National Company Law Appellate Tribunal sets asides liquidation order

National Company Law Appellate Tribunal sets asides liquidation order

The Appellate asks National Company Law Tribunal to calibrate and do the proper evaluation of a real estate project

The National Company Law Appellate Tribunal (NCLAT) set aside the liquidation order passed by the National Company Law Tribunal (NCLT) at New Delhi Bench, which rejected the Resolution Plan and ordered the liquidation of the Corporate Debtor.

The Principal Bench of the National Company Law Appellate Tribunal at New Delhi, comprising of Justice Jarat Kumar Jain and Dr Ashok Kumar Mishra, dealt with this matter titled Lotus City Plot Buyers Welfare Association v Three C Homes Pvt Ltd And Ors.

The factual background of this case is that the National Company Law Tribunal rejected the Resolution Plan and directed the Resolution Professional (RP) to file an appropriate application for seeking liquidation order of the Corporate Debtor – M/s Three C Homes Pvt Ltd. The National Company Law Tribunal while passing the order had concluded that the Resolution Plan did not have any potential to fulfil the dreams of homebuyers, which is at just 19.77 per cent of the liquidation value of Corporate Debtor. The Appellant – Lotus City Plot Buyers Welfare Association submitted that the National Company Law Tribunal did not consider the impact of certain calculations while considering ₹95 crore released by Resolution Applicant. The Appellant contended that the decision of the Committee of Creditors (CoC) in respect of commercial issues, could not be challenged by the National Company Law Tribunal.

Various Respondents withdrew their objections raised in these appeals but a limited number of Respondents stated that there was infirmity in the National Company Law Tribunal order. The Respondents submitted that the Resolution Professional did not comply with the provisions of the Insolvency and Bankruptcy Code (2016) and the related Regulations like non-submission of 'compliance certificate' and violation of Section 25(2)(i) of the Insolvency and Bankruptcy Code. They further contended that there has been certain infirmity in not providing priority to 'Operational Creditor' over 'Financial Creditor' as required under the Regulations 38 of IBBI (Insolvency Resolution Process for Corporate Person) Regulation, 2016.

The bench after going through the submissions made by the Appellants and the Respondents observed the following difference:

"There is a difference of CoC where they are 'Banks' and 'Institutional lenders' as members, while the CoC in the Homebuyers are not so expert in finance and related valuations. Hence, CoC in case of the commercial organisations will have a different perspective and expertise while in case of Real Estate projects where the CoC are totally comprising of homebuyers may not have the same expertise and perspective."

The bench concluded that while the Resolution Plan would generally provide a higher value than the liquidation value but in the case of the Real Estate Project, it may not be always feasible and homebuyers are in dire need of getting their homes at the earliest.

It was observed by the bench that certain reconciliations are required and the Corporate Insolvency Resolution Process (CIRP) Regulations (4th Amendment), 2020, made a notification on 7 August 2020, which needs to be looked into with regards to their fifth CoC meeting. It further made remarks on the issue with farmers by stating there is a need for impleading Yamuna Expressway Industrial Development Authority (YEIDA) to ascertain the status of the dispute with farmers and its consequential impact, if any, on these projects.

The bench set aside the liquidation order of the National Company Law Tribunal and remanded the matter back to the Tribunal while observing that liquidation is the last resort and this programme of homebuyers needs some calibration and proper evaluation.