NCLT Approves Nazara’s ₹126 Cr Plan for Smaaash Entertainment Amid Fraud

I. Introduction

• In a landmark decision dated 7 May 2025, the National Company Law Tribunal (NCLT), Mumbai Bench, Court III, approved INR 126 crore resolution plan submitted by Nazara Technologies Limited (“Nazara Technologies”) for the acquisition of the financially distressed Smaaash Entertainment Private Limited (“Smaaash”). This resolution marks a significant outcome in the Corporate Insolvency Resolution Process (CIRP), reinforcing the effectiveness of the Insolvency and Bankruptcy Code, 2016 (IBC) in reviving viable businesses while ensuring equitable treatment for stakeholders.

II. Background and parties involved

• The CIRP of Smaaash was triggered following a petition filed under Section 7 of the IBC. The application was submitted by Edelweiss Asset Reconstruction Company Limited, one of the principal financial creditors of the corporate debtor, seeking redress for the company’s default in repayment of financial obligations.
• The petition was admitted by the NCLT, Mumbai Bench on 6 May 2022. Upon admission, the NCLT appointed Mr. Bhrugesh Amin as the Interim Resolution Professional (IRP), who subsequently received the confirmation of the Committee of Creditors (CoC) to act as the Resolution Professional (RP) for the conduct and supervision of the CIRP.
• In accordance with the provisions of the IBC, the RP took steps to collate claims from all creditors and established the CoC, which was formally constituted on 3 June 2022. The CoC was composed of several key financial creditors of Smaaash, reflecting the extent of the company’s indebtedness and the complexity of its capital structure. The primary members of the CoC included:

a) Edelweiss Asset Reconstruction Company Limited, holding a dominant 38% voting share in the committee;

b) Mabella Investment Advisors Private Limited;

c) Small Industries Development Bank of India (SIDBI);

d) Yes Bank Limited; and

e) Sadhana Nitro Chem Limited.

III. Valuation and resolution plan process

• Two registered valuers, namely Adroit Appraisers and G. Somani, were appointed to determine the Fair Value and Liquidation Value of the corporate debtor. The average:

a) Fair Value was estimated at INR 108.32 crores

b) Liquidation Value was INR 65.77 crores

• The RP invited Expressions of Interest (EoIs) thrice, due to changes in circumstances including fraudulent brand assignment attempts by suspended directors. Eventually, resolution plans were submitted by two parties:

a) Nazara Technologies Limited

b) Consortium of Resurgent Property Ventures Pvt. Ltd. and Sanjay Lodha

• After negotiations and revisions, only Nazara submitted a commercially and technically viable revised offer. This plan was approved by the CoC with 59% voting share during the 30th CoC meeting held on 26 July 2024.

IV. Financial details of the approved plan

• Nazara Technologies proposed a total resolution value of INR 126 crore, secured through internal accruals, with INR 20 crore performance guarantee via bank guarantee.
• Treatment of Creditors

• An additional amount of ₹97.76 lakhs was earmarked for CIRP costs, to be paid in priority as per Section 30(2)(a) of the IBC.

V. Monitoring and implementation of approved plan

• A Monitoring Committee comprising two CoC representatives, two Nazara representatives, and the RP (as Monitoring Agent) was constituted to oversee the resolution’s implementation.
• The Effective Date is defined as the date on which the NCLT approves the resolution plan. Following this, the Closing Date is stipulated to occur within 30 calendar days from the Effective Date, by which all conditions and obligations under the plan are to be fulfilled.
• In terms of financial responsibility, any unpaid CIRP costs or interim management expenses, if they arise during the period between the effective date and closing date, will be borne by Nazara Technologies, the Resolution Applicant. Importantly, such payments will be made in addition to the approved resolution plan value of INR 126 crore, ensuring that critical costs do not compromise the value allocated to creditors.
• Nazara Technologies also retains discretion over how it chooses to infuse equity or capital into the corporate debtor, whether directly, through a group entity, or via external funding arrangements. However, in doing so, the Resolution Applicant has provided an undertaking that all funding channels and contributing entities will comply with Section 29A of the IBC This ensures that no disqualified or ineligible person under the IBC is involved in the resolution process, thereby maintaining the legal integrity and enforceability of the resolution plan.

VI. Avoidance transactions and legal actions in the resolution of Smaaash

• During the CIRP of Smaaash significant irregularities were discovered in the company’s financial and transactional history. As mandated by the IBC, the RP conducted a forensic examination to identify transactions that could fall under the category of PUFE—Preferential, Undervalued, Fraudulent, or Extortionate Credit Transactions—which are actionable under Sections 43, 45, 50, and 66 of the IBC.

The RP initiated legal proceedings by filing several Interlocutory Applications (IAs) before the NCLT to reverse transactions that were found to be detrimental to the interests of creditors. These are as follows:

a) IA/2115/2022: Fraudulent assignment of “Smaaash” brand

One of the most critical findings involved the fraudulent assignment of the “Smaaash” brand by the suspended directors of the corporate debtor to a related party, Fun Gateway Arena Pvt. Ltd. (FGAPL). The assignment was executed through a deed dated 19 April 2022, a few weeks before the insolvency petition was admitted on 6 May 2022.

The NCLT, after examining the circumstances, held that the transaction was fraudulent, maliciously intended, and ordered cancellation of the Assignment Deed. The order passed on 22 November 2023 restored ownership of the brand back to Smaaash, thereby protecting a core business asset from being wrongfully alienated.

b) IA/4888/2023: Diversion of INR 8.42 crores to related parties

Another serious irregularity involved the diversion of INR 8.42 crore by the suspended directors to related entities, including FGAPL, without legitimate business justification. The movement of these funds during a period of financial distress was flagged as an attempt to strip the company of liquidity and deny creditors their rightful dues.

The RP filed IA/4888/2023 under Section 66, contending that the transaction constituted fraudulent trading, aimed at siphoning off assets with the intent to defraud creditors. After hearing the matter, the NCLT ruled in favor of the RP and, on 20 February 2025, ordered reversal of the transaction, treating it as a clear case of fraudulent conduct by promoters.

c) IA/1019/2023: Alleged Preferential Transaction with Tata Capital

The third application, IA/1019/2023, pertained to a transaction with Tata Capital, which the RP suspected to be a preferential transaction under Section 43 of the IBC. Preferential transactions typically involve repayment or settlement of dues to one creditor over others just before insolvency, violating the principle of equitable treatment.

However, after hearing the matter, the NCLT found that the transaction was in the ordinary course of business, was backed by valid security, and fell under the exemptions under Section 43(2) of the IBC.

Hence, the application was dismissed on 24 October 2024.

VII. Ineligibility of suspended directors in the Smaaash CIRP

One of the key legal issues considered by the NCLT in the resolution of Smaaash was the eligibility of its suspended directors to submit a resolution plan. Though Smaaash was recognized as a Micro, Small or Medium Enterprise (MSME) under the MSMED Act, 2006 – which provides certain relaxations under the IBC – the Tribunal found the suspended directors to be ineligible under Section 29A(g) of the IBC, owing to their involvement in fraudulent transactions.

Despite this exemption, the suspended promoters/directors of Smaaash were explicitly disqualified under Section 29A(g) of the IBC. This clause disqualifies individuals or entities that have been found to have executed a fraudulent transaction as determined by an adjudicating authority under the Code.

In the present case:

a) The RP filed applications under Section 66, alleging that the suspended directors were involved in fraudulent transactions, including:

i. The wrongful assignment of the “Smaaash” brand to a related party (Fun Gateway Arena Pvt. Ltd.)

ii. Diversion of INR 8.42 crore to related entities

b) The NCLT, after due hearing, allowed the RP’s applications, IA/2115/2022 and IA/4888/2023, and found that the transactions in question were fraudulent and detrimental to the interests of creditors.

c) These findings triggered Section 29A(g), thus rendering the promoters ineligible to submit a resolution plan, despite the MSME exemption.

Hence, the NCLT dismissed the INR 200 crore proposal submitted by the suspended directors. It underscores that fraudulent conduct by promoters will not be rewarded with the opportunity to regain control of the company, regardless of MSME status.

The resolution of Smaaash through Nazara’s acquisition demonstrates the strength and adaptability of India’s insolvency framework. It validates the role of a transparent CIRP, vigilant RP, and a commercially driven CoC. Moreover, it underscores that fraudulent conduct during insolvency is met with stringent legal consequences and disqualification.

This case also illustrates how viable businesses can be revived through strategic acquisition, providing a clear blueprint for companies and investors seeking to leverage opportunities in the distressed assets space under the IBC.

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