NCLT Is Empowered To Pierce The Corporate Veil To Ascertain The Real Successful Bidder: NCLT Delhi

The National Company Law Tribunal (NCLT), New Delhi Bench, comprising of Dharminder Singh (Judicial Member) and Sumita Purkayastha (Technical Member), while adjudicating applications filed in the matter of Argentium International Pvt. Ltd. v Utm Engineering Pvt. Ltd, has held that the NCLT has the power to pierce the 'corporate veil' in order to ascertain the real successful bidder. The separate personality of the company is statutory privilege, but it must be used for the legitimate purpose only, whenever fraudulent or dishonest use is made of the legal entity, the individual will not be allowed to hide behind the curtain of the corporate personality. The order was passed while adjudicating applications bearing I.A. No. 3172/ND/2021 and I.A. No. 3113/ND/2021 together. Background Facts Argentium International Pvt. Ltd. ("Operational Creditor") had filed a petition under Section 9 of the Insolvency and Bankruptcy Act, 2016 ("IBC") before NCLT, New Delhi ("Adjudicating Authority") seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against UTM Engineering Pvt. Ltd. ("Corporate Debtor"). The CIRP was initiated by the Adjudicating Authority vide order dated 17.10.2019 and later liquidation process was initiated on 15.10.2020 and Mr. Kanti Mohan Rustagi was appointed as the liquidator. The Liquidator, upon instructions of the NCLT, had prepared the details of the Corporate Debtor for its sale as a going concern and had submitted it to the other Joint Venture Partner of the Corporate Debtor i.e. M/s Tantia Construction Limited ("JV Partner"/"TCL"/"TCL-UTM"). TCL was overtaken by EDCL Infrastructure Limited ("EDCL"), which was the successful resolution applicant in the CIRP of TCL. Also, a Stakeholder's Consultation Committee ("SCC") was formed by the Liquidator. The Adjudicating Authority had directed TCL on 11.01.2021 to send communication to the Liquidator with respect to their proposal for buying the Corporate Debtor as a going concern. Further directions were also issued that appropriate communication and information be supplied to the TCL to take ahead the takeover. On 22.01.2021, an 'Invitation to Expression of Interest' was published in newspaper for the auction of the Corporate Debtor. The Liquidator informed the SCC that no bids have been received and also requested TCL and suspended Director of the Corporate Debtor, Mr. Gyandeep Kantipudi (who had shown interest in acquiring the Corporate Debtor as a Going Concern), to submit the proposal for acquisition of the Corporate Debtor at the earliest. On 15.03.2021, M/s Red Brick Consulting Pvt. Ltd. had submitted a proposal for acquisition of the Corporate Debtor, the proposal was discussed by the Liquidator before SCC and members were requested to submit their views. Thereafter, on 22.04.2021 the Liquidator had received a mail TCL wherein the details with respect to the submission of Earnest Money Deposit by EDCL was mentioned along with the transaction details. Subsequently, arrangements were made for the E-auction and the auction property was live on the portal of E-Auction agency. However, due to outbreak of COVID-19 pandemic and resultant lockdowns, the E-Auction could only take place until 19.06.2021. Now EDCL and Red Brick were two participants in the E-Auction. However, in the E-auction dated 19.06.2021, only one bid of Rs. 2.05 Crores was put in by Red Brick against the reserve price of Rs 2.04 Crores. The detailed report in respect of the bidding was provided by the E-auction portal on conclusion of the e-auction at 2.00 pm. As no counter bid was placed, Red Brick Consulting Pvt. Ltd. was announced as the Successful Bidder. Accordingly, a Letter of Intent (LOI) dated 19.06.2021 was issued to the Successful Bidder. On 07.07.2021 the Liquidator convened the 7th SCC meeting and informed the stakeholders about the successful conclusion of the E-auction process for the sale of the Corporate Debtor as a going concern and issuance of the Letter of Intent to the Successful Bidder. Application Bearing IA No. 3172/ND/2021 The application was filed by Red Brick Consulting Pvt. Ltd. ("Successful Bidder/Red Brick") through the Liquidator, seeking reliefs in order to effectively take control over the Corporate Debtor and to continue the ongoing railway project at Dausa, Rajasthan. Few of the reliefs sought were that the records, files and correspondences of the Corporate Debtor be handed over to Red Brick; the Signatories of the existing bank accounts of Corporate Debtor be replaced with Red Brick; a direction for smooth handover of the Dausa Site alongwith accounts, materials, equipment; a direction to TCL (the JV Partner) to pass a resolution stating that they have no objection towards the appointment of a new Authorized Representative of their choice for the TCL-UTM JV and that Corporate Debtor shall continue to run the operations of the ...

NCLT Is Empowered To Pierce The Corporate Veil To Ascertain The Real Successful Bidder: NCLT Delhi

Pallavi Mishra

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