Mr. Nimai Gautam Shah, Resolution Professional Of M/s. Zep Infratech Limited vs Raj Radhe Finance Ltd.

Per Justice N. Seshasayee, Member (Judicial)

These appeals are preferred against the Order of the Adjudicating Authority (NCLT-I, Ahmedabad), dated 23.06.2025, in C.P.(IB) 69 of 2023, rejecting a resolution plan which the CoC had approved. 1.2 M/s Zep Infratech Ltd., the CD, underwent a CIRP process. It was partially successful in that the CoC had approved the resolution plan, but not the Adjudicating Authority. The CoC is aggrieved for whatever they along with the other creditors are entitled to receive is still at a distance. The Resolution Professional, someone who under the scheme of IBC is required to remain neutral and dispassionate, feels aggrieved since his conduct was adversely commented upon by the Adjudicating Authority. The SRA also feels aggrieved since the Adjudicating Authority had inter alia held that the plan was neither feasible nor viable since the SRA has not demonstrated its financial capacity. In short, the three principal players of a successful resolution process – the CoC, the RP and the SRA all were unhappy with the outcome and hence have preferred separate appeals challenging the Order of the Adjudicating Authority with the common objective of upholding the resolution plan which the CoC had approved. The details are as below:

Broadly their stand is either to attempt at vindicating their respective integrity vis-à-vis the CIRP process or/and to establish that the Adjudicating Authority had acted in excess of its authority under Sec.31 IBC.

Facts:

As outlined above, neither the RP, nor the COC, nor the SRA are happy with the approach of the Adjudicating Authority while exercising its jurisdiction under Sec.31 IBC. The basic facts which are essential for the current purpose are as below:

Land and Building:

Plant and Machinery:

Securities and Financial Assets:

The matter came before the Adjudicating Authority yet again for its approval. Throughout the process, no other stakeholder, creditor, governmental authority, or erstwhile management of the CD raised any objection or challenge to the Resolution Plan or the valuation. However, in its Order dated 23.06.2025 which is now impugned, the Adjudicating Authority rejected the Resolution Plan and directed liquidation of the Corporate Debtor. The Adjudicating Authority indeed has held that the CIRP has been used as a mask as the very initiation of CIRP is found to be suspect. The line of reasoning which prevailed on the Adjudicating authority for arriving at its decision was founded inter alia on the following facts:

The other reasons are covered specifically in paragraphs 4,6 and 8 below.

Broadly, according to the appellants, the line of reasoning of the Adjudicating Authority rested on several suo motu findings, including alleged non-disclosure of a certain property in Ahmedabad, doubts regarding fair valuation of the assets of the CD, incompleteness of the Information Memorandum, violation of Regulation 6A, absence of a revival strategy, doubting the financial capacity of the SRA, absence of PUFE proceedings, and finally questioning the quality of the commercial wisdom of the CoC.

Aspects concerning the role of the RP (C.A.1061 of 2025)

The aspects on which the Adjudicating Authority expressed its adverse views on the functioning of the RP are as below:

The learned counsel for the RP would contend:

Aspects concerning the SRA (C.A.946 of 2025)

The Adjudicating Authority had taken certain exceptions to the SRA, and they are:

The response of the SRA is candid. Its counsel would argue:

Findings Against the CoC (CA 1043 of 2025)

The Adjudicating Authority’s displeasure against the CoC, some of which overlap with those directed against the RP, may now be listed:

The counsel for the CoC would submit:

Discussion & Decision:

A resolution plan has been rejected by the Adjudicating Authority with no stakeholder opposing it. The Adjudicating Authority has entered two significant findings:

Eventually, the Adjudicating Authority ordered liquidation of the CD. The issues which this Order has produced is layered and it largely revolves around the extent of power the Adjudicating Authority has while exercising its jurisdiction under Sec.31 IBC.

The contention of the appellants in all the three cases with none to oppose them, is multi-focal and layered. If the reasoning of the Adjudicatory Authority is filtered through the arguments of their respective counsel for decocting their essence, it becomes evident that their common contention is that: the Adjudicating Authority has overstepped the line of its own authority under Sec.31 IBC; the Adjudicating Authority may not have to subject the acts of CoC-RP to a forensic examination microscopically when its own domain of scrutiny is statutorily demarcated and judicially declared, and that at any rate, the facts do not warrant a conclusion that it has arrived.

But has the Adjudicating Authority overstepped its authority and has guided its approach while considering the resolution plan for its approval with suspicion? Broadly, when legislature has designed Sec.32A to shield the SRA against potential future claims of past liabilities of the CD, whether the mere fact a SRA will eventually have the benefit of Sec.32A can be a reason to suspect every resolution process? It may not, for that which the statute has enabled cannot be a source of suspicion. But the appellants contend differently. This ideally set the stage for discussing the role of an Adjudicating Authority.

Setting the Legal Plane 13.1 Understanding the extent of authority an Adjudicating Authority has under Sec.31 of the Code is no more res integra. The locus classicus on the point is Sashidhar Vs Indian Overseas Bank & others [(2019)12 SCC 150], Committee of Creditors of Essar Steel India Ltd., Vs Satish Kumar Gupta & Others [(2020)8 SCC 531], Jaypee Kensington Boulevard Apartments Welfare Association & Others Vs NBCC (India) Ltd, & others [(2022)1 SCC 401] among few, which have stated, reiterated, settled and explained the structure of the IBC, the role of the Resolution Professional, the CoC and the Adjudicating Authority. We therefore, do not propose to try selling a concept which can never be our own, and cry eureka, but only attempt to make a metaphorical statement on the quintessential principles that these authorities declare.

Under the scheme of the Code, even as the RP replaces the Board of the Corporate Debtor, he still does not share the same intent as the Board he replaces. While the commercial intent of the Board of every company is to augment its profit, the legislative intent in replacing the Board of a company drawn into CIRP with the resolution professional is not to make profit but to salvage the company which was navigated into turbulent waters (presumably) by not so efficient sailors. At least, that is the basic premise. The task which a resolution professional is assigned with is to keep the ship afloat under the circumstances, and to look for a confident sailor who may continue the sail. Try save the ship without rushing to decommission and sell it for its scrap value is legislative philosophy behind any insolvency resolution process. Here, the CoC’s responsibility is to instruct the resolution professional to stabilize the ship in turbulence and to identify an able sailor with the assistance of the latter. For a ship that has lost its direction CoC provides the maritime compass, which as per the statutory scheme, a RP is duty bound not to ignore.

Where does an Adjudicating Authority figure in this scheme of salvaging a company which is on the verge of drowning under the pressure of debts? Very obviously an Adjudicating Authority is not on the high sea. It is not even there to take the stress of the sail when the strain on the CD’s finance threatens a titanic sink. Still the Code has constituted an Adjudicating Authority and enjoined it with certain responsibilities under Sec.31 and Sec.60(5). How, then to understand the role of an Adjudicating Authority in an insolvency resolution process from the nature of responsibilities assigned to it, when it is not part of the salvage team?

An Adjudicating Authority, like an umpire in the cricket-field, once calls ‘play’ with its order initiating a CIRP and appointing the IRP, is only required to watch the way the game is played by the CoC-RP combination, unless it is called upon to decide any issues in between but at the instance of any of the stakeholders to the insolvency resolution process - exactly what the umpire is required to do. In Torrent Power Ltd., Vs Ashish Arjunkumar Rathi & Others [(2026) ibclaw.in 109 (SC)], the Hon’ble Supreme Court has summed up the role the Adjudicating Authority as below:

Accordingly, an Adjudicating Authority, like an umpire, howsoever knowledgeable and experienced it might be, cannot correct the bottom hand grip of a batsman or to advise him on how well a stroke could have been played, but to oversee whether the game is played in the spirit of the game, consistent with its rules, and to indicate whether a fair run is scored. In short, like an umpire, an Adjudicating Authority is part of the game, still it cannot play.

It may now be possible to deduce that when a resolution plan conforms to the statutory provisions and not proved to have been otherwise vested with any material irregularity^{11.As to what may constitute material irregularity See the judgement in : Dorni Vinimoy Private Ltd., Vs Rachna Anchalia, Resolution Professional of M/s Imperial Tubes Pvt. Ltd., & Others, C.A.(AT)(Ins.) 411 of 2025 batch, dated 13.10.2025).} or fraudulent motives as to impair the integrity and purity of the resolution process, there silently operates a presumption that an approval to a resolution plan by the CoC is fair and legal, which in turn will minimize the role of the Adjudicating Authority to interfere with a plan. Any idea to the contrary may expose an insolvency resolution process, which in terms of the law expounded by the Supreme Court is primarily driven by the commercial wisdom of the CoC, to the peril of micro-scanning of the acts of CoC-RP combination by the Adjudicating Authority. However, it is subjected to the rider that an insolvency resolution process is not conceived as a mask to camouflage any anti-IBC agenda, a case of match-fixing. IBC frowns it.

How then to judge whether an insolvency resolution process passes the test of fairness? How the Adjudicating Authority, like an umpire, will conclude a fair run indeed has been scored? When it may be stated that the game is played in the spirit of the game – that an insolvency resolution process has upheld the spirit behind the Code? A travel through the legislative process of an insolvency resolution process, stage by stage, instantly provides an optical impression about the fairness of an insolvency resolution process, but it still is capable of creating an optical illusion about it. Given the scheme of the IBC, it is not impossible to provide procedural compliance as a distraction, a gloss over, to conceal compromises made with the integrity and fairness that define the spirit of a resolution process. Where then to find the spirit of IBC? It lies in the transparency of the process - in the complete disclosure of information, in ensuring that no preferential treatment is accorded, in demonstrating that the dying debtor is resurrected to life in the safe hands of a SRA. Where however, beneath the camouflage of IBC compliance, if there are demonstrable materials that points to lack of transparency of an insolvency resolution process, regulated by incomplete disclosure of information or where there is match-fixing of the resolution process, the Adjudicating Authority will necessarily have a job at hand, as they constitute plain fraud^{22.fraud is infinite in variety; sometimes it is audacious and unblushing; sometimes it} on the statute. Indeed, Sec.65 of IBC conveys the legislative aversion to the misuse of IBC as it frowns upon fraudulent and malicious initiation of insolvency resolution process. Where for instance, a CD finds itself in a whirlpool of debts, especially unsecured operation ² Lord Macnaghten in Reddaway Vs Barnham [1896 AC 199] is apposite: “..

the manner of it, which calls for the interposition of the Court.”

debts and the governmental dues, it is not impossible to outmaneuver the objectives of IBC and to hijack its soul. It is hence in K.Sashidar Case [(2019) 12 SCC 150], the Supreme court has held that “this Tribunal cannot remain a mute spectator where the very anchor of the insolvency resolution process, the bona fide, and the commercial judgment of the CoC is corroded by patent arbitrariness and opacity.” The role of the Adjudicating Authority therefore becomes critical: an Adjudicating Authority is not a mere counter signatory to the CoC to lend its approval to a resolution plan, but a sentinel on the qui vive to uphold the spirit and objectives of the IBC.

Having stated thus, the bottom-line is that even though an Adjudicating Authority has the responsibility to ensure the purity and integrity of an insolvency resolution process, yet no Adjudicating Authority may scrutinize a resolution plan through a lens of inscrutable suspicion but only through demonstrable facts providing a logical basis for suspecting the same.

Therefore, on issues of misuse of the Code, despite the apparently limited jurisdiction under Sec.31 of the Code, an Adjudicating Authority is neither powerless nor is helpless to take cognizance of acts of fraud on statute and to respond to it appropriately. See: Omkara Asset Reconstruction Private Ltd., Vs Amit Vijay Karia [C.A.(AT)(Ins.) 914 of 2025 batch, dated 01.12.2025]. A classic example of deliberate misuse of IBC for masking the ulterior motives behind initiating it could be seen from the judgement of the co-ordinate bench of this tribunal in Sonal Sumit Mehta Vs Vinod Tarachand Agarwal, RP of Rexsona Tiles Pvt., Ltd., [C.A.164 of 2026 batch, dated, 23.02.2026 and reported in (2026)ibclaw.in 211 (NCLAT)]. That was a case where a coordinate bench of this tribunal was approached by the SRA, and the CoC (constituted of the one creditor who laid the petition for commencing CIRP) with a challenge to the Order of the Adjudicating Authority rejecting the plan chiefly on the ground that CIRP was misused as a mask. The relevant facts are crisply captured in paragraph 9 of this tribunal’s judgement, and it reads:

A case where res ipsa loquitur applies. The facts of the case show that in spite of an apparent statutory compliance but when the facts are arranged sequentially it amplifies how initiation of CIRP could not have been bonafide, but was used to hide and support certain ulterior objectives.

The foregoing makes possible to suggest a three-point approach:

Impugned Order Tested:

The merit of the line of reasoning of the Adjudicating Authority is now required to be examined on the plane of law stated in earlier paragraphs. The issue here is in which slot the approach of the Adjudicating Authority should be fitted in. And, every evidently it has pitched its reasoning in paragraph 17(c) above. Earlier in paragraph 10, the Adjudicating Authority’s criticism against the very commencement of the CIRP against the CD has been outlined since in its opinion the object behind the whole exercise was not resolving an imminent insolvency of the CD but transfer of immovable property, and proceeded to hold that the very commencement of insolvency resolution process is faulty. This is considered in detail now.

A careful scanning of the Order of the Adjudicating Authority reveals that what appears to have bothered the conscience of the Adjudicating Authority inter alia is its perceived masking of certain facts which according to it has affected the integrity of the resolution process. Noting that the CD, which according to the affidavit of the RP dated 03.05.2025, has been in the business of marketing and distribution of pre-fabricated panels and has become non-operational (owing to its holding company being drawn into CIRP), for about year before the commencement of its own CIRP with no employees and with only a Bolero Car to boast for its plant and machinery, the Adjudicating Authority spotlights certain material facts for justifying its conclusion:

Besides, the Adjudicating Authority has also directed certain aspects against the RP, CoC and the SRA and they are listed in paragraphs 4,6, and 8 above. Based on its assessment, the Adjudicating Authority has held that it cannot remain a mute spectator and held that the material on record, including the very terms of the CoC-approved Resolution Plan dated 07.05.2024 (for an aggregate plan value of about ₹7.75 crore against admitted claims exceeding ₹267 crore, excluding very large contingent tax liabilities), display (i) incomplete and unreliable financial information pertaining to the Corporate Debtor, (ii) absence of proper examination of substantial diminution of assets and non-initiation of avoidance/PUFE proceedings despite significant balance-sheet erosion, and (iii) that the resolution plan which, instead of demonstrating a credible revival of a virtually non-operational entity, (iv) that the plan contemplates that CIRP costs be paid out of the Corporate Debtor’s own available cash and fixed deposits (including the fixed deposits of about ₹70.0 lakh created in September 2023 and further FDs of plan inflows) with only a limited fresh infusion of funds by the SRA, (v) that it provides for the two dominant unsecured financial creditors, namely Rajendra M. Thakkar (Ravasia) and Sons Pvt. Ltd. and Raj Radhe Finance Ltd., to receive approximately 46.44% of their admitted financial debts, while allocating only a token/nominal amount of about ₹50 lakh (around 0.20% of its admitted claim of ₹2,51,78,66,270/-) to the major statutory operational creditor, i.e. the Income Tax Department. Therefore, the commercial decision of the CoC taken on the basis of inadequate and imperfect information and in apparent disregard of the mandate of Regulation 38(3) of the CIRP Regulations, is liable to be scrutinised and not mechanically endorsed. In fact, the judgement of the Adjudicating Authority further goes into the deeper layers to explain why the resolution process does not inspire confidence.

If the approach of the appellants in this batch of appeals is observed, it shows that they have come out with their responses/explanations to those aspects enumerated in paragraphs 4,6 and 8 above, but have not chosen to address the same in conjunction with the facts raised in paragraph 19 above. In our opinion not all the observations/findings of the Adjudicating Authority listed in paragraphs 4,6, and 8 cannot be isolated from those in paragraph 19, but must have to be understood in the backdrop of the latter. As isolated facts, the responses of the appellants detailed in paragraphs 5, 7, and 9 may appear convincing, but when read in association with some of the facts in paragraph 19, at least some of them, they fail to convince our conscience that the Adjudicating Authority might have erred on the core issue.

Our principal concern where we are in agreement with the Adjudicating Authority is the systematic reduction in value of the tangible assets of the CD for three consecutive financial years commencing from 2020-2021, disappearance of substantial liability of about ₹440 crores which the balance sheets of the CD show as short term borrowings plus other liabilities, failure of the RP to hold an audit (call it a forensic audit, if so considered appropriate), and to place these facts before the CoC. Given the fact the petition under Sec.7 was filed on 10.03.2023 (during the financial year 2022-2023) and that the CD was admitted to CIRP on 31.07.2023 (in the following financial year), and the loss of real property and short term borrowings of ₹440 crores and its disappearance had taken place during the lookback period (which commences from 31.07.2021), a just question that naturally arises is that why CoC was not taken into confidence? In the first CoC meeting on 31.08.2023, it is minuted that the IRP had only gone through the raw tally statements and that he was yet to go through the final tally statements and the books of accounts of the CD, was it not necessary for him to bring the same to the notice of the CoC in the subsequent meetings? Going by the minutes of the CoC meetings, not a whisper is made on this aspect in any of the subsequent meetings of the CoC. And unless there is a proper audit of the CD for at least two years from the date of commencement of the lookback period, it may not even be able to ascertain if there were any preferential, undervalued or fraudulent transactions. While the CoC may retain its power to decide on PUFE proceeding, yet, when the assets and liabilities of the CD are not found to have been correctly stated, how to trust the Information Memorandum prepared without reference to these facts. As held in M.K. Rajagopalan case, (2024) 1 SCC 42] it may be that any issue on the correctness of the valuation of the assets of the CD may not fall within the domain of the Adjudicating Authority, yet the Adjudicating Authority is not powerless to take note of unexplained depletion in the value of CD’s assets as it impacts the quality of Information Memorandum and hence the acceptability of the resolution plan.

Now, these facts may have to be appreciated in the backdrop of the fact that the CD, which was only in the business of marketing and distribution of pre-fabricated panels with only a Bolero car to represent its plant and machinery and no employees but with an income tax liability of Rs.251 crores, the flight of assets of the CD that we notice during the look back period and disappearance of substantial liability of more than ₹440 crores during the same period with no audit and no PUFE proceedings, what is wrong in the Adjudicating Authority suspecting the quality of the Information Memorandum? We can go layer by layer deep into the analysis of the other reasoning of the Adjudicating Authority as well. But when what we have instantly noticed and convinced about tilts a needle of suspicion on the quality of the Information Memorandum, the submission of EoI and the offer made through the resolution plan necessarily fail to inspire confidence. Now, set in the context, if due to operation of clean slate doctrine, an income tax liability of around ₹251 crores is wiped out, does it not raise a genuine concern to suspect if there has been an attempt to misuse Sec.32A? It may be that the Income Tax Department though initially might have resisted the plan, eventually did not choose not to contest what was awarded to it, but the issue is not about the claim of the I.T Department, but about the purity and integrity of a resolution process which is seen marred by an Information memorandum of uninspiring quality.

Where there are facts which on a logical analysis shakes the foundation of the integrity of the resolution process, it no more depends on the concession of a creditor-claimant for lending approval to the plan. Like Sita’s agni-pravesh, this resolution plan and the process by which it came into being ought to have vindicated its purity, but as stated earlier the appellants are busy in dealing with isolated issues randomly without reference to the core concern of the Adjudicating Authority. Set in the context, while testing the viability of the plan fall within the domain of the CoC as held in Sreeram E-Techno School case [2019 SCC OnLine (NCLAT) 1148] but the issue has to be understood in the larger context of the larger issue.

The Adjudicating Authority has expressed its concern regarding non-compliance of Regulation 6A of the CIRP Regulation by the RP. The RP denies any violation and tries to draw our attention to the material he has produced, but what makes it significant is that if the balance sheets show other sundry creditors, then could not the RP identify those creditors and put them on notice about the commencement of CIRP against the CD? One of the facts which the appellants urged was that the Adjudicating Authority suspected the integrity of the plan because the resolution professional had not shared the audited reports of the CD with the prospective resolution applicants, and contend that none of the resolution applicant has complained about it. But as stated earlier, these aspects have to be read in association with an Information Memorandum of inadequate credibility. Similarly, while there may be merit in the submission of the RP that he has not omitted the Ahmedabad property of the CD which according to him was referred to as the Gujarat property in the Information Memorandum, it does not take the issue pertaining to the questionable fairness and integrity of the resolution process any further.

Now, merely because the resolution process has gone through all the stages – constitution of the CoC, issuing public notice, preparation of Information Memorandum, inviting EoI following by invitation to submit resolution plans and the CoC voting on them, will be adequate to save the plan. How significant the commercial wisdom of the CoC then would be? The answer is provided in M.K.Rajagopalan’s case [(2024)1 SCC 42]:

The present case is a classic instance of an apparent statutory compliance but with inadequate respect for the fairness of the insolvency resolution process – its spirit. The integrity and purity of the resolution process are seen stranded and are attempted to be bypassed. The provisions of the Code and the Regulations are not mere statutory expressions on the procedure for an insolvency resolution process, but are carriers of the values for which IBC stands for: value maximisation of the CD through transparency, full disclosure of information and impartiality. The Commercial wisdom of the CoC which the Supreme Court has kept beyond judicial scrutiny is that which is founded on intelligent decisions made on the intelligible criteria which manifests and reflects the IBC’s values alongside the compliance of the procedure prescribed, but not otherwise. In the instant case, the commercial wisdom of the CoC, given the context in which it is employed to bail out the plan deserves to be taken note of for lack of it.

There is an ancillary issue. The CD here is the corporate guarantor. It could be known from the records of this case, a reference has been made to the CIRP initiated against the principal borrower. In a batch of cases in ICCI Bank Ltd. Vs Era Infrastructure (India) Ltd., [2026 SCC OnLine SC 314], when faced with the argument that if a creditor is permitted to initiate CIRP against multiple debtors it may enable himself/it to unlawfully enrich itself, the Hon’ble Supreme Court has held that this is taken care of under Regulation 12A and 14 of the CIRP Regulations. Regulation 12A requires the creditor to update his/its claim as and when the claim is satisfied, partly or fully, from any source in any manner, after the insolvency commencement date. Set in the context, how the claim of the petitioning financial creditor, and a member of the CoC in the present CIRP has been dealt with in the CIRP of the principal borrower becomes relevant. Turning to Regulation 14 insists that the RP should independently verify and update the claims. However, in the context of need for transparency and complete disclosure, an implied duty is cast on that creditor who is privy to both the CIRPs initiated against the principal borrower and corporate guarantor to share information in the CIRP of the one about what transpires vis-à-vis its own claim (as it may have a telling effect on the voting share of such creditor) in the other CIRP. The need for updating the claims either under Regulation 12A or 14 must be distinguished from the duty to share such information which might affect the transparency and the resulting fairness of the resolution process. The principal duty or responsibility of every stakeholder associated with an insolvency resolution process is to act in aid of establishing its fairness, its integrity and purity. Silence may not be a virtue when there is a statutory necessity to uphold fairness in the working of a statute. It is however, added that where there is a failure to disclose such information, it per se may not be a ground to reject a resolution plan unless it is established how it has fatally affected the transparency of a CIRP. Turning to the present case, disclosure of any information vis-à-vis the claim of the petitioning financial creditor Raj Radhe Finance in the CIRP of the principal borrower is not seen to have been made.

Before winding up, we record with concern about the quality of the CIRP which instantly and unavoidably brings the conduct of the RP under the scanner. We are therefore, constrained to require the IBBI to investigate the conduct of the RP, unaffected by our findings and observations, with an eye on the systemic improvement of the IBC ecosystem.

Conclusion

It’s writing on the wall for all the appellants. Turning to the sustainability of the order for liquidation, when the debt and default in repayment of debt are found to be true for initiating the CIRP, given the fact that the resolution plan borne of a faulty resolution process cannot be sustained, necessarily the order directing liquidation requires to be confirmed. All the three appeals are accordingly dismissed.