NCLAT Sets Aside Sale Of NTCPL Assets To Related Party For Non-Compliance With Liquidation Process Regulations

NCLAT Sets Aside Sale Of NTCPL Assets To Related Party For Non-Compliance With Liquidation Process Regulations

Introduction

The National Company Law Appellate Tribunal (NCLAT) has set aside the order of the National Company Law Tribunal (NCLT) approving the sale of assets of Neelkanth Township & Construction Pvt Ltd (NTCPL) to Leisure Enterprises LLP, a related party. The NCLAT held that the sale was not in conformity with the statutory provisions, particularly Regulation 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

Factual Background

NTCPL was admitted to Corporate Insolvency Resolution Process (CIRP) in 2017 and subsequently directed to be liquidated in 2018. The liquidator initiated the process of selling the assets of NTCPL, including a parcel of land in Alibaug, Maharashtra. Leisure Enterprises LLP, a related party, submitted a bid for the assets, which was approved by the NCLT.

Procedural Background

The appellant, a shareholder of NTCPL, challenged the approval of the sale before the NCLAT, contending that the sale was not conducted in accordance with the Liquidation Process Regulations. The NCLAT heard the appeal and set aside the order of the NCLT.

Issues Involved

1. Compliance with Regulation 33: Whether the sale of assets to Leisure Enterprises LLP was in conformity with Regulation 33 of the Liquidation Process Regulations.

2. Prior Permission: Whether the liquidator obtained prior permission from the NCLT before approaching buyers for a private sale.

3. Private Sale: Whether the private sale was conducted in a transparent and unbiased manner.

Contentions of the Parties

Appellant's Contentions: The appellant argued that the sale was not conducted in accordance with the Liquidation Process Regulations, and the liquidator failed to explore other potential buyers. The appellant also contended that the sale price was undervalued.

Respondent's Contentions: The respondent argued that the sale was conducted in accordance with the Liquidation Process Regulations, and the liquidator had followed the due process.

Reasoning and Analysis

The bench of Mr. Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member) held that the sale was not in conformity with the statutory provisions, particularly Regulation 33. The NCLAT observed that the liquidator deviated from the normal auction route without any legitimate justification and failed to obtain prior permission from the NCLT. The NCLAT also held that the private sale was not conducted in a transparent and unbiased manner.

Final Decision

The NCLAT set aside the order of the NCLT approving the sale of assets to Leisure Enterprises LLP. The NCLAT directed the NCLT to appoint a new liquidator and conduct a fresh sale process in accordance with the Liquidation Process Regulations.

Implications

This decision showcases the importance of complying with the Liquidation Process Regulations and ensuring transparency and fairness in the sale process. It also underscores the need for liquidators to obtain prior permission from the NCLT before conducting a private sale.

In this case the appellant was represented by Mr. Krishnendu Dutta, Mr. Abhijeet Sinha, Mr. Kunal Tandon, Sr. Advocates with Mr. Vishesh Kalra, Ms. Smriti Churiwal, Ms. Anoushka Deo, Advocates, and Mr. Vaibhav Gaggar Sr. Advocate along with Mr. Aviral Kapoor and Mr. Vishesh Kalra, Advocates.