The Directorate says it traced ABG Shipyard money to the winning bidder. The Code says only a conviction disqualifies
Justice Mohammad Faiz Alam Khan and Naresh Salecha held that a pending money-laundering investigation and an attachment of assets do not make a resolution applicant ineligible under Section 29A, which is triggered by conviction.
The Enforcement Directorate has attached more than ₹19 crore belonging to the company that won the insolvency auction for Mahavir Roads and Infrastructure Pvt. Ltd., having traced a money trail to it from group companies of ABG Shipyard. The Appellate Tribunal under the Prevention of Money Laundering Act said in August 2023 that the company was prima facie part of organised crime and involved in money laundering. None of that, the National Company Law Appellate Tribunal has now held, makes it ineligible to buy the company. Section 29A of the Insolvency and Bankruptcy Code disqualifies a person who has been convicted. It does not disqualify a person who is being investigated.
The dispute
Suraksha Realty Limited lent Mahavir Roads and Infrastructure ₹60 crore, secured by an equitable mortgage created by deposit of title deeds. A supplementary loan agreement followed in February 2015. The borrower defaulted, and the post-dated cheques given as security were dishonoured.
Suraksha filed a complaint against the company and its directors before the Magistrate at Andheri. While it was pending the borrower asked for the complaint to be withdrawn and the repayment terms recast. It was. On the date the modified loan agreement was executed, ₹12.52 crore was outstanding. An addendum of 9 February 2016 added security, and the parties agreed that ₹69.97 crore was due, repayable at 18 per cent monthly over seventy-five months from 1 February 2016. The company defaulted again.
Insolvency was admitted on 21 February 2019 on a Section 7 petition, and Mr Ankur Kumar was appointed interim resolution professional. Suraksha filed a Form C claim for ₹109,63,47,940 as a secured financial creditor. In December 2019 the professional admitted it at ₹40,84,24,363 and classified Suraksha as unsecured. That reclassification is itself the subject of a separate appeal still pending before the Tribunal, so it fell outside the present case — but it explains the appellant's position throughout. A creditor who believes it has been written down from ₹109 crore to ₹40 crore and stripped of its security has every incentive to scrutinise the plan that follows.
What it found was this. The company that submitted the winning plan had been caught in the ABG Shipyard investigation. The Central Bureau of Investigation had registered a case under the Prevention of Corruption Act, 1988 against ABG Shipyard Ltd. and its directors, and the Enforcement Directorate had registered an information report over a loss of roughly ₹22,842 crore to a consortium of banks. The Directorate traced a money trail from ABG group companies to the resolution applicant, attached over ₹19 crore of assets belonging to it and its promoters under Section 3 of the Prevention of Money Laundering Act, and had the attachment confirmed by the adjudicating authority. On 3 August 2023, refusing an interim stay, the Appellate Tribunal under that Act recorded a prima facie view that the applicant was part of organised crime and involved in money laundering.
The doctrinal anchor
The Bench read Section 29A(d) for what it says. A person convicted in the manner the clause provides is ineligible to submit a resolution plan — and even that person becomes eligible again two years after release from prison. If the legislature has made a convict eligible after two years, the Tribunal reasoned, the pendency of an investigation cannot be a permanent bar on someone who has not been convicted at all. The pendency of criminal proceedings or an investigation against a prospective applicant is not a ground to debar it from presenting a plan.
That leaves the question where the Code puts it. It is for the Committee of Creditors to assess the viability and credibility of such an applicant and its plan, in exercise of its commercial wisdom. The mere fact that an inquiry, investigation or proceeding has been started against a person is not sufficient to brand that person ineligible. Section 29A, the Bench held, must be harmoniously construed with Regulation 39(1)(c) of the insolvency resolution process regulations, which requires an applicant to disclose such proceedings in its plan.
That matters here, because the applicant did not disclose them. Asked in the plan whether any criminal proceedings, inquiry or investigation were pending against it, it answered no. The answer was wrong.
What saved the plan was what the Committee did once it learned the truth. The appellant brought the Directorate's proceedings to the Committee's attention. The Committee discussed the matter in depth across its 37th, 38th, 40th, 41st and 42nd meetings, and appointed a chartered accountant to assess the applicant's eligibility under Section 29A. Only when that report was accepted was the plan approved. This is not, the Bench emphasised, a case of a committee approving a plan without discussing the proceedings pending against the applicant. It is a case of a committee discussing them vigorously and then taking a conscious decision, knowing what it knew.
Counsel for the appellant relied on the Supreme Court's judgment in Lamba Exports Private Limited v. Deer Global Industries Private Limited, where the Court said that the primacy of commercial wisdom does not make every action in an insolvency process immune from scrutiny in every situation, and that where a challenge rests on a legally sustainable foundation — history, legality, or a judicial infirmity — it will be considered according to law. The Bench did not dispute the proposition. It found no such foundation on these facts, because the Committee had neither been kept in the dark nor acted without enquiry.
Five meetings, one clean chit
The Tribunal went through the minutes, and the sequence is the spine of the judgment.
At the 37th meeting on 27 October 2023 the plans were opened and discussed, and the resolution professional was directed to confirm whether the applicant's plan complied with Section 29A. He wrote to the applicant the same day. At the 38th meeting on 23 November the appellant's representative raised a different grievance: the adjudicating authority had made an order on 11 November recognising Suraksha's charge over the property and its status as a secured creditor, and had directed the Regional Director to register the charge — yet the plan under discussion still treated Suraksha as unsecured. The applicant filed a revised plan after that meeting.
The 40th meeting, on 20 December, is where the money-laundering question actually surfaced. The appellant's representative told the Committee that the applicant was involved in transactions flagged by the Enforcement Directorate in the ABG Shipyard matter, and that a press release of 22 September 2022 had named both the applicant and its promoter as involved in the scam with their assets attached. He said none of this had been disclosed to the Committee by the applicant, and asked for details and the status of the investigation. The same meeting took up liquidation: it was resolved that if the plan were not approved, liquidation might be initiated. That resolution passed with 78.83 per cent. Suraksha voted against liquidating the company — which is to say that the creditor now attacking the plan had, a month earlier, voted to keep the alternative off the table.
On 21 December the appellant wrote to the professional setting out its concerns and asserting that the applicant was ineligible under Section 29A. On 26 December the applicant replied that the Bombay High Court had granted it interim relief, that no order had been passed that affected its ability to submit a plan, and that the objections were baseless. On 5 January 2024 the professional asked the applicant for further material to assess eligibility; the applicant supplied it on 9 January.
At the 41st meeting on 19 January 2024 the chartered accountants, Baghchi and Gupta, reported. They gave the applicant a clean chit and did not disqualify it under Section 29A. The professional reported that the applicant had explained the Directorate's press release, had filed a writ petition, and had an ad interim stay from the High Court until the next hearing date, with the matter still pending adjudication and no order yet passed by the Directorate. The Committee discussed eligibility, and separately discussed feasibility and viability. On 24 January the appellant emailed again, saying the source of funds might be tainted and that the applicant had been actively concealing material information from the Committee and the professional. The plan was approved at the 42nd meeting on 26 February 2024.
The valuation, and the third valuer that was never appointed
The appellant's second line was arithmetic. The two registered valuers had come out more than 25 per cent apart on particular asset classes — ₹52.78 crore against ₹35.04 crore. Appreciating assets, the land, had been undervalued, and depreciating assets overvalued, which had the effect of depressing the liquidation value to the applicant's benefit. A third valuer should have been appointed. The appellant had asked for one at the 42nd meeting of the Committee and again by email on 31 January 2024, and none was appointed.
The answer turns on a single word. Regulation 35(1)(b) provides that where two valuation reports are significantly different, the resolution professional may appoint a third valuer on a proposal from the Committee. The Bench read "may" as permissive: appointing a third valuer is a matter for the discretion of the professional and the Committee, not an obligation. The issue had in fact been raised at the 41st meeting, deliberated, and resolved against a third valuation because the process was at an advanced stage and the Code is time-bound.
Nor does the plan value have to clear the liquidation value. On that the Bench relied on Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh, where the Supreme Court held that a resolution applicant is not required to match the liquidation value arrived at under Regulation 35.
The money question
The plan was presented at ₹60 crore. The appellant said the real figure was ₹39.80 crore, the balance being a contingent future liability on the invocation of bank guarantees issued by Bank of India, which in its submission cannot form part of plan value at all. On its arithmetic the plan was worth less than the liquidation value of the company, and should have been rejected on that ground alone.
Set against what came before, the number is less bleak than it sounds. An earlier resolution plan placed before the Committee at its 25th meeting had been worth ₹22.40 crore. Suraksha's own admitted claim stands at ₹40.84 crore and is classified as unsecured, which in the distribution waterfall of Section 53 puts it behind the secured creditors it says it should be counted among. Whether it is secured or unsecured is being fought out in the separate appeal, and the answer will change what this plan pays it.
Outcome
The Bench held that neither the adjudicating authority nor the Appellate Tribunal can sit over a plan approved by the Committee as a court of appeal. The available jurisdiction is to ensure statutory compliance — Section 30(2) for the adjudicating authority, Section 32 read with Section 61(3) for the Appellate Tribunal. Finding no good ground to interfere, it dismissed the appeal as devoid of force, made no order as to costs, and disposed of the pending applications.
The resolution plan for Mahavir Roads and Infrastructure stands approved, seven and a half years after the company was admitted to insolvency. The Enforcement Directorate's attachment of the successful applicant's assets, and the proceedings under the Prevention of Money Laundering Act, continue on their own track. An appeal lies to the Supreme Court under Section 62 of the Code.