Pending criminal proceedings and PMLA attachment alone do not disqualify a resolution applicant, NCLAT holds

Suraksha Realty Ltd. (“Appellant”) had advanced loans to Mahavir Roads and Infrastructure Pvt. Ltd. (“Corporate Debtor”), allegedly secured by an equitable mortgage. After the Corporate Debtor entered CIRP on 21 February 2019, the Appellant submitted a claim of approximately ₹109.63 crore as a secured financial creditor; the claim was partly admitted and initially classified as unsecured.

The Appellant later obtained an order from the Adjudicating Authority recognising its charge, although the issue remained under challenge in a separate appeal.

The Committee of Creditors (“CoC”) initially approved liquidation. Subsequently, Bermaco Energy Systems Ltd. (“SRA”) was permitted to submit a resolution plan.

The Appellant objected that the SRA had failed to disclose Enforcement Directorate/PMLA proceedings, had furnished incorrect information under Regulation 39(1)(c) of the CIRP Regulations, and was incapable of implementing the plan because certain assets were attached.

The CoC deferred consideration, sought clarifications, obtained a report from Bagchi & Gupta, Chartered Accountants, and ultimately concluded that the SRA was not disqualified under Section 29A of the Code. The plan was approved by 78.83% voting share.

The resolution plan proposed total payments of approximately ₹60.16 crore and contained a mechanism whereby, if the Appellant was ultimately recognised as a secured creditor, distribution would be modified to include it proportionately with the other secured financial creditors.

The NCLT approved the plan on 14 May 2024. The Appellant challenged that order under Section 61 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

1. Whether the SRA’s failure to disclose pending ED/PMLA proceedings and attachment of its properties amounted to false information or material concealment under Regulation 39(1)(c) of the CIRP Regulations, warranting rejection of the resolution plan.

2. Whether the pendency of criminal investigation, PMLA attachment proceedings, or absence of conviction rendered the SRA ineligible under Section 29A of the IBC.

3. Whether the CoC’s approval of the resolution plan, after considering the objections and obtaining an independent eligibility report, could be interfered with on the ground that the plan was allegedly unviable or incapable of effective implementation.

4. Whether the Appellant was improperly treated as an unsecured financial creditor and whether the alleged valuation discrepancies and non-appointment of a third valuer invalidated the resolution plan.

The Court applied Sections 29A, 30(2), 31 and 61(3) of the IBC and Regulations 35, 38 and 39(1)(c) of the CIRP Regulations.

Section 29A disqualifies a resolution applicant in specified circumstances, including conviction for prescribed offences; mere pendency of an investigation or criminal proceeding, without the statutory disqualification, does not automatically bar submission of a resolution plan.

Regulation 39(1)(c) requires an undertaking that information supplied by the resolution applicant is true and correct, and provides consequences where false information or records are discovered; however, an alleged breach must be assessed in light of its actual impact on the fairness and integrity of the CIRP.

Under Sections 30(2) and 31, the Adjudicating Authority is confined to examining statutory compliance, including payment priorities, management, implementation, and conformity with law.

The commercial wisdom of the CoC regarding feasibility, viability, valuation and distribution is ordinarily non-justiciable.

Relying on *Vijay Madan Lal Choudhary v. Union of India*, the Court distinguished the civil nature of PMLA attachment proceedings from criminal conviction, while recognising that attachment may have criminal consequences.

The Court also relied on *Kalpraj Dharamshi v. Kotak Investment Advisors Ltd.*, *Essar Steel*, *K. Sashidhar*, *Maharashtra Seamless Ltd.*, *Ghanashyam Mishra*, *Pratap Technocrats* and related authorities for the limited scope of judicial review over CoC decisions.

The Court found that the SRA had answered “No” to the query concerning pending criminal proceedings, investigations or enquiries, despite the existence of PMLA attachment proceedings.

Nevertheless, the issue was subsequently brought to the CoC’s attention by the Appellant.

The CoC deferred voting, obtained clarifications from the SRA, considered the Bombay High Court proceedings, obtained an independent Chartered Accountant’s report on Section 29A eligibility, and deliberated on the SRA’s credentials, feasibility and viability before approving the plan.

Since there was no conviction attracting Section 29A and the CoC had consciously considered the pending proceedings, the alleged non-disclosure did not, by itself, invalidate the CIRP or establish a material irregularity.

The Court further held that the Appellant’s objections regarding source of funds, liquidation value, valuation differences and the plan’s financial structure substantially concerned the commercial assessment entrusted to the CoC.

The alleged secured-creditor issue remained pending, but the plan expressly protected the Appellant by providing for proportionate distribution if its secured status was ultimately confirmed.

Consequently, the Tribunal could not substitute its assessment for the CoC’s commercial wisdom in the absence of a demonstrated breach of Sections 30(2), 31 or 61(3) of the IBC.

Although the SRA had not disclosed the proceedings in the plan, the CoC became aware of them, examined them through an independent report and consciously approved the plan; no material irregularity sufficient to invalidate the CIRP was established.

The Appellant’s objections concerning secured status, valuation, liquidation value and implementation did not justify appellate interference, particularly because the plan protected its position if it was ultimately recognised as a secured creditor.

The appeal was dismissed, with no order as to costs, and the pending interlocutory applications were disposed of.