Contractor Who Stayed Silent During CIRP and Liquidation Cannot Reclaim Auctioned Machinery: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has recently held that a contractor cannot seek compensation or get back machinery auctioned during liquidation if it remained silent throughout the corporate insolvency resolution process and liquidation.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar dismissed an application filed by Ahluwalia Contracts (India) Ltd., which had sought restitution and compensation for construction machinery auctioned during the liquidation of Guruashish Construction Pvt. Ltd.

The tribunal held that the contractor never informed the liquidator about the alleged machinery before the auction and therefore could not claim any relief after the sale.

“The Applicant prior to auction of the said assets never informed the Liquidator about its machinery or equipment lying at the MHADA site where it was rendering construction services to the Corporate Debtor prior to termination of JDA. Accordingly, we do not find any merit in the prayer for seeking restitution of the money from the liquidator or recovery of the machinery already auctioned.”, it said. 

The case arose from a Slum Rehabilitation Authority project for which the Guruashish had issued five work orders to Ahluwalia Contracts. The contractor had deployed its machinery at the project site to carry out construction work.

After the joint development agreement was terminated by MHADA, the developer was admitted into insolvency on July 24, 2017, and later into liquidation on September 4, 2020.

MHADA, which was in possession of the land, granted Ahluwalia Contracts access to part of the site to remove its machinery. The contractor removed equipment from one sector and also sent MHADA a letter enclosing a list of machinery.

However, after this removal, it did not inform either MHADA or the liquidator whether any machinery was still lying at the site.

The contractor later claimed that when its representatives sought further access, they discovered that the remaining machinery had already been auctioned. It argued that the liquidator had no authority to auction equipment that did not belong to the corporate debtor and was therefore liable to make restitution.

MHADA, on the other hand, told the tribunal that it had handed over all the equipment found at the site to the liquidator, who auctioned it. The liquidator explained that the machinery was treated as part of the assets of the project entity since the corporate debtor had receivables connected with the project. It further submitted that auction was carried out as part of the liquidation process.

The NCLT relied on the appellate ruling in Reliance Realty Ltd. v. Anup Kumar (Liquidator), where it was held that liquidation proceedings should not be disrupted by an someone who without any cogent reason, never raised the issue of ownership of assets during the process.

The tribunal further held that no relief could be granted under Section 60(6) of the Insolvency and Bankruptcy Code, as the contractor's claim did not arise from the CIRP and it was never prevented by the resolution professional or the liquidator from removing its machinery.