NCLT Jaipur Bench Rejects Resolution Plan of Goenka Diamond and Jewels Ltd., Orders Liquidation Over Legal and Financial Irregularities

Tribunal finds plan's extinguishment of third-party guarantees unlawful and questions viability and funding, highlighting failure of Committee of Creditors to exercise due commercial wisdom

In a significant ruling dated December 2, 2025, the National Company Law Tribunal (NCLT), Jaipur Bench, presided over by Ms. Reeta Kohli and Ms. Kavita Bhatnagar, rejected the resolution plan submitted by Shri Navneet Goenka for the Corporate Debtor, Goenka Diamond and Jewels Limited. The rejection was based on multiple legal and procedural deficiencies, resulting in the initiation of liquidation proceedings for the company under Section 33(1)(b) of the Insolvency and Bankruptcy Code (IBC), 2016.

The insolvency resolution process was initiated following a petition filed by Union Bank of India, acting as the financial creditor. The resolution plan, approved by the Committee of Creditors (CoC) with 86.56% voting share, proposed a restructuring involving upfront and deferred payments to creditors, infusion of fresh equity by the resolution applicant, and extinguishment of personal and corporate guarantees along with security interests, including those of third parties not connected to the corporate debtor's current management or operations.

Key Issues and Tribunal Observations:

• 1. Extinguishment of Third-Party Guarantees and Security Interests: The Tribunal observed that the resolution plan sought to extinguish guarantees and securities provided by individuals who were not directors or key managerial personnel at the relevant time, including persons who had no connection with the corporate debtor during the insolvency proceedings. Notably, guarantees by Mrs. Bhawna Goenka and Mr. Nitin Goenka were included despite their disassociation from the company. The Tribunal held that such extinguishment violates Section 30(2) of the IBC and the Indian Contract Act, 1872, as these guarantees constitute independent contracts and cannot be discharged through a resolution plan without due valuation and consent.

• 2. Lack of Valuation and Consideration for Third-Party Securities: The Tribunal noted the absence of any valuation or due assessment of the third-party securities by the Resolution Professional or CoC. The plan proposed a nominal sum of Rs. 1 crore towards extinguishment, which was arbitrary and grossly inadequate compared to the security package's worth of Rs. 89.21 crore. This non-application of mind by the CoC was deemed a failure of commercial wisdom.

• 3. Failure to Address the Cause of Default and Feasibility: The resolution plan failed to specifically and adequately address the causes of default as mandated under Regulation 38(3)(a) of the CIRP Regulations. The statements in the plan were vague, without detailed analysis or actionable strategies. Furthermore, the plan lacked credible evidence on its financial feasibility and viability. The CoC minutes did not reflect any substantial deliberation on these aspects, undermining the plan's credibility.

• 4. Uncertainty in Source of Funds and Conditionality: The plan's funding was contingent upon the sale of land owned by the resolution applicant and his wife, with no affidavit or undertaking from the wife, contrary to the unconditionality requirement under the Request for Resolution Plan (RFRP). While a comfort letter for Rs. 30 crore loan was submitted, the source for the remaining Rs. 20.71 crore remained unexplained, casting doubts on the applicant's capability to implement the plan.

• 5. Illegal Legal Immunities Sought by the Resolution Applicant: The plan included clauses seeking immunity from prosecution and legal actions for the resolution applicant and the corporate debtor's directors and employees for liabilities before the effective date. The Tribunal held such immunities violate Section 32A of the IBC, especially as the resolution applicant was the suspended managing director and promoter, thus no change in management occurred. Reliance was placed on the Supreme Court’s judgment in AjayKumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd., which restricts immunity to cases involving new management.

• 6. Failure of the Committee of Creditors’ Commercial Wisdom: The Tribunal acknowledged the primacy of the CoC's commercial wisdom but emphasized it is not unfettered. The CoC failed to properly assess the resolution plan’s feasibility, viability, source of funds, and compliance with legal provisions, especially regarding third-party guarantees and legal immunities. This failure warranted judicial intervention.

Legal Precedents and Principles Referenced:

• - The Tribunal relied heavily on judgments by the Supreme Court and NCLAT, including Greater Noida Industrial Development Authority v. Prabhjit Singh Soni and Ebix Singapore Pvt. Ltd. v. CoC of Educomp Solutions Ltd., to underscore the limited scope of judicial interference and the mandatory requirements for resolution plans.
• - It distinguished current facts from cases like SVA Family Welfare Trust v. Ujaas Energy Ltd. and Puro Naturals JV v. Warana Sahakari Bank, where the extinguishment of guarantees pertained to promoters or ex-directors, unlike third parties in this case.
• - It reinforced that third-party guarantees constitute independent contracts and cannot be arbitrarily extinguished without proper valuation and consent.

Outcome:

The Tribunal dismissed the Resolution Plan application and ordered the commencement of liquidation proceedings. Mr. Vijendra Bangar was appointed as the liquidator to manage the company's liquidation in accordance with the Code and applicable regulations. The moratorium under Section 14 ceased, and a new moratorium under Section 33(5) was declared to prevent suits against the corporate debtor during liquidation.

The decision mandates the corporate debtor's management and personnel to cooperate with the liquidator and directs the liquidator to issue public notices and comply with statutory responsibilities. The order also grants liberty to the liquidator to seek further directions as necessary.

This judgment underscores the importance of compliance with the IBC’s mandatory provisions in insolvency resolution and protects third-party guarantors’ rights while ensuring that resolution plans are viable, feasible, and legally sound.

Bottom Line:

Resolution Plan extinguishing third-party guarantees and securities unrelated to the Corporate Debtor without valuation and proper consideration is illegal - Resolution Plan must comply with Section 30(2) and Regulation 38 of IBC and CIRP Regulations, failing which approval must be refused and liquidation ordered.

Statutory provision(s): Section 7, Section 14, Section 21, Section 25(2)(h), Section 29A, Section 30, Section 31, Section 32A, Section 33, Section 34, Section 53 of the Insolvency and Bankruptcy Code, 2016; Regulation 27, Regulation 37, Regulation 38, Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016; Indian Contract Act, 1872.

Sourabh Malpani, Resolution Professional of Goenka Diamond and Jewels Limited, (NCLT)(Jaipur Bench) : Law Finder Doc Id # 2817220