NCLAT Upholds Rejection of Zep Infratech Resolution Plan, Says NCLT Not Bound by CoC Where CIRP Integrity is in Doubt

April 21, 2026 : The National Company Law Appellate Tribunal (NCLAT) has affirmed that an Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC) is not a mere approving body for resolution plans cleared by the Committee of Creditors (CoC), and may refuse approval where the Corporate Insolvency Resolution Process (CIRP) itself is tainted by lack of transparency or possible misuse.

Delivering its judgment on April 21, 2026, a bench comprising Justice N. Seshasayee (Judicial Member) and Arun Baroka (Technical Member) dismissed three connected appeals filed by the Resolution Professional (RP), the CoC, and the Successful Resolution Applicant (SRA) in relation to M/s Zep Infratech Limited.

The appeals challenged the order of the NCLT, Ahmedabad Bench, which had rejected a resolution plan worth ₹7.75 crore despite unanimous CoC approval and instead directed liquidation of the corporate debtor.

Adjudicating Authority Not a “Rubber Stamp”

Rejecting the appellants’ contention that the NCLT had exceeded its jurisdiction under Section 31 of the IBC, the NCLAT clarified that the Adjudicating Authority plays a supervisory role to ensure the integrity of the insolvency process.

The Tribunal held that the Adjudicating Authority is “not a mere counter-signatory” but a “sentinel on the qui vive” tasked with safeguarding the spirit of the Code. While reaffirming that the commercial wisdom of the CoC is generally non-justiciable, the Tribunal drew a distinction between reviewing commercial decisions and examining whether the CIRP itself suffers from foundational defects.

Serious Concerns Over CIRP Integrity

The NCLAT found that the concerns raised by the NCLT were not superficial but went to the root of the insolvency process. It noted several irregularities emerging from the financial records and conduct of the CIRP:

• A consistent and substantial erosion in the value of the corporate debtor’s assets over three financial years
• Disappearance of liabilities amounting to approximately ₹440 crore without adequate explanation
• Absence of forensic audit or investigation into potential preferential, undervalued, or fraudulent transactions
• Incomplete and unreliable financial disclosures forming the basis of the Information Memorandum

The Tribunal observed that such deficiencies directly undermine the credibility of the CIRP and impair informed decision-making by the CoC.

Failure of RP and CoC Scrutiny

A key criticism was directed at the Resolution Professional for failing to conduct a forensic audit despite significant red flags in the financial statements, including unexplained asset depletion and liability reduction during the statutory look-back period.

The Tribunal further held that without proper scrutiny of these aspects, the Information Memorandum itself becomes unreliable, thereby vitiating the decision-making process of the CoC. It emphasised that the commercial wisdom of the CoC is meaningful only when exercised on the basis of complete and accurate information.

Disproportionate Treatment of Statutory Dues

The Tribunal also flagged concerns regarding the treatment of statutory dues. Despite an admitted claim of over ₹251 crore by the Income Tax Department, the resolution plan proposed only a nominal payout of about ₹50 lakh, raising serious questions on fairness and compliance with statutory requirements.

CIRP Cannot Be Used as a “Mask”

Endorsing the NCLT’s findings, the NCLAT observed that the CIRP in the present case appeared “suspect” and potentially structured to facilitate acquisition of valuable assets rather than genuine insolvency resolution.

It held that procedural compliance alone cannot validate a process that lacks transparency or conceals material facts. Where there is evidence suggesting misuse of the IBC framework or statutory fraud, the Adjudicating Authority is empowered to look beyond form and examine substance.

Conclusion

Dismissing all appeals, the NCLAT upheld the rejection of the resolution plan and the direction for liquidation of Zep Infratech Limited. It concluded that the issues identified were not minor procedural lapses but fundamental defects affecting the fairness, transparency, and credibility of the insolvency process.

Case Title: Nimai Gautam Shah (RP of M/s Zep Infratech Ltd.) vs Raj Radhe Finance Ltd. & Ors. (Connected Appeals)
Case Nos.: Company Appeal (AT) (Ins) Nos. 1061, 1043 & 946 of 2025
Coram: Justice N. Seshasayee (Judicial Member) and Arun Baroka (Technical Member)