NCLAT Sets Aside Resolution Plan Over Inflated Claims & Faulty IM
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In a decisive blow to flawed insolvency proceedings, the NCLAT has quashed an approved resolution plan based on an inflated claim and a misleading Information Memorandum. The Appellate Tribunal ruled that an Information Memorandum omitting crucial statutory constraints and relying on unverified claims vitiates the entire resolution process.
A bench of Member (Judicial) Justice N. Seshasayee and Member (Technical) Arun Baroka set aside the composite order approving the resolution plan for M/s Gujarat Hydrocarbons and Power SEZ Limited. The Appellate Tribunal ordered the recommencement of the Corporate Insolvency Resolution Process (CIRP) from the stage of issuing a fresh Form G based on a corrected Information Memorandum.
Key Takeaways
- Strict Scrutiny of Claims: A Resolution Professional cannot mechanically admit inflated debt figures that contradict prior judicial determinations on the same debt.
- Integrity of Information Memorandum: Material omissions regarding asset usability and statutory permissions invalidate the invitation for resolution plans.
- Subrogation Rights Upheld: A corporate guarantor paying part of a debt stands subrogated as a secured financial creditor to the extent of the amount actually paid.
- Statutory Land Scrutiny: Resolution plans built on leasehold land owned by statutory authorities require closer feasibility examination regarding change-of-use permissions.
Court's observations and directions section follows. The Court, in its reasoning, observed: "Since every prospective resolution applicant bases its commercial decision upon the Information Memorandum, an IM founded on materially incorrect financial information vitiates the entire resolution process... The CoC's commercial wisdom cannot be insulated where the commercial decision itself proceeded on incorrect foundational facts."
The Court has following directions:
"The Adjudicating Authority/Resolution Professional shall recommence the Corporate Insolvency Resolution Process of the Corporate Debtor from the stage of issuance of a fresh Form G / invitation of Expression of Interest, on the basis of a corrected and complete Information Memorandum..."
Ratio
An Information Memorandum that fails to accurately disclose material financial determinations and statutory land-use constraints violates the core principles of transparency under the Insolvency And Bankruptcy Code, 2016, invalidating the resolution plan approved on its basis. Furthermore, a surety discharging a partial guarantee liability is entitled to subrogation as a secured financial creditor pro tanto under Section 140 of the Indian Contract Act, 1872.
Background
The dispute arose from the CIRP of Gujarat Hydrocarbons and Power SEZ Limited (GHPSL). SREI Infrastructure Finance Limited had extended credit facilities to GHPSL, guaranteed by Assam Company India Limited (ACIL). In ACIL's prior CIRP, SREI's claim was judicially reduced to ₹241.27 crore after excluding capitalised penal interest, adhering to Central Bank of India Vs Ravindra and others ( "(2001) SCC 367": 2001 CaseBase(SC) 2408), and SREI received ₹38.87 crore under ACIL's approved plan.
However, in GHPSL's subsequent CIRP, the Resolution Professional admitted SREI's claim at an inflated ₹1,885.08 crore. Relying on Swiss Ribbons Pvt. Ltd. v. Union of India ( "(2019) 4 SCC 17": 2019 CaseBase(SC) 1223) and Axis Bank Ltd. v. Samruddhi Realty Ltd. ( "(2023) 23 Comp Cas-OL 596": 2022 CaseBase(NCLAT) 897), the Tribunal noted the power to look behind such claims. Applying principles from BRS Ventures Investments Ltd. Vs SREI Infrastructure Finance Ltd. & Anr. ( "(2025) 1 SCC 456": 2024 CaseBase(SC) 971), the Appellate Tribunal held that ACIL (via its resolution applicant BRS Ventures) was entitled to subrogation under Section 140 of the Indian Contract Act, 1872 as a secured financial creditor for ₹38.87 crore. Relying on Bimalesh Bhardwaj v. Value Infratech India Pvt. Ltd., it was noted that a faulty Information Memorandum undermines the CIRP.
Additionally, the land lessor, Gujarat Industrial Development Corporation (GIDC), challenged the resolution plan, which assumed the SEZ land would be de-notified for non-SEZ use without GIDC's required consent under the Gujarat Public Premises (Eviction Of Unauthorised Occupants) Act, 1972. Invoking Greater Noida v. Prabhjit Singh Soni ( "(2024) 6 SCC 767": 2024 CaseBase(SC) 359), the Tribunal emphasized that plans involving statutory land demand strict feasibility scrutiny. Finding the Information Memorandum fundamentally flawed, the NCLAT set aside the approved plan and directed a fresh process.
Case Details:
Case No.: Company Appeal (AT) (Insolvency) No. 1557 of 2023 with 1684 of 2023 & 626-628 of 2025
Case Title: Kanwar Raj Bhagat v. M/s. Gujarat Hydrocarbons and Power SEZ Limited & Ors.
Appearances:
For the Petitioner(s): Mr. Ajay Gaggar, Mr. Shreedhar Gaggar, Advocates; Mr. Virendra Ganda, Sr. Advocate with Mr. A. Sheth, Advocates
For the Respondent(s): Mr. Abhimanyu Bhandari, Mr. Abhijeet Sinha, Sr. Advocate, Mr. Raheel Patel, Advocates
Source: 2026 CaseBase(NCLAT) 22
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