NCLT approves Mangalam Multiplex resolution plan for Varutha Developers

The National Company Law Tribunal (NCLT), Kolkata, has approved Rs 310-crore resolution plan by  Mangalam Multiplex Pvt. Ltd for debt-ridden Varutha Developers Pvt. Ltd. The NCLT dismissed allegations of collusion and procedural irregularities raised by rival bidder Ganga Construction. The tribunal upheld the Committee of Creditors’ (CoC) commercial wisdom in selecting Mangalam Multiplex, a group entity of realty firm M3M India, while rejecting claims that the process favoured insiders. The resolution plan, offering ₹310 crore against admitted claims of ₹493 crore, received unanimous CoC approval and promises to revive the Kolkata-based developer.

Background of the Case

Varutha Developers, undergoing Corporate Insolvency Resolution Process (CIRP) since December 2023, faced a default of ₹439 crore to SREI Equipment Finance Limited. Its sole asset—a 9.26-acre Gurugram land parcel—became the focal point of a contentious resolution battle. Ganga Construction, a consortium bidder, alleged the Resolution Professional (RP) and CoC colluded to favor Mangalam Multiplex, an M3M India proxy, by withholding critical information about the land’s disputed title and Enforcement Directorate (ED) attachment.

Key Allegations & Tribunal’s Findings

1. Suppression of Information: Ganga Construction claimed the RP failed to disclose the land’s unregistered sale certificate, ED attachment, and a pre-existing development agreement with M3M. The tribunal dismissed this, noting the RP shared all available details and Ganga had not raised objections during the bidding process.
   • Tribunal’s Verdict: “CIRP is time-bound… the applicant’s objections at this stage are speculative.”
2. Mangalam’s Eligibility: Ganga argued Manglam Multiplex was ineligible under Section 29A of the Insolvency Code due to M3M’s prior control. The tribunal ruled no evidence proved Mangalam or M3M had “proactive control” over Varutha, citing Supreme Court precedents.
3. Locus Standi: The tribunal emphasized that unsuccessful bidders like Ganga lack the legal right to challenge CoC decisions, referencing NCLAT’s stance in MK Rajagopalan vs. S. Rajendran.

Approval of Resolution Plan

Mangalam’s plan, approved with 100% CoC votes, offers:

• Immediate Payment: ₹67 crore to SREI within 60 days.
• Deferred Payment: ₹243 crore over 24 months, secured by a 50% share pledge in Varutha and a corporate guarantee from M3M.
• Haircuts: Financial creditors face a 37% haircut, accepting ₹310 crore against ₹493 crore claims.
• CIRP Costs: ₹8.1 lakh (as of May 2024) to be paid separately.

The tribunal highlighted the plan’s compliance with the Insolvency Code, noting its feasibility and adherence to valuation reports (fair value: ₹234 crore; liquidation value: ₹175 crore).

Legal Implications

• Extinguished Claims: Following the Supreme Court’s Ghanshyam Mishra ruling, all pre-CIRP claims not included in the resolution plan stand extinguished.
• Guarantor Liability: Personal guarantors remain liable, per the Lalit Kumar Jain judgment.
• Fresh Start for Varutha: New management gains immunity from past liabilities under Section 32A, though old promoters face ongoing investigations.

Broader Impact

The decision reinforces NCLT’s reluctance to interfere with CoC’s commercial decisions, citing precedents like Essar Steel and Swiss Ribbons. It also underscores challenges for rival bidders in contesting approved plans without concrete evidence of fraud.

The order, pronounced on 6 January 2025, marks the end of a year-long insolvency saga, allowing Varutha to restart operations under new ownership while leaving unresolved disputes for separate legal forums.

Also See: NCLT approves Aspect Global Ventures resolution plan for Rite Builtec