The plan said the applicant was not fully aware of the cause of default, and that sentence cost it the company

Justice Mohammad Faiz Alam Khan and Arun Baroka upheld the rejection of a ₹7 crore plan for an asset holding company, the order for liquidation, and an investigation into an assignment made to an ARC during the insolvency.

The resolution plan for Worlds Window Exim Private Limited contained a clause headed "Addressing for cause of default". It began by saying that the resolution applicant was not fully aware of the cause of default. The Delhi bench of the National Company Law Tribunal rejected the plan, ordered liquidation and directed an investigation into the company's affairs. The National Company Law Appellate Tribunal has upheld all three, setting aside only a direction that capped what an asset reconstruction company could recover before the investigation it depends on has happened.

The dispute

Worlds Window Exim was incorporated as an asset holding company for its group. It never operated. It has no turnover, it has been running losses, its liabilities exceed its assets, and its only assets are parcels of land, most of them already charged to the lenders of its group companies. It had nonetheless borrowed substantially from Bank of India, Bank of Baroda and Central Bank of India.

Insolvency was admitted on 16 May 2025. While the process was running, the debts of all three public sector banks were assigned to Prudent ARC. The adjudicating authority took those assignments on record by an order of 29 January 2026, after which Prudent ARC held 94.86 per cent of the voting share in the Committee of Creditors — which is to say it had become, in substance, the committee.

The committee then approved a resolution plan offering ₹7,00,00,000. That is less than the liquidation value of the company. When it came before the adjudicating authority, counsel appearing for the suspended promoters conceded the plan instantly.

The Tribunal refused it. By its order of 14 August 2026 it rejected the plan, directed liquidation under Section 33(1)(b) of the Insolvency and Bankruptcy Code, and directed the liquidator to investigate the affairs of the company and pursue applications under Sections 43, 45, 50 and 66 — the provisions dealing with preferential transactions, undervalued transactions, extortionate credit and fraudulent trading — to bring assets back in to meet the debt. Two appeals followed, one by an investment trust and one by Prudent ARC.

A clause that described the symptoms

Regulation 38(3) of the insolvency resolution process regulations requires a resolution plan to address the cause of default. Clause 2.14 of this plan did not.

It said the applicant was not fully aware of the cause of default; that, per the financial statements annexed to the information memorandum, the company had been incurring losses and had no turnover; that its liabilities exceeded its assets; and that efforts would be made to use the land secured with the lenders once their dues were settled, with a viable business proposition to be attempted to generate positive returns.

The Bench took that apart in a paragraph. Losses, no turnover and liabilities exceeding assets are the results of the default. They do not show why it happened. The clause does not say what the business will be, how it will earn revenue, or how the default will be cured. And the company whose fortunes were to be turned around is an asset holding company with no operations whose land is mostly already charged to somebody else's lenders. The adjudicating authority had asked how a viable business proposition would be attempted by such a company. Neither the clause nor the submissions on appeal answered it. A statement that a business will be attempted in future is not a demonstration that the cause of default has been addressed.

The appellants and the resolution professional argued that an applicant must work from the information memorandum and can only know what that document tells it, relying on Innoventive Industries and Ghanashyam Mishra for the proposition that a plan is prepared on the basis of the memorandum. The Bench accepted the premise and held that it does not carry the conclusion. The memorandum is meant to inform the applicant; being informed by it is not the same as explaining what went wrong. The plan was held not to satisfy Regulation 38(3)(a).

Why this is not second-guessing the creditors

The most useful part of the judgment is the chain it builds between a regulation and the statute, because it answers the objection that the adjudicating authority was substituting its judgment for the committee's.

Section 30(2)(f) requires a plan to conform to such other requirements as the Board may specify. Regulation 38 is what the Board has specified, and Regulation 38(3) sets out what a plan must demonstrate: that it addresses the cause of default, that it is feasible and viable, that it has provisions for effective implementation and for the approvals required with a timeline for them, and that the applicant can implement it. A plan that fails Regulation 38(3)(a) therefore fails Section 30(2)(f). When the adjudicating authority checks that, the Bench held, it is not entering the field of commercial wisdom at all — it is doing exactly what Section 31(1) requires of it.

That disposes of the appellants' reliance on Arun Kumar Jagatramka, where the Supreme Court cautioned the Tribunal and the Appellate Tribunal against interfering judicially in the framework the Code envisages. The caution, the Bench held, is against judicial innovation outside the framework. The Section 30(2) check is inside it.

It disposes too of the argument that how a plan addresses the cause of default is itself a matter for the committee. Essar Steel left the feasibility and viability of a plan to the majority decision of the committee — but that wisdom operates on a plan that contains what the law requires. The committee's approval cannot cure a plan missing a mandatory content. If it could, Section 30(2)(f) would mean nothing the moment the committee voted.

The appellants cited Vashishth Builders, where the Tribunal found that none of the adjudicating authority's observations amounted to a violation of Section 30(2) and that there were ample explanations on the record. The distinction drawn is factual and narrow. Here the authority pointed to a specific requirement of the Regulations and to the specific words of the plan that failed it — and the appellants and the resolution professional themselves relied on Clause 2.14 alone, never identifying any other part of the plan that stated the cause of default or how it would be addressed.

Where the adjudicating authority went too far, and where it did not

Not every criticism survived. The Tribunal below had found that a dissenting financial creditor might not receive its liquidation entitlement; the Bench held that finding could not stand in view of Clause 3.4 of the plan, and declined to decide a related observation on Explanation 1 to Section 30(2) that had been made in the same context. That concession did not help the appellants, because the plan had not been rejected on that ground alone.

The Bench also accepted, as a matter of law, that a plan value below the liquidation value is not by itself illegal. What it would not do is read that proposition in isolation. An asset holding company with no operations takes a large loan. Insolvency begins. During the process, three public sector banks assign their debt to a single asset reconstruction company, which thereby acquires 94.86 per cent of the committee. The committee approves a plan below liquidation value. The suspended promoters' counsel accepts it at once. Those facts, taken together with the failure under Regulation 38(3)(a), justified the adjudicating authority's doubt. The Bench was explicit that it did not rest its decision on suspicion alone.

On the investigation it was unequivocal. Once the adjudicating authority had formed a suspicion about the affairs of a company in which an asset holding entity had taken a large loan and an assignment had been made while the insolvency was running, ordering an independent investigation was proper.

The money question

The plan was worth ₹7 crore against a liquidation value that exceeds it. The direction the Bench did set aside concerned who gets what out of whatever is realised.

Paragraph 11 of the order below provided that the asset reconstruction company would not take a share of the distributable amount in excess of what it had actually paid Central Bank of India, and that any excess otherwise payable to the assignee would go back to the assigning bank. The appellant's objection was straightforward: the adjudicating authority had taken the assignment on record, and having done so could not then limit the assignee's entitlement under it.

The Bench set the direction aside, but not on that reasoning. Its point is one of sequence. The direction was made on the footing that the assignment was open to suspicion — yet the affairs of the company, the assignment among them, are precisely what the investigation is to examine. What an assignee is entitled to receive will depend on what that investigation finds and on the law applied to those facts. Capping the entitlement now is premature. All rights and contentions on the question are kept open for the adjudicating authority at the proper stage.

Rectify first, or liquidate?

The appellants' last argument was structural. Even if the plan was defective, they said, the adjudicating authority could not reject it and go straight to liquidation. They relied on the proviso inserted into Section 31(2) by the 2026 Amendment Act, which allows notice to be given to the committee to rectify defects before a plan is rejected, and on Section 33(1A), which allows restoration of the insolvency process to be considered before liquidation is ordered. The Bench proceeded on the assumption that both provisions were in force when the order was passed.

It held them to be enabling, not mandatory. The proviso allows the authority to give notice; Section 33(1A) allows it to consider restoration. Neither converts a defective plan into one that must be sent back for repair, and neither displaces the authority's power to reject a plan that fails the statutory test and to order liquidation under Section 33(1)(b).

Outcome

Both appeals were dismissed. The order of 14 August 2026 stands, save for the direction in paragraph 11 limiting the assignee's entitlement, which is set aside. The rejection of the resolution plan, the direction for liquidation of Worlds Window Exim, and the direction to investigate the company's affairs under Sections 43, 45, 50 and 66 are all upheld. No order as to costs, and the pending applications are closed.

The company goes into liquidation fifteen months after it entered insolvency, and the liquidator now has the task of finding out how an asset holding company with no turnover came to owe three public sector banks as much as it did. An appeal lies to the Supreme Court under Section 62 of the Code.