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NCLAT Rules Mere Pendency of Criminal Proceedings Does Not Disqualify Resolution Applicant Under IBC
In a significant ruling that clarifies the interplay between criminal investigations and corporate insolvency, the has held that the mere pendency of criminal proceedings or an investigation does not, by itself, render a prospective Resolution Applicant ineligible to submit a resolution plan under the . The bench, comprising Judicial Member Justice Mohd. Faiz Alam Khan and Technical Member Naresh Salecha, underscored that it is the that must assess the applicant’s by exercising its . The judgment came in an appeal filed by challenging the approval of a resolution plan submitted by for
The Controversy: Disclosure of PMLA Proceedings
The dispute arose from the Corporate Insolvency Resolution Process (CIRP) of , which was admitted on , following a default on a ₹60 crore loan sanctioned by Suraksha Realty against an equitable mortgage of immovable property. Suraksha Realty, claiming to be a secured financial creditor, submitted a claim of ₹109.63 crore, but the Interim Resolution Professional admitted only ₹40.84 crore and classified Suraksha as an unsecured financial creditor.
When submitted its resolution plan, Suraksha objected, alleging that Bermaco had failed to properly disclose proceedings initiated by the and the attachment of certain properties under the . Bermaco had answered “No” to a query about whether any criminal proceedings, investigations, or inquiries were pending against it or any connected person. The resolution plan also contained an undertaking under Regulation 39(1)(c) of the CIRP Regulations, which requires that the information provided is true and correct, with consequences including forfeiture of deposit and penal action for false disclosure.
Suraksha argued that this amounted to and that the PMLA proceedings created a risk to the source of funds, potentially affecting implementation of the plan.
Harmonizing and Regulation 39
The NCLAT carefully examined the relevant provisions. (d) of the IBC disqualifies a person from submitting a resolution plan if the person has been convicted of certain offences carrying prescribed terms of imprisonment. A proviso to the clause lifts the after two years from the person’s release from imprisonment. The tribunal observed that Bermaco had not been convicted of any such offence; only investigations and attachment proceedings were pending.
The bench noted, “Therefore, in our considered opinion, the pendency of any criminal proceedings or investigation against a prospective resolution applicant may not be a ground to debar him from presenting a Resolution Plan. However, it would be the CoC to assess the of such Resolution Applicant and Plan by exercising its . But the sole fact that some inquiry, investigation, or proceedings have been initiated against a person would not be sufficient to brand him ineligible from submitting the resolution plan. In this regard is to be with Regulation 39 (1) (c) of .”
The tribunal also addressed the nature of attachment under the PMLA. Referring to the ’s judgment in , it noted that . However, it added, “It would be proper to say that, though the action of attachment is of civil in nature, it would have and attachment is with regard to the properties which appears to be .” This nuance did not alter the conclusion that mere initiation of proceedings is not enough to trigger under .
of CoC Prevails
Crucially, the NCLAT found that the CoC had dealt with the disclosure issue appropriately. After Suraksha raised its objections, the CoC examined Bermaco’s eligibility. The Resolution Professional sought further details from Bermaco and appointed chartered accountants to assess its eligibility under . Their report found no . The CoC then approved the plan after considering Bermaco’s credentials and the of the plan.
The tribunal held that it could not sit in appeal over the commercial decision of the CoC. The IBC framework entrusts the CoC with the responsibility to evaluate resolution plans, and the adjudicating authority’s role is limited to ensuring compliance with the law. Since the CoC had exercised its after , there was no ground to interfere.
Implications for Insolvency Practice
This ruling provides much-needed clarity for resolution applicants who may be facing investigations but have not been convicted. It reinforces that under is triggered only by a conviction, not by mere pendency of proceedings. At the same time, it places a heavy emphasis on the role of the CoC in scrutinizing the applicant’s background and the plan’s viability. The judgment also highlights the importance of full disclosure by resolution applicants. While a failure to disclose may lead to consequences under Regulation 39(1)(c), it does not automatically render the applicant ineligible under if no conviction exists.
The decision also serves as a reminder to CoCs to conduct thorough , including engaging independent professionals, when questions about an applicant’s eligibility arise. The NCLAT’s deference to the CoC’s reinforces the insolvency regime’s objective of maximizing value through .
Conclusion
By dismissing Suraksha Realty’s appeal, the NCLAT has affirmed that the IBC’s provisions are not a blanket bar against persons under investigation. The judgment strikes a balance between ensuring the integrity of the resolution process and allowing viable plans to proceed, even when the applicant is entangled in ongoing inquiries. For legal professionals, the ruling underscores the need to carefully distinguish between convictions and pending proceedings when assessing eligibility under , and to rely on the CoC’s commercial judgment in the absence of statutory .
