Liquidator Assigns ‘Not Readily Realizable Assets’ Of Rs. 26 Crores For Rs. 50,000 During Pendency Of Avoidance Applications: NCLT Delhi Invalidates Assignment
The National Company Law Tribunal (“NCLT”), New Delhi Bench, comprising of Shri Ashok Kumar Bhardwaj (Judicial Member) and Shri L.N. Gupta (Technical Member), while adjudicating a petition filed in Ritu Tandon v M/s Rain Automotive India Private Limited, has held that a Resolution Professional or Liquidator cannot assign a debt or Not Readily Realizable Assets (“NRRA”),...
The National Company Law Tribunal (“NCLT”), New Delhi Bench, comprising of Shri Ashok Kumar Bhardwaj (Judicial Member) and Shri L.N. Gupta (Technical Member), while adjudicating a petition filed in Ritu Tandon v M/s Rain Automotive India Private Limited, has held that a Resolution Professional or Liquidator cannot assign a debt or Not Readily Realizable Assets (“NRRA”), when the avoidance applications under Sections 43,45, 50 and 66 of IBC are pending adjudication before the NCLT. The NRRAs can only be assigned once the Debt/Demand is determined or crystallized through NCLT’s adjudication.
“In the absence of conclusion/ adjudication of Avoidance/PUFE proceedings by the Adjudicating Authority, there will be room for arbitrariness and the Liquidator may end up assigning the NRRAs for an arbitrary or a meagre amount, as has happened in the instant case, where the Liquidator has assigned the debt/ “Not readily realisable assets” (NRRAs) of Corporate Debtor worth Rs. 26,38,37,645/- for a meagre consideration of Rs. 50,000/- only..”
Background Facts
M/s Rain Automotive India Private Limited (“Corporate Debtor”) was admitted into the Corporate Insolvency Resolution Process (CIRP) by the NCLT. On 02.01.2020, the Corporate Debtor was sent into liquidation and a Liquidator was appointed.
The Liquidator filed three applications under Sections 45, 50 and 66 of IBC (IA-4978/2021, IA- 4981/2021 and IA-4995/2021), seeking avoidance of certain Preferential Undervalued Fraudulent and Extortionate (“PUFE”) transactions of the Corporate Debtor on the basis of a Transaction Audit Report. These applications are pending adjudication before the NCLT. The amount to be realized through these avoidance applications amounted to Rs. 26,38,37,645/- in total.
Subsequently, the Liquidator assigned the debt i.e. “Not Readily Realizable Assets” (“NRRA”) of the Corporate Debtor arising out of the avoidance applications, to Inquest Fintech Pvt. Ltd. (“Applicant/Assignee”) for a consideration amount of Rs. 50,000/-. Accordingly, a Deed of Assignment dated 19.11.2021 executed between the Liquidator and the Assignee.
The Assignee filed an application before the NCLT seeking its substitution in place of the Liquidator in the said three avoidance/PUFE applications.
NCLT Verdict
The Bench observed that any Assets or their value recovered through proceedings for avoidance of transactions are permitted to be included in the liquidation estate. The proceeds/contributions receivable by the Corporate Debtor as an outcome of the avoidance/PUFE proceedings can only be recovered once such proceedings are concluded and the entitlement of the Corporate Debtor qua the same is crystallized.
As per Regulation 37A of the Liquidation Regulations, a Liquidator is entitled to sell assets underlying PUFE Applications i.e., NRRAs which are essentially contingent assets. There is always a possibility of dismissal or allowing of avoidance/PUFE Applications, which could lead to the realisation of ‘NIL’ or “Full value” or “a value in between”.
The Bench held that the Liquidator assigned the NRRAs arbitrarily at a meagre amount to the Assignee. It was thus concluded that in absence of any adjudication of the avoidance/PUFE application by the NCLT, there will be room for arbitrariness and the Liquidator may end up assigning the NRRAs for an arbitrary or a meagre amount.
“However, if the proceeding(s) covered under the ambit of “Not readily realisable assets” is allowed, then the value underlying such proceeding(s) is determined by this Adjudicating Authority and is known to the Liquidator which, in other words, is a crystallised demand. In the absence of conclusion/ adjudication of Avoidance/PUFE proceedings by the Adjudicating Authority, there will be room for arbitrariness and the Liquidator may end up assigning the NRRAs for an arbitrary or a meagre amount, as has happened in the instant case, where the Liquidator has assigned the debt/ “Not readily realisable assets” (NRRAs) of Corporate Debtor worth Rs. 26,38,37,645/- for a meagre consideration of Rs. 50,000/- only, through Deed of Assignment dated 19th November 2021 executed between the Liquidator and the Applicant herein.”
It was noted that a debt can only be assigned once the avoidance/PUFE proceedings are concluded and the debt has crystallized.
“In other words, the cause to pursue avoidance applications cannot be transferred or assigned by the Liquidator. Only the assets crystallised in terms of the order passed in avoidance/PUFE applications can be assigned or transferred to a third party.”
The Bench declined to substitute the Assignee in place of Liquidator and dismissed the application.
Case Title: Ritu Tandon v M/s Rain Automotive India Private Limited
Case No.: Company Petition No. (IB)-1095(ND)/2019
Counsel For Applicant: Adv. Abhay Kaushik
Counsel For Respondent: Advs. Jitesh P. Gupta, Harsh Kumar, Amrita for Respondent No. 3, Adv. Chitranshul A. Sinha, Adv. Jaskaran S. Bhatia in IA. No. 4978/2021 for R-4, Adv. Rajat Chaudhary, Adv. Gautam Singhal, Adv. Deepali Thakran for Ex-Directors