NCLAT Directs Resolution Professional To Invite Fresh Bids For Heera Constructions' insolvency

The National Company Law Appellate Tribunal (NCLAT) on Tuesday directed the Resolution Professional (RP) of Heera Constructions Company Pvt. Ltd. to issue a fresh Form G (new expression of interest) inviting prospective bidders in the ongoing insolvency proceedings of the Kochi-based real estate firm

A coram of Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra observed that the conduct of the RP- Raju Palanikunnathil Kesavan-involved material irregularities and that he "miserably failed" to include several of the assets of the insolvency bound company in the information memorandum without necessary justification.

He apparently also failed to make adequate disclosures about the ED proceeding against the insolvent company although the raids were undertaken well before the approval of the resolution plan.

The tribunal held that these lapses vitiated the entire corporate insolvency resolution process (CIRP), to reject the resolution plan submitted by Royal Heights and warranted issuance of fresh EOI.

Heera Constructions, which is engaged in real estate development, had defaulted on loans extended by IFCI Ltd, which had provided financial assistance of about Rs 50 crore. Following the default, IFCI initiated insolvency proceedings, which were admitted by the NCLT Mumbai Bench on March 27, 2019.

The Committee of Creditors (CoC) primarily consisted of homebuyers holding 73.13 percent voting share, while IFCI held 20.55 percent. The resolution plan submitted by Royal Heights Projects Pvt. Ltd. was approved by the CoC with 74.19 percent votes, although IFCI, the largest secured creditor, dissented.

In its appeal before the NCLAT, IFCI challenged the valuation and treatment of secured assets, particularly two prime properties, the Attipra land in Thiruvananthapuram and the Poonithura land in Ernakulam. IFCI alleged that the RP had wrongly assigned nil value to these assets, failed to include several properties later discovered by the Enforcement Directorate (ED), and effectively allowed the successful resolution applicant to obtain undisclosed assets “for free” through Clause 13.11 of the resolution plan.

The RP maintained that some of the properties were third-party assets or not fixed assets and therefore did not form part of the liquidation estate.

The tribunal found that the RP had “miserably failed to account for such properties and to include it in Information Memorandum” and noted that the ED's search and seizure operations in February 2023 had uncovered multiple undisclosed properties worth over Rs 23 crore.

The bench emphasized that all assets of Heera, including financial, fixed, tangible, and intangible assets, must be included in the Information Memorandum.

Referring to Clause 13.11 of the approved plan, which vested all assets, whether disclosed or not, in the successful resolution applicant, the NCLAT remarked that the provision “would never be fair” and that the applicant was “all set to take new assets for free by citing Clause 13.11.”

The Tribunal further held that the commercial wisdom of the CoC could not override the process when crucial information was not available to it.

"Thus when crucial aspects were never placed before the Committee of Creditors it cannot be said the Committee of Creditors' commercial decision would prevail, as all 'relevant information' was not available before it."

Citing its earlier decision in Masatya Technologies Pvt. Ltd. v. Amit Agarwal, the Appellate Tribunal set aside the approved resolution plan and directed the RP to issue a fresh Form G and complete the entire CIRP process within three months.

The NCLAT also observed that six years had passed since the insolvency began, yet the successful resolution applicant had taken no steps for completion of the project as per the schedule contemplated in the plan.

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