Recently, the Appellate Authority (NCLAT, Principal Bench, New Delhi) in the matter of Bimalesh Bhardwaj & Ors. vs. Value Infratech India Pvt. Ltd. & Ors.1 allowed an appeal in favour of the Appellants by quashing the Committee of Creditors ('CoC') which was formed during the process of Corporate Insolvency Resolution Process ('CIRP') of the Corporate Debtor Value Infratech India Pvt Ltd.

The Appeal was preferred by the homebuyers in the project SKYWALK RNE (developed by the Corporate Debtor) against the order of NCLT, New Delhi ordering liquidation of the Corporate Debtor. The Resolution Professional (RP) appointed during CIRP process clubbed the Respondent No.4's claims against Respondent No. 1 (Value Infratech India Pvt Ltd), Respondent No. 2 (Value Infracon India Pvt Ltd) and Respondent No. 3 (Value Infrabuild India Pvt Ltd) amounting to INR 30.70 crores along with interest @ 24% giving the Respondent no. 4, a financial creditor (Capri Global Capital Limited) much higher voting share than permissible in the constitution of CoC wherein the decision of liquidation of Respondent No. 1 was made without considering the objections of the homebuyers. The allegation of the Appellants was that the RP had shown undue privilege to Respondent No. 4 and did not follow the procedure under the Insolvency and Bankruptcy Code ('IBC') for inviting Expression of Interest for submission of Resolution Plan.

The points for adjudication which fell before the NCLAT was:

  1. Whether the CoC was constituted by the RP in accordance with the provisions of IBC?
  2. Whether the recommendation for liquidation of Respondent No. 1 was taken by the CoC in contravention of IBC provisions.

On behalf of the Appellants, the contention was raised that the Respondent No. 4 had sanctioned a loan of INR 37.50 crores to Respondents 1, 2 and 3, all of them being separate companies vide a common loan agreement dated 17.09.2014 and in the case of insolvency of Corporate Debtor (Respondent No. 1), the claim should have been in accordance with the loan amount disbursed to Respondent No. 1 only i.e. INR 6.65 crores but in the second CoC meeting the RP falsely enhanced the voting share of Respondent No. 4 and fixed it at 96.77% of total voting share, which was a total of 3 loans provided to the 3 companies i.e. Respondents No. 1, 2, and 3, leaving the voting share of the homebuyers to be the remaining 3.23 % only.

Respondents No. 1 and 2 contended that the loan disbursed by Respondent No. 4 is on the basis of common loan agreement as the loan was granted to three sister companies and secured by the same properties and the disbursement request was made vide a common letter. Therefore, the repayment should also happen together and the claim due to Respondent No.1 should be based on total loan amount. The Respondents No. 1 & 2 also relied on the Supreme Court judgment in Chittori Subbanna v. Kudappa Subbana and Ors.2 and Phoenix Arc (P) Limited v. Spade Financial Services Ltd.3 and submitted that if no challenge was made to the constitution of CoC and the fixing of vote share in CoC earlier, these issues cannot be raised in the appeal later.

The counsel for Respondent No. 4 contended that the Respondents No. 1, 2 and 3 (companies from the same group) entered into the loan agreement and was provided Rs. 37.50 crores as loan in lieu of mortgage of properties of all three borrowers. Therefore the claim of Respondent no.4 should be based on total loan amount disbursed. It was also contended that in the 2nd CoC meeting matters relating to invitation of EOI and liquidation etc were discussed and it was not challenged at the appropriate time. The counsel for Respondent No. 4 cited judgments of the Supreme Court in K. Sashidhar v. Indian Overseas Bank4 and Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Limited5. In both the judgments, the Apex Court has held that once the successful Resolution Plan has been approved by the Adjudicating Authority on the recommendation of CoC and implemented thereafter, the resolution plan achieved finality and cannot be reopened, unless the plan suffers from legal infirmity of the Tribunal.

NCLAT's observations

As regards opportunity to Appellants to challenge the RP's decision earlier, the NCLAT made the following observations:

"19. Regarding the matter of the Appellant not getting a realistic opportunity to challenge the issues of constitution of CoC and the admission of claim of Capri Global Capital Ltd. anytime earlier, it is recalled that the Authorized Representative for homebuyers was appointed vide order dated 27.9.2020. The vote share of Capri Global and homebuyers and the claim amounts of Capri Global and homebuyers came to the knowledge of the Authorized Representative of homebuyers in the 2nd meeting of CoC on 10 December 2020 and despite vehement objection of the Authorized Representative of homebuyers, the CoC went ahead to take decisions for not submitting application for exclusion of time (spent in judicial intervention), framing of Information Memorandum and liquidation of the corporate debtor. It was for the first time the Authorized Representative of the Appellants attended the CoC meeting and the proposals that were discussed in reconvened CoC meeting on 12.12.2020 without any prior circulated agenda. No reason was provided by the representative of Respondent No. 4 or Resolution Professional for the adjournment of this meeting to 12.12.2020. Moreover, the Authorized Representative could not have responded to the proposals without consulting the homebuyers who he was representing. Soon afterwards, the RP filed application before the Adjudicating Authority seeking order for liquidation of the Corporate Debtor. Hence we do not think the homebuyers, who are a diverse lot and who needed to get together with the AR to formulate their response on these issues had a realistic chance to challenge the constitution of CoC and admission of claim amounts at an early time."

On the decision of CoC to liquidate the Corporate Debtor without preparing the correct Information Memorandum ('IM') and the Resolution Professional failing to pursue the application filed under Section 19(2) of the I&B Code, the NCLAT made the following observations:

"20. We find that, while the CoC took a decision for going for liquidation of the Corporate Debtor, the Appellants have challenged the very basis of constitution of CoC and fixing of voting rights by labeling it illegal, done to provide undue and unfair advantage to Respondent No. 4. Moreover, the Appellants have also claimed that the CoC took a decision for liquidation without following the procedure under CIRP stipulated in the IBC. The basic reason for seeking Resolution Plan under CIRP is to ensure that the Corporate Debtor can continue to function as a going concern, while taking care of interests of its creditors. Liquidation is the last resort which implies corporate death of the company. For the Corporate Insolvency Resolution Process to result in successful resolution of the corporate Debtor, preparation of a correct information memorandum is a must, which may result in work able resolution plans. In the present case, we find that information memorandum was not prepared with full and correct details of assets and liabilities of the Corporate Debtor. The RP also did not pursue his application u/s 19(2). As a result the CoC decided to abandon the step of inviting of EOI for Resolution Plan. Thereafter in undue haste, the CoC decided to go for liquidation of the Corporate Debtor. Since the CoC consisted of two members – Capri Global and homebuyers – with Respondent No. 4 being given inflated voting share, the decisions by CoC was completely swayed by the Respondent No. 4 and its selfish interests. The decisions of CoC was a blotted one, since it was taken in the CoC, in which Respondent No. 4 was given voting right much in excess of its real and correct share."

The NCLAT further observed on the duty of a Resolution Professional to prepare an information memorandum after properly obtaining the details of assets and liabilities, latest audited financial statements and other important information of the Corporate Debtor. The observations are reproduced below:

"22. A duty has been cast on the RP under Section 25 of IBC where he has to take immediate custody and control of assets of Corporate Debtor, including the business record of the Corporate Debtor; and furthermore a duty has been passed on the Resolution Professional under section 25(2)(g) to prepare an information memorandum in accordance with the provisions of IBC.. Section 29 of the IBC requires the Resolution Professional to prepare an information memorandum in such form and manner contain such relevant information as may be specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016 for formulating a Resolution Plan. Regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016 provide in detail what should be contained in the Information Memorandum. In brief, the information memorandum should contain details of assets and liabilities of the Corporate Debtor, latest annual financial statement, audited financial statement of the Corporate Debtor, list of creditors, particulars of debt due from or to the corporate debtor and some other information. It is surprising as to how the Resolution Professional could prepare an information memorandum without getting access to the records and documents of the Corporate Debtor, as he had sought through IA No. 827/PB/2020, and on which orders could be obtained from the Adjudicating Authority. In addition, the Resolution Profession did not even attempt to obtain details of assets and liabilities, financial statement from other records that have to be statutorily filed in relation to the company under the provisions of the Companies Act."

The NCLAT, therefore, held that the CIRP was not pursued with all fairness and due diligence by the Resolution Professional. The CoC was not constituted in accordance with provisions of IBC. Therefore, its constitution was quashed and it was held that the claims of financial creditors including the homebuyers should be appropriately fixed. NCLAT further observed that the Resolution Professional cannot be absolved of certain actions of omission and commission, which have caused prejudice to homebuyers. It further ordered that the Resolution Professional should be replaced with immediate effect and a suitable Resolution Professional be appointed in the CIRP of Respondent No. 1 by the Adjudicating Authority.


The case is an eye-opener insofar it clarifies a very important role of IRPs/RPs in not only putting efforts to prepare the correct information memorandum but also obtain the correct information form the records of a Corporate Debtor. It also reminds about the duty of an IRP/RP to admit only such claims made against the Corporate Debtor without including claims due from the sister concerns of the Corporate Debtor irrespective that the liability arises out of a common loan agreement. The focus, therefore, is on the role of an IRP/RP in conducting the CIRP in a fair and independent manner.


1. Company Appeal (AT) (Ins) No. 112 of 2021

2. SC 1965 2 SCR 661

3. (2021) 3 SCC 475

4. Civil Appeal No.10673 Of 2018

5. Civil Appeal No. 3224 of 2020

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