying itself that the threshold elements of malicious intent was met in the facts of the present case. The Adjudicating Authority had not committed any error in imposing penal/compensatory amounts on the Appellant as Section 65 clearly provides for penal costs as a punitive measure in case of abuse of the process of law and to protect the integrity of the insolvency framework.

# 20. This brings us to the question of whether the Adjudicating Authority was correct in holding that the Appellant should bear the fees of the RP and the CIRP expenses. On the face of it, we quite agree with the Appellant that in terms of CIRP Regulations, such costs are ordinarily met from the assets of the Corporate Debtor or through CoC. Be that as it may, we are inclined to agree with the Adjudicating Authority that the present is however not a case where CIRP proceedings were taken up in normal circumstances. In the present case, the CoC consisted of only two tax entities who had filed their claims on the basis of their tax liabilities recoverable from the Corporate Debtor. The Tax Departments which were the only constituents of the CoC had not initiated the CIRP proceedings. The CIRP process also gradually slid into the path of turning non- viable with the CoC stopping to function altogether after a while. Hence for reasons of equity, the CoC in the present case could not be made to bear the financial implications of the CIRP proceedings for reasons of equity. The RP was thus left with no option but to carry on with his statutory obligations by funding the CIRP process from own resources. Given the absence of assets and a non-functional CoC coupled with prima-facie abuse of the CIRP proceedings by the Appellant for reasons other than seeking insolvency resolution of the Corporate Debtor having been established, the Adjudicating Authority in the present factual matrix, cannot be said to have faulted in exercising its residuary jurisdiction to hold that fees/expenses of RP shall be borne by the Appellant being the original Operational Creditor.

# 21. In result, we find no merit in the appeal and find no cogent reasons to interfere with the impugned order in any manner. The Appeal is dismissed.

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HDFC Bank Ltd. vs Opto Circuits (India) Ltd. (RP) - The IBC, 2016, imposes positive obligations upon the RP under Sections 18 and 25 to preserve and maximize the value of the assets of the Corporate Debtor, including its investments in subsidiaries. In this regard, the conduct of the RP falls short of the statutory mandate. It is not sufficient for the RP to passively record non-cooperation; proactive and legally sanctioned steps needed to be taken to enforce compliance with the orders of this Tribunal.

 NCLT Bengaluru (2025.07.29) in HDFC Bank Ltd. vs Opto Circuits (India) Ltd. (RP)  [(2025) ibclaw.in 1148 NCLT, I.A. No. 433 of 2024 in C.P. (IB) No. 199/BB/2018] held that;

• The IBC, 2016, imposes positive obligations upon the RP under Sections 18 and 25 to preserve and maximize the value of the assets of the Corporate Debtor, including its investments in subsidiaries. In this regard, the conduct of the RP falls short of the statutory mandate. It is not sufficient for the RP to passively record non-cooperation; proactive and legally sanctioned steps needed to be taken to enforce compliance with the orders of this Tribunal.

• This Authority is of the considered view that the conduct of the RP warrants a reference to the IBBI for further scrutiny under its disciplinary framework. It is also pertinent to note that disciplinary proceedings are already pending against the same RP in another matter. This lends further credence to the need for regulatory intervention to examine whether the RP remains fit and proper to discharge duties and responsibilities under the Code.

Excerpts of the Order;

# 1. The present Application has been filed by the Applicant, under Rule 11 of the NCLT Rules, 2016 with following prayers:

• a. conducting a fresh valuation of the subsidiaries and step-down subsidiaries of the Corporate Debtor; and

• b. deferring the consideration of the approved resolution plan pending the said valuation.

# 2. Facts of the case:

a. The Corporate Debtor, incorporated on 08.06.1992, is engaged in the manufacture of medical devices and has its registered office at Plot No. 83, Electronics City, Bengaluru –560100. As part of its business model, it made substantial investments in various domestic and overseas subsidiaries and step-down subsidiaries which hold valuable intellectual property rights (IPRs).

b. Pursuant to a petition filed by ICICI Bank Ltd. under Section 7 of the Insolvency & Bankruptcy Code, CIRP was initiated against the Corporate Debtor by an order dated 16.11.2022, and Sh. Pankaj Srivastava was appointed its Interim Resolution Professional (IRP). Subsequently, the Respondent was confirmed as the Resolution Professional (RP) in the 1st CoC meeting of corporate debtor held on 03.01.2023.

c. The Information Memorandum (IM) and an Addendum thereto were issued by the RP, disclosing investments in subsidiaries and IPRs. Two Registered Valuers were appointed in the 2nd CoC meeting for determining fair and liquidation values. The Applicant’s claim for ₹267.53 crores was partly admitted for ₹179.03 crores, and it was inducted into the CoC with a 7.40% voting share.

d. The Suspended Board of Directors failed to provide necessary information and documents, particularly regarding subsidiaries and step-down subsidiaries. The RP filed an I.A. 260/2023 under Section 19(2) of the Code, and by order dated 01.05.2023 the Suspended Directors were directed to cooperate and provide all requisite documents to RP (hereinafter “19(2) Order”).

e. The Suspended Directors did not fully comply with the 19(2) Order. The RP received two resolution plans from Prospective Resolution Applicants (PRAs), namely Mr. Navneet Garg and Agam Pulp & Paper Pvt. Ltd. but these were affected by the lack of data regarding subsidiaries.

f. Subsequent CoC meetings recorded the persistent non-cooperation by Suspended Directors and the consequent inability of PRAs to value the subsidiaries. A White Paper prepared by the RP acknowledged the non-availability of data and the resultant undervaluation of assets. The CoC resolved to appoint an External Valuer (Priyanka Sharma & Associates) in its 12th meeting. 

g. The final report submitted by the Valuer placed the Fair and Liquidation Values of subsidiaries of corporate debtor at ₹13.35 crores and ₹9.35 crores respectively, but noted major limitations due to lack of financial statements and projections.

h. Despite discussions across multiple CoC meetings and resolutions to initiate contempt against the Suspended Directors, no such application was filed by the RP. The CoC, in the 26th Meeting, approved the resolution plan of Mr. Saikam Sivachaitanya by a 66.53% majority. The Applicant HDFC Bank had abstained from voting.

# 3. Submissions of the Petitioner/Applicant:

The application has been filed on the following grounds:

a. the valuation of the Corporate Debtor, pegged at a mere INR 40 crores against an admitted debt of approximately INR 2300 crores, is premised on incomplete information. This undervaluation has materially prejudiced the insolvency resolution process, particularly when the statutory mandate under Section 25(2)(a) of the IBC, 2016, required the RP to take control and custody of all the assets of the Corporate Debtor, including its shareholding in subsidiaries and step-down subsidiaries. The failure to secure and incorporate critical financial information, especially from the Suspended Directors who had withheld cooperation, has led to a valuation exercise that is neither holistic nor representative of the Corporate Debtor’s true worth.

b. The RP’s inability to effectively take control of relevant assets and information despite having obtained an order under Section 19(2) of the Code has undermined the fairness and transparency of the valuation process. It is now well-settled that valuation forms the very basis of commercial decision-making under the Code, and any such exercise, if tainted by material deficiencies or lack of data, must be re-evaluated in the interest of justice and the objectives of the Code.

c. The central objective of the Code, i.e., maximization of the value of assets of the Corporate Debtor, stands defeated in the present matter. The lack of requisite financial details led to low-value bids from PRAs, some of whom either opted out or undervalued the assets of the Corporate Debtor. The resolution plan approved by the CoC offered merely INR 51 crores against claims exceeding INR 2300 crores resulting in an alarming haircut of approximately 97%.

d. It was submitted that, as of 31.03.2020, the Corporate Debtor’s assets were valued at approximately INR 643.91 crores, but the valuation reports failed to reflect this due to lack of information about subsidiaries. The valuers even acknowledged latent value in the subsidiaries but were unable to assign a fair value due to insufficient data. This directly affects the creditors’ recovery and is inconsistent with the object of the CIRP. A comprehensive revaluation, including intangibles such as IPRs and equity investments in subsidiaries, is thus essential to correct this distortion.

e. The RP, though empowered under Sections 18 and 25 of the Code, failed to take necessary and effective measures against the Suspended Directors who deliberately withheld material information in violation of 19(2) Order. Despite repeated discussions in CoC meetings, no contempt proceedings were filed against them by the RP. This omission not only reflects inaction in enforcing compliance but has also directly contributed to an incomplete valuation process.

f. In view of the above, the RP ought to have initiated appropriate action to compel compliance with the 19(2) Order and gather complete data necessary for an accurate and legally compliant valuation of the Corporate Debtor’s assets.

# 4. Submissions by the Respondent:

The respondent/RP filed its reply dated 04.10.2024 stating:

a. This application has been filed with the sole intention of challenging the commercial wisdom of the CoC, which is impermissible under the settled position of law. The Respondent emphasized that the jurisdiction of the Adjudicating Authority is confined to verifying whether the Resolution Plan approved by the CoC meets the requirements of Section 30(2) and Section 30(4) of the Insolvency and Bankruptcy Code, 2016 ("Code"), and not to reassess commercial considerations such as valuation or feasibility of the plan.

b. The Applicant has no locus standi to challenge the valuation reports. The purpose of valuation is solely to assist the CoC in evaluating and approving a Resolution Plan. Once the Resolution Plan has been approved by the CoC, the scope of interference by the Adjudicating Authority is limited to checking compliance with statutory requirements under Sections 30 and 31. The Hon’ble Supreme Court in Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh & Ors. (AIR 2020 SC 3779) has clearly held that the resolution plan need not match the liquidation value and that the valuation exercise is only for the guidance of the CoC. The court further observed that judicial review is not warranted over such commercial decisions once the CoC has exercised its discretion in good faith and in accordance with the Code.

c. The valuation is a question of fact, and courts are traditionally reluctant to interfere with factual findings unless they are shown to be perverse or unsupported by material evidence. In Duncans Industries Ltd. v. State of U.P. (AIR 2000 SC 355), the Hon’ble Supreme Court held that unless prejudice or arbitrariness is established in the process of valuation, the court cannot intervene merely based on conjecture. In the present case, valuation was conducted by Registered Valuers as required under the Code, and no material irregularity has been shown by the Applicant.

d. In Ramkrishna Forgings Ltd. v. Ravindra Loonkar & Anr. (2023 SCC OnLine SC 1490), the Hon’ble Supreme Court reiterated that where two Registered Valuers have submitted fair and liquidation value reports and no objections have been raised before the approval of the Resolution Plan by the CoC, courts should not interfere in the absence of compelling evidence. The Court cautioned that such belated challenges obstruct the Code’s objective of expeditious insolvency resolution. The Applicant’s demand to defer approval of the plan pending revaluation of subsidiaries and step-subsidiaries is contrary to this principle and would only cause unwarranted delays. 

e. The Respondent further pointed out that under Section 18(1)(f) of the Code, the assets of subsidiaries and step-subsidiaries are explicitly excluded from the definition of “assets” of the Corporate Debtor. The Explanation to this section clarifies that assets owned by Indian or foreign subsidiaries of the Corporate Debtor do not form part of the assets of the Corporate Debtor for the purposes of CIRP. This interpretation has been affirmed in Embassy Property Developments Pvt. Ltd. v. State of Karnataka (2019) and in GNIDA v. Roma Unicorn Designex Consortium, where it was held that in the CIRP of a holding company, the assets of subsidiaries cannot be considered, given that both entities have separate legal personalities.

f. Consequently, the prayer for revaluation of subsidiary and step-subsidiary companies is not only barred under Section 18(1)(f) but also unjustified considering the CoC’s independent commercial assessment. Allowing such revaluation would effectively mean re-opening a resolution process that has already culminated in a duly approved plan. This would defeat the object of timely resolution under the Code. In Jaypee Kensington Blvd. Apartments Welfare Association v. NBCC (India) Ltd. (2022) 1 SCC 401, the Hon’ble Supreme Court reiterated that the Adjudicating Authority’s jurisdiction is narrowly confined to ensuring compliance with statutory conditions and not to scrutinize the commercial aspects of the resolution plan approved by the CoC.

g. In para-wise response, the respondent denied the contents of para 1 to 11 of the application as false and baseless except where they are matters of record. With respect to Paras 12 to 14, the Respondent states that IA No. 260/2023 was filed under Section 19(2) seeking cooperation from suspended directors, and was duly allowed on 01.05.2023. Paras 15 to 21 are denied for want of material particulars and documentation. It is reiterated that the subsidiaries' valuation has no bearing on CIRP of the Corporate Debtor. 

h. The respondent/RP further denied the issues raised in para 22 to 30 of the application. It is reiterated that the relief sought regarding revaluation is untenable, especially after CoC’s approval of the Resolution Plan based on existing valuations. The Applicant’s request would essentially mean remanding the matter and reopening concluded proceedings. The contentions in Paras 31 to 36 are also refuted, particularly in light of the statutory bar under Section 18(1)(f) and the ratio of the Hon’ble Supreme Court in Roma Unicorn (supra). Paras 37 to 45 are also denied as misleading, and it is emphasized that the CoC, after proper deliberation, has approved the Resolution Plan. It is categorically denied that the Resolution Professional failed to manage the assets of the Corporate Debtor. 

i. The statements in Paras 46 to 56 of application are denied for the reasons already addressed in the preliminary objections. These are nothing but reiterations of contentions which have already been refuted. Para 57, being the relief clause, warrants no specific response but is denied in its entirety as the reliefs prayed for are contrary to the statutory provisions and judicial dicta.

j. In conclusion, the Respondent submitted that the Application is misconceived, legally untenable, and deserves to be dismissed with costs. It is stated that the entire Application is an attempt to interfere with the CoC’s domain and delay the resolution process and asserted that the Applicant has failed to establish any procedural infirmity or statutory violation, and the Resolution Plan, having been approved by the CoC in exercise of its commercial wisdom, deserves to be approved without further delay.

# 5. Rejoinder filed by the Petitioner/Applicant:

The applicants filed a rejoinder dated 03.12.2024 stating:

a. The Applicant denied all contentions, statements, and allegations in the said reply unless specifically admitted and reiterated all submissions made in its original Application. The Applicant sought to reserve the right to supplement or amend its submissions at an appropriate stage. It is clarified that the Application is not an attempt to challenge the commercial wisdom of the CoC rather to support and enable it by ensuring a fair, complete, and accurate valuation of the Corporate Debtor’s assets in order to achieve maximum recovery for all stakeholders.

b. The valuation exercise conducted was fundamentally flawed and incomplete due to the non-cooperation of the Suspended Directors, who failed to furnish essential financial information despite the binding directions issued under Section 19(2) of the Code. This critical lapse was neither cured nor acted upon by the RP, who failed to initiate contempt proceedings or take effective steps to secure compliance. Consequently, the lack of financial data concerning the subsidiaries and step-down subsidiaries led to undervalued resolution plans being submitted by PRAs, thereby defeating the object of maximization of value.

c. It was further submitted that the RP's own White Paper had acknowledged the potential value inherent in the subsidiaries and step-down subsidiaries, particularly noting the substantial investments around INR 448 crores made by the Corporate Debtor in those entities. The RP had also admitted that lack of essential data from the Suspended Directors had hindered proper valuation. However, in contradiction to this, the RP in his reply now seeks to discredit the need for such valuation. This inconsistency further reinforces the Applicant’s contention that the valuation process was unreliable and must be revisited in the interest of fairness and value realization.

d. The Applicant clarified that it does not claim the assets of the subsidiaries to be treated as part of the Corporate Debtor's direct assets. Instead, the Corporate Debtor’s shareholding in these subsidiaries’ forms part of its asset base and should have been appropriately valued. The RP's suggestion to the contrary is erroneous in law. As per Sections 18 and 25 of the IBC, the RP is under a statutory duty to take custody and control of all assets owned by the Corporate Debtor, including its shareholding in subsidiaries. A comprehensive valuation of these shares was necessary to properly reflect the Corporate Debtor’s financial position.

e. The consequences of the incomplete valuation are stark. The resolution plan approved by the CoC offers a mere INR 51 crores against admitted claims of approximately INR 2,300 crores translating into a haircut of nearly 97% for creditors. This is directly linked to the limited information available to PRAs, which deterred meaningful bidding and prevented fair competition. It is a settled legal position that if a valuation adversely impacts stakeholder interests due to incomplete or flawed methodology, it must be re-examined and, if required, discarded.

f. Several CoC meetings, specifically the 7th, 8th, 12th, 13th and 18th recorded the lack of cooperation by Suspended Directors, which repeatedly hindered the valuation exercise. The RP, despite being aware of such non-compliance, failed to act decisively or pursue enforcement of the 19(2) Order. The Valuer, too, observed that some subsidiaries, especially in Europe, held positive net worth, but accurate financial data was unavailable, and hence valuation remained incomplete.

g. The prayer in the Application, therefore, was squarely aimed at rectifying the outcome of a flawed process. The Applicant is seeking a fresh and detailed valuation particularly of the Corporate Debtor’s investments in subsidiaries and other valuable intangible assets so as to enable informed commercial decisions by the CoC, and to protect the rights of all creditors. This is well within the statutory mandate of the Code and in furtherance of its primary object: maximization of asset value.

h. The Application thus is urged to be allowed and the Resolution Professional directed to undertake a fresh and complete valuation of the Corporate Debtor, factoring in its investments and shareholding in subsidiaries and step-down subsidiaries.

ANALYSIS:

# 6. We have heard the learned counsel for the Applicant and the Respondent/RP and perused the record in detail. The main issue before us is whether a fresh valuation, particularly of the Corporate Debtor’s investments in subsidiaries and step-down subsidiaries, is warranted at this stage of the CIRP.

# 7. Upon thorough consideration it is culled that the Applicant’s grievance is not directed towards the commercial wisdom of the CoC but towards the quality and completeness of information based on which such commercial wisdom was exercised. It is well settled that while judicial review of commercial wisdom is limited, such limitation does not preclude the Adjudicating Authority from intervening where the statutory process leading up to that decision is materially flawed.

# 8. In the present case, the admitted position is that the Suspended Directors failed to provide financial information relating to the subsidiaries and step-down subsidiaries despite a binding order passed under Section 19(2) of the Code. The RP had himself projected that full data necessary for a comprehensive valuation of such subsidiaries was not obtained. In fact, the Valuer appointed by the CoC has acknowledged in his report that critical financial information was unavailable, and had to assign no value to subsidiaries for lack of data. This evidently vitiates the accuracy of the valuation exercise. The CoC itself had repeatedly voiced concern over the lack of financials, and the same is evidenced in the recorded minutes.

In the 12th CoC Meeting dated 13.09.2023,

“The Chairperson informed that for conducting the exercise of valuation of subsidiaries, financials were the basic document and lack of its availability was hindering the process. It was further stated that Hon'ble NCLT, Bengaluru Bench had vide Order dated 01.05.2023 directed the suspended board of directors to extend all assistance and co-operation to RP and requested to provide the same.

Continued non-adherence to the said Order would tantamount to contempt of Court, in which case the Chairperson proposed to take appropriate legal actions in consultation with the CoC members.”

# 9. The issue of non-availability of critical financial data relating to subsidiaries was not limited to isolated instances but recorded consistently across several CoC meetings. In the 9th CoC Meeting held on 31.07.2023, it was recorded that the RP informed the CoC that “only partial information” regarding the foreign subsidiaries had been received, and reiterated that “the data available is insufficient to assess the value of investments made by the Corporate Debtor. The minutes of the 9th CoC Meeting dated 31.07.2023 are extracted below: 

• “Moreover the absence of information w.r.t. the subsidiaries and step-down subsidiaries due to which couldn't assign a value to these subsidiaries and step-down subsidiaries. Had the information been available, he could have enhanced the value of the Corporate Debtor. He further added that the valuation would have been different if the relevant information was available. Mr. Garg also added that in his proposal the entire Resolution Plan value shall be paid upfront to the Creditors and that he had also offered equity stake in the Corporate Debtor in addition to the stake in the new entity as he believed it was possible to turn around the Corporate Debtor and the Financial Creditors could benefit after the Corporate Debtor achieves desired profitability future.

• The representative of HDFC inquired whether the Resolution Applicant will increase the plan value on receipt of information w.r.t. subsidiaries and step-down subsidiaries and whether he had considered the goodwill of the Corporate Debtor. To this Mr. Garg responded that he may consider improving the Resolution Plan value upon receipt of the requisite information of these subsidiaries. He further informed that he had not carried out valuation of goodwill of Corporate Debtor as based on his evaluation the FDA approval for the manufacturing facility had expired and needs to be renewed. However, he is hopeful that the old customers of the Corporate Debtor may contribute to revive the business opportunities with the Corporate Debtor. The CoC members then suggested that all these concerns as highlighted in the meeting shall be sent by way of email to the Resolution Applicant and that the Resolution Applicant can address suitably before the next round of discussions. The Resolution Applicant agreed with the same.”

10. This Tribunal also takes note of the detailed proceedings recorded in the 13th Meeting of the Committee of Creditors held on 06.10.2023, wherein the Resolution Professional apprised the CoC that Mr. Somdas, one of the Suspended Directors, had assured during the 11th CoC meeting held on 23.08.2023 to provide audited and provisional financial statements of the subsidiaries by 28.08.2023. However, he failed to do so, initially citing power disconnection, and later, despite restoration of power on 12.09.2023, no documents were provided. The RP further informed the CoC that multiple written reminders had been sent to Mr. Somdas and the erstwhile statutory auditors, but no cooperation was extended. Even in the 13th meeting, Mr. Somdas again cited personal health reasons and sought further time till 15.10.2023. This pattern of repeated assurances followed by non-compliance clearly reflects deliberate delay and non-cooperation, in breach of the binding order. The minutes of the 14th CoC meeting held on 18.10.2023 are extracted below:

• “The representative DBS of enquired whether there were any liabilities w.r.t. the two European companies as only assets were shown in the report and the approximate realizable value for each company. To this, Mr. Ahuja replied that the liabilities of these companies were less than the assets and as such these companies had positive Net worth. He mentioned that some companies were active and were carrying on business and also presented a latest export/ import report of one of the subsidiaries doing certain trade transactions. Further, based on the additional information from the Promoters, would it be possible to assign values to the same.

• The representative SCB enquired whether Mr. Somdas, suspended Director, had provided any information subsidiaries on repeatedly as assured by him during the previous meetings.To this the Chairperson responded that despite rigorous follow ups no information was forthcoming from him.”

# 11. We have also perused the minutes of the 15th Meeting of the CoC held on 02.11.2023, wherein serious concerns were again raised regarding the lack of accurate and timely financial data in relation to the subsidiaries and step-down subsidiaries of the Corporate Debtor. The Representative of Standard Chartered Bank specifically questioned how value in such subsidiaries could be unlocked. The RP further admitted that the absence of subsidiary-related data had materially hampered the interest of potential Resolution Applicants during the first round of EOI, including the inability of marquee applicants to proceed further. During the said meeting, the RP and his appointed Valuer explicitly sought cooperation from the suspended Director, Mr. Somdas, for submission of relevant financials, who again promised compliance but failed to act promptly. The minutes of the 15th CoC meeting are extracted below:

• “The representative Standard of Chartered Bank (SCB) enquired how the value in the said subsidiaries could be unlocked. To this the Chairperson presented either of the options viz., change in the management/shareholders or appointing a local administrator by or calling for a fresh round of Eol, if agreed by the CoC members and sharing the valuation of subsidiaries with the potential bidders who can factor the same while submitting the Resolution Plan. He also highlighted that lack of availability of this data during first round of EOI has severely hampered the ability to explain the status of subsidiaries and value therein to the Final list of PRA's and which was one reason why some of the marquee PRA's could not move forward to submit a resolution plan

• The representative SCB took note of the same.

• CA Madan Ahuja thereafter explained the rationale for valuation of subsidiaries arrived at by his firm. He stated that the products of subsidiaries were backed by requisite governmental approval for the current financial year, the subsidiaries were active and they had verified local presence etc.

• The Chairperson thereafter urged Mr. Ahuja to seek the clarification from Mr. Somdas, suspended Board of Director who was also present in the meeting. To this, Mr. Ahuja requested Mr. Somdas to provide the financials of subsidiaries to conclude the report based on the authentic data. Mr. Somdas cited power issues which had prevented him earlier from responding to the requests of the Chairperson and his team members and once again assured to provide the same shortly. The Chairperson therefore requested Mr. Somdas to share the information latest by Monday, 06.11.2023.

• CA Madan Ahuja also enquired from Mr. Somdas about approximate value attributable to the subsidiaries considering the present status of the subsidiaries and step-down subsidiaries. To this, Mr. Somdas estimated that in his opinion and on a conservative basis the subsidiaries may fetch up to USD 5 Million.”

This proceeding only reinforces the Tribunal’s finding that despite being aware of such critical valuation gaps and repeated assurances by the suspended directors, the RP failed to take any enforcement or coercive measures under Section 19(2) of the Code. The failure to secure this data proactively undermined the CIRP’s integrity and impeded maximization of value.

# 12. We further note the RP’s own admission in the White Paper that substantial investments, amounting to approximately INR 448 crores, had been made by the Corporate Debtor in its subsidiaries and step-down subsidiaries. However, for CIRP purposes, Section 18(1)(f) of the Code expressly excludes the subsidiaries’ underlying assets from the “assets” defined therein, limiting the RP’s custody during resolution to the Corporate Debtor’s shareholding interests alone. While Section 36(3)(d) indeed includes such shareholding interests within the liquidation estate, this inclusion is triggered only upon the commencement of liquidation, not during the resolution phase. Therefore, any valuation exercise under CIRP must adhere to the statutory estate-stage distinction: the RP may commission a valuation of the Corporate Debtor’s equity shareholding in its subsidiaries and step-down subsidiaries as a financial security and intangible asset, but must not attempt to value or include the subsidiaries’ underlying assets until the liquidation stage.

# 13. While the explanation to Section 18(1)(f) excludes the underlying assets of subsidiaries from the CIRP estate of the Corporate Debtor, the Corporate Debtor’s equity shareholding in such subsidiaries is a distinct financial asset belonging to the Corporate Debtor itself. Such shareholding must therefore be valued as part of the Corporate Debtor’s asset base during CIRP. Section 36(3)(d) of the IBC 2016 considers shares held in subsidiaries as part of the liquidation estate. The Section 36(3)(d) of the Code is reproduced below: 

• 36. (3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following: - (d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights; 

# 14. Applying the same, the present valuation reports, which assign no value to equity investments in subsidiaries due to lack of information, cannot be relied upon without a fresh and complete assessment. The valuation of such equity holdings, being integral to the overall asset base of the Corporate Debtor, cannot be rendered nugatory merely on account of non-cooperation by the Suspended Directors. 

# 15. This Tribunal notes with grave concern that despite repeated non-compliance by the Suspended Directors with the binding direction under Section 19(2) of the Code, the Resolution Professional did not initiate any proceedings for contempt nor did he take any steps for coercive enforcement. He also did not deem it necessary to approach this Authority to seek further directions for compliance. This inaction is particularly glaring considering that the representative of the Suspended Directors, Mr. Somdas was present in the 13th CoC meeting, and the RP could have used that opportunity to raise and pursue the issue. The failure to act cannot be justified merely on the plea that information was not forthcoming. 

# 16. The IBC, 2016, imposes positive obligations upon the RP under Sections 18 and 25 to preserve and maximize the value of the assets of the Corporate Debtor, including its investments in subsidiaries. In this regard, the conduct of the RP falls short of the statutory mandate. It is not sufficient for the RP to passively record non-cooperation; proactive and legally sanctioned steps needed to be taken to enforce compliance with the orders of this Tribunal. 

# 17. This failure to act has materially prejudiced the CIRP in the present matter. The inaction of the RP in the face of deliberate and continuing defiance of a binding Section 19(2) Order raises serious concerns about the diligence and responsibility expected from an insolvency professional under the scheme of the Code. 

# 18. This Authority is of the considered view that the conduct of the RP warrants a reference to the IBBI for further scrutiny under its disciplinary framework. It is also pertinent to note that disciplinary proceedings are already pending against the same RP in another matter. This lends further credence to the need for regulatory intervention to examine whether the RP remains fit and proper to discharge duties and responsibilities under the Code. In view of this, it is directed that a Copy of this Order be forwarded to the IBBI for necessary action.

# 19. This Tribunal is also of the considered view that maximization of value is the cardinal objective of the Code, and any process tainted by incomplete or inaccurate valuation runs contrary to this object. The CoC must be afforded an opportunity to exercise its commercial wisdom based on complete and reliable financial information. It is only upon such foundation that a viable and just resolution plan can be formulated and approved.

DECISION:

# 20. Considering the above factual position, the minutes of the meeting recorded of the Various meetings of the COC, this Authority comes to the Conclusion that the non-consideration of Value of the Investments made in Subsidiaries and Stepdown subsidiaries has led to Incorrect Valuation of the Corporate Debtor and has materially prejudiced the CIRP process. Hence, in the interests of justice and in furtherance of the objectives of the IBC, 2016, the I.A. No. 433 of 2024 is required to be allowed and We order accordingly.

# 21. Before parting with the Order, We direct that

• (1) The RP to cause a fresh and independent valuation of the Corporate Debtor’s equity shareholding in its subsidiaries and step-down subsidiaries, taking into account all available financial, legal, and market data, and in compliance with the provisions of Regulation 35 of the CIRP Regulations and Section 36(3)(d) of the Code;

• (ii) The Suspended Directors to fully cooperate with the RP and the appointed valuers by providing all relevant documents, data, and clarifications as may be required, failing which, the RP is at liberty to file appropriate proceedings for contempt or coercive directions for enforcement of the earlier 19(2) Order.

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