NCLT Rejects Goenka Resolution Plan, Orders Liquidation; Probes SFIO Account Freezes

In a significant ruling that underscores the boundaries of the Insolvency and Bankruptcy Code (IBC), 2016, the National Company Law Tribunal (NCLT) Jaipur bench has rejected a resolution plan for Goenka Diamond and Jewels Limited, opting instead for liquidation due to attempts to extinguish third-party liabilities. In a parallel development, the NCLT Chennai bench has directed the Serious Fraud Investigation Office (SFIO) to verify the basis for freezing bank accounts linked to Srinidhi Karti Chidambaram, wife of former MP Karti Chidambaram, in an ongoing probe into alleged unlawful gains. These decisions highlight evolving judicial scrutiny in corporate insolvency and fraud investigations, emphasizing adherence to statutory mandates and procedural safeguards.

Goenka Diamonds Case: IBC Not a Shield for Third-Party Debts

The NCLT Jaipur's order in the Corporate Insolvency Resolution Process (CIRP) of Goenka Diamond and Jewels Limited marks a firm stance against using resolution plans to wipe out independent contractual obligations of third parties. The bench, comprising Judicial Member Reeta Kohli and Technical Member Kavita Bhatnagar, ruled that the plan submitted by successful resolution applicant (SRA) Navneet Nandlal Goenka violated core provisions of the IBC by seeking to discharge personal guarantees and security deeds unrelated to the corporate debtor.

The CIRP commenced on December 9, 2022, following an application by Union Bank of India, a major creditor. Goenka submitted his resolution plan on February 15, 2024, proposing an infusion of Rs 50.71 crore. The Committee of Creditors (CoC) approved it on March 12, 2024, with 86.56% voting in favor. Resolution Professional Sourabh Malpani then approached the tribunal for approval, arguing that the plan complied with the IBC and reflected the commercial wisdom of the lenders, which courts should not override.

However, Union Bank objected vehemently, contending that the plan improperly sought to release liabilities of personal guarantors and third parties whose assets secured the bank's loans. The bank highlighted the absence of any valuation for these securities, rendering the plan's feasibility questionable.

The tribunal's coram dissected these concerns, noting that "Personal Guarantee Contract and the Security Deeds by themselves constitute an independent contract between the Guarantor/Surety and the Financial Institutions. The liability envisaged under such contracts are independent in themselves as the contract of guarantee is an independent contract." This observation reinforces foundational principles of contract law, which the IBC cannot override. The bench further emphasized that "permitting the SRAs to extinguish the liabilities of parties unrelated to the Corporate Debtor will be in gross violation of the basic objectives of the Code which is meant for resolution of Corporate Debtor and the basic tenets of contract law."

In a pointed critique, the NCLT held that CoC approval does not immunize a plan from statutory scrutiny. The resolution plan was deemed non-compliant with Section 30(2) of the IBC, which mandates that plans be feasible and viable, and Section 32A, which protects certain liabilities from extinguishment. It also contravened Regulation 38 of the CIRP Regulations, 2016, requiring detailed disclosures on fund sources and impacts. The tribunal lambasted the plan for lacking examination of its feasibility, viability, and the broader ramifications of nullifying third-party securities—particularly at the expense of public sector banks.

"The code was never intended to be a tool in the arsenal of the suspended management for discharging or extinguishing the liabilities of persons who do not have any relation to the operation Corporate Debtor and that too at the expense of public sector banks," the order stated. Consequently, the bench rejected the plan and initiated liquidation under Section 33 of the IBC, appointing Vijendra Bangar as the liquidator. Bangar was tasked with issuing a public announcement and notifying relevant authorities, signaling the end of revival efforts for the once-prominent diamond and jewelry firm.

This ruling echoes precedents like the Supreme Court's decision in Lalith Kumar Jain v. Union of India (2021), which clarified that personal guarantees survive CIRP unless explicitly addressed under the Code. For legal practitioners in insolvency, it serves as a cautionary tale: resolution plans must delineate corporate and third-party liabilities meticulously to avoid judicial rejection, even with strong CoC backing.

SFIO Probe: NCLT Demands Verification in Karti Chidambaram-Linked Account Freezes

Shifting to Chennai, the NCLT's intervention in the SFIO's investigation into Advantage Strategic Consulting Private Limited (ASCPL) underscores the imperative of due process in fraud probes under the Companies Act, 2013. The bench of Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam questioned the SFIO's reliance on unverified personal details to freeze accounts, directing the agency to file a clarification report by December 9, 2024.

The case stems from a 2017 SFIO probe into ASCPL, allegedly controlled by Karti Chidambaram, tied to the Aircel-Maxis and 2G spectrum scandals. A 2024 SFIO report alleged unlawful gains of Rs 48 crore, prompting the Ministry of Corporate Affairs to seek disgorgement under Section 447 of the Companies Act. On November 4, 2024, the tribunal granted an ex parte interim order at SFIO's behest, freezing accounts of ASCPL at Indian Overseas Bank (IOB) and Development Credit Bank (DCB), as well as linked accounts purportedly belonging to Karti Chidambaram.

Srinidhi Karti Chidambaram, against whom no proceedings were pending, challenged the freeze on her personal accounts, including a joint account with her 85-year-old mother-in-law. Represented by senior advocate Siddharth Luthra, she argued that the action was based on an erroneous PAN number inadvertently provided by Karti during his February 2024 deposition. Luthra highlighted that the SFIO had access to Karti's correct PAN when freezing his accounts on November 12, 2024, yet failed to rectify the ex parte order. "They acted on suppression," Luthra contended, stressing the lack of evidence linking Srinidhi or her entities—Chess Management Services Pvt. Ltd. and Chess Global Advisory—to ASCPL's affairs.

The tribunal noted the SFIO's admission that no independent proceedings targeted Srinidhi, with the attachment hinging "mainly" on the disputed PAN from Karti's statement. Despite the probe's longevity since 2017, the agency had not corroborated the details. The bench directed the SFIO to explain its verification process and file a detailed response within two days. Additionally, it ordered Srinidhi and her companies to disclose shareholding details to the SFIO, aiming to clarify any tangential involvements.

In a related order, the NCLT partially relieved ASCPL by lifting the freeze on its IOB current account, permitting limited withdrawals for litigation expenses, statutory dues, and property maintenance—capped by weekly statements to the SFIO. Senior advocate Arvindh Pandian, for ASCPL, justified this by citing the company's reliance on Rs 25-30 lakh annual interest from fixed deposits, a concession even the Enforcement Directorate had granted in parallel PMLA proceedings. The SFIO opposed, arguing the need to preserve the alleged Rs 48 crore gains, but the tribunal prioritized the company's right to defend itself, warning against any "mischief" in fund usage.

The full hearing on ASCPL's challenge to the November 4 order and Srinidhi's plea is slated for December 9, 2024, under Case No. CP/110(CHE)/2025 ( Union of India through SFIO vs. ASCPL & Anr. ). This development aligns with judicial trends emphasizing procedural fairness in investigative attachments, as seen in State Bank of India v. Konark Cement (2020), where courts mandated evidence-based actions over presumptive freezes.

Legal Implications and Broader Impact

These NCLT rulings illuminate critical fault lines in India's corporate governance framework. In the Goenka matter, the rejection reinforces that the IBC's "clean slate" theory under Section 32A is narrowly tailored to the corporate debtor, preserving third-party rights to prevent moral hazard. Insolvency professionals must now prioritize granular audits of guarantees and securities in plan formulations, potentially increasing due diligence costs but enhancing plan robustness. For public sector banks, it bolsters recovery prospects, as liquidation may yield better realizations from secured assets than a flawed resolution.

The SFIO case, meanwhile, spotlights risks in ex parte actions amid high-profile probes. By demanding independent verification, the NCLT safeguards against overreach, particularly when personal details like PANs are at play. This could set a precedent for agencies like the SFIO and ED to integrate digital verification tools early, reducing litigation over procedural lapses. For affected parties, it affirms the right to challenge attachments without substantive links, potentially easing the burden in protracted investigations.

Collectively, these decisions impact legal practice profoundly. Insolvency lawyers may see a surge in plan restructurings to isolate third-party elements, while fraud litigators must advocate for robust evidence trails in interim relief applications. On a systemic level, they promote accountability, ensuring the IBC and Companies Act serve resolution and justice without eroding contractual sanctity or due process.

As NCLT benches continue to navigate these complex terrains, stakeholders await appellate outcomes—likely from the National Company Law Appellate Tribunal (NCLAT)—which could further refine these principles. For now, these rulings remind the legal community that innovation in corporate rescue must yield to statutory fidelity.

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