NCLT Mumbai Rejects 4B Networks Resolution Plan Over Clause Giving SRA Exclusive Rights To PUFE Recoveries

The Mumbai Bench of the National Company Law Tribunal has rejected the resolution plan submitted by Armaan Sunil Kothari for 4B Networks Pvt Ltd.

It held that the plan wrongly allowed the successful resolution applicant (SRA) to exclusively retain recoveries from pending Preferential, Undervalued, Fraudulent and Extortionate (PUFE) proceedings, including one seeking recovery of about ₹7,349 crore.

The tribunal granted liberty to the resolution professional (RP) and the committee of creditors (CoC) to rerun the corporate insolvency resolution process (CIRP), with a deemed extension of four months.

A bench of Judicial Member Ashish Kalia and Technical Member Sanjiv Dutt also observed that the CoC failed to apply its mind while approving the resolution plan with 83.46% voting share.

"However, we are also unable to appreciate the nonapplication of mind of the CoC when the proceeds of the PUFE applications were held to be exclusive right of the SRA which shall bear the expenses of such PUFE applications... It is also noted that the proceed/outcome of aforementioned applications would be utilised by the SRA for the business of the Corporate Debtor and the SRA would pursue the avoidance application after the implementation of the Resolution Plan at its own cost and himself retain the entire proceeds of PUFE application.Indubitably, it creates an impression that the beneficiary of the recoveries/outcome of the PUFE application would be SRA rather than the creditors, which is in contravention to the provisions of Section 36(3)(f) of the Code", the tribunal observed.

Kothari's resolution plan, valued at about ₹14.71 crore, was approved by the CoC in March 2025. The RP subsequently approached the tribunal for its approval.

While examining the proposal, the tribunal noted that Kothari had been shortlisted as an individual resolution applicant. However, the plan envisaged acquiring the corporate debtor through his group entity, Cornetstene Estate Development Pvt Ltd, or a special purpose vehicle. The tribunal found that the application did not disclose whether those entities were eligible under Section 29A of the Insolvency and Bankruptcy Code. It also found that the applicant's net worth certificate referred to land valued at about ₹547.50 crore, but did not specify the extent or complete particulars of those properties.

"However, the present Application does not contain the details of the SRA's companies including CEDPL including their eligibility under Section 29A of the Code. Further, the Net Worth Certificate dated 22.01.2024... does not provide clear details of the land mentioned in the said Certificate.", the tribunal noted.

The tribunal further held that the CIRP had not been conducted in a transparent and fair manner. It observed that details of the avoidance transactions were not disclosed in the information memorandum made available to prospective resolution applicants. Had those transactions been disclosed, other bidders could possibly have submitted better resolution plans.

Relying on the Supreme Court's decision in Piramal Capital and Housing Finance Ltd. v. 63 Moons Technologies Ltd. and the National Company Law Appellate Tribunal's ruling in Sandeep Lucky v. Rajeev Lochan, the tribunal held that recoveries from PUFE proceedings are assets of the corporate debtor meant for the benefit of creditors. They cannot be exclusively appropriated by a successful resolution applicant.

Holding that the resolution plan contravened the Insolvency and Bankruptcy Code and suffered from material irregularities, the tribunal rejected it. It granted liberty to the RP and the CoC to rerun the CIRP strictly in accordance with the Code, while deeming a four-month extension of the process.

For Applicant/RP: Advocate Manish Jha along with Advocate Nausher Kohli