Compromise Doubtful, Only To Benefit Related Parties, NCLAT Delhi Upholds Liquidation Of CD

Background Facts

Ratandeep Infrastructure Private Limited ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP") by the Adjudicating Authority vide an order dated 16.04.2019. Subsequently, an order for liquidation of Corporate Debtor was passed by the Adjudicating Authority on 31.01.2022 and Mr. Alok Kumar Kuchchal was appointed as the Liquidator.

Mr. Rakesh Kumar Agarwal, the director of Bankey Bihari Infrahomes Pvt. Ltd. ("Appellant"), had attempted through 'AIG Infratech Pvt. Ltd.' to submit a resolution plan for the Corporate Debtor. However, the attempt was made at a time when the Committee of Creditors had already decided to liquidate the Corporate Debtor and the application for liquidation was pending before the Adjudicating Authority. In July, 2021 AIG Infratech Pvt. Ltd. had filed an application seeking an order to submit a resolution plan. The Adjudicating Authority dismissed the application while observing that "no useful purpose would be served in keeping IA 220/2021, when the COC had already resolved to liquidate the Corporate Debtor."

After commencement of liquidation on 31.01.2022, Mr. Rakesh Kumar Agarwal again requested the Liquidator vide a letter dated 03.03.2022 to submit a scheme of compromise and arrangement. The Liquidator expressed his inability to accept such a scheme in view of the ongoing liquidation process. Thereafter, Mr. Rakesh Kumar Agarwal filed IA 115/2022 through another company 'Bankey Bihari Infrahomes Pvt. Ltd.' seeking permission of the Adjudicating Authority for submission of a scheme of compromise and arrangement. The Adjudicating Authority vide an order dated 13.04.2022 disposed off the application while observing that, "The liquidator is expected to act in accordance with the Liquidation Process Regulations. The decision on the proposed scheme be taken within a period of three weeks' from today."

After expiry of the three weeks' time granted by Adjudicating Authority, the Liquidator published auction notice on 20.05.2022 for sale of Corporate Debtor's land. The Appellant submitted the Scheme of Compromise to the Liquidator on 24.05.2022. Immediately thereafter, the Appellant filed an application (I.A. No. 154/2022) before the Adjudicating Authority, requesting stay of the auction process and directions to place the proposed Scheme before the Stakeholders Consultation Committee. The Adjudicating Authority vide an order dated 01.06.2022 allowed the Liquidator to proceed with the e-auction and did not allow any more time for consideration of the Scheme.

The Bankey Bihari Infrahomes Pvt. Ltd. ("Appellant") filed an appeal before NCLAT challenging the Order dated 01.06.2022.

Contentions Of Appellant

The Appellant argued that the Liquidator had published the auction sale notice in disregard to the Adjudicating Authority's directions for considering of the scheme of compromise proposed by the Appellant. When the Appellant filed an application seeking stay of the auction process, the Adjudicating Authority refused to intervene in the process of e-auction and further directed the Liquidator to act with the view to maximize the value of the Corporate Debtor's land. The Order dated 01.06.2022 was passed by the Adjudicating Authority without considering its earlier order regarding submission of the scheme of compromise and arrangement.

Decision Of NCLAT

The Bench observed that Mr. Rakesh Kumar Agarwal, through different corporate entities, had attempted to intervene in the process of liquidation by filing the three interlocutory applications. The Appellant neither submitted the Scheme of Compromise within the stipulated time, nor did he inform the Liquidator about the delay in submitting the scheme or seek any extension of time limit from the Adjudicating Authority. The intention and seriousness of the Appellant in submitting the Scheme appears to be doubtful.

It was observed that the purported Scheme proposed to make payments to a number of related parties, unsecured creditors and those who had not submitted claims, upto an extent of 100% of admitted claimed amounts. It was further proposed to make payments within 90 days of approval of scheme. Whereas, in the event of auction-sale, the payments would be made promptly to claims in accordance with the 'waterfall mechanism' under section 53 of IBC.

The Adjudicating Authority provided sufficient opportunity to the Appellant. However, the Scheme so presented by the Appellant was found to inflate the total payments by provisioning payments to creditors who are either related to the Corporate Debtor or for such creditors who had not filed legitimate claims in the liquidation process. Therefore, the proposed payments were in effect not of greater value than the amount being offered by the successful bidder in the e-auction. "The said scheme, therefore, appears to be a 'fictional one' ostensibly to appropriate the land to the benefit of a select few who are related parties of the corporate debtor."

The Bench upheld the Adjudicating Authority's Order dated 01.06.2022 and the appeal was dismissed.

Case Title: Bankey Bihari Infrahomes Pvt. Ltd. v Mr. Alok Kumar Kuchchal & Anr.

Case No.: Company Appeal (AT) (Insolvency) No. 718 of 2022

Counsel For Appellant: Mr. Abhijeet Sinha, Mr. Aditya Shukla, Heena Kochar, Mr. Narendra Kumar, Advocates

Counsel For Respondent: Mr. Abhishek Anand, Rukbaan Tyagi, Advocates for Liquidator Mr. Alok Kumar Kuchchal, party in person Mr. P. Nagesh, Sr. Advocate with Advocate Akshay Sharma, for R-2 Advocate Srijan Mehrotra, Advocate Anshu Yadav, for Homebuyer

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