EPC Construction Resolution: NCLAT allows distribution of Rs 223 crores from available cash balance among creditors and lenders

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice Ashok Bhushan (Chairperson) and Dr. Alok Srivastava (Technical Member) allowed distribution of INR 223 crore from the cash balance available with EPC Construction among its creditors and lenders.

The instant appeal was filed by IDBI Bank in its capacity as a financial creditor and lead lender of EPC Construction India-Corporate debtor as well as a representative of all other lenders of the Corporate Debtor against the order of the NCLT whereby the application urging to direct the Respondent-Liquidator to permit the Financial Creditors of the Corporate Debtor to distribute an amount of INR 223 crore from the cash balance available with the Corporate Debtor in the proportion of their respective voting share in the erstwhile CoC had been dismissed.

The appellant submitted that the said application had been wrongly rejected by the Adjudicating Authority (NCLT) on the ground distribution of the cash would derogate the value of the Company, which observations were not in accordance with law.

Initially, an application was filed by the appellant-creditor before the Adjudicating Authority seeking a direction against the Respondent-Liquidator to distribute the available cash balance of the Corporate Debtor, amongst the stakeholders of the Corporate Debtor in favour of whom the same were charged, including the appellants herein, as per the waterfall mechanism set out in Section 53 of the Insolvency and Bankruptcy Code, 2016, and amongst the workmen of the Corporate Debtor as required under Section 53 (1) (b) (i) of the Code after accounting for the costs/reserving the estimated costs under Section 53(1) (a) towards Insolvency Resolution Process costs and the liquidation costs.

Noticeably, the liquidator did not raise any objection to distribution of surplus cash balance of the Corporate Debtor up to an extent of INR 220 Crores amongst the stakeholders in accordance with the order of priority and in the manner specified under Section 53 of the IBC, however, a condition was made to the extent that if there is any shortfall in meeting the requirements involved in the liquidation process, then the said amount shall be replenished by the financial creditors within a period of fifteen (15) days, from the date of demand. The said condition had been agreed by the appellants. The rationale behind the liquidator’s claim was following:

  1. “As per records, Corporate Debtor has a balance of approximately INR 300 (three hundred) crores in its bank accounts–which includes funds received from invocation of performance bank guarantee of INR 42 (forty-two) crores. In addition, there is additional margin money of approx. INR 13 (thirteen) crores also available. The Corporate Debtor further also generates approximately INR 6-7 crores in cash every month.
  2. Most of the business of the Corporate Debtor is non-functional. Only the equipment leasing division of the Corporate Debtor is operational. All the other division of the Corporate Debtor are being utilized for recovery of dues. The Corporate Debtor at present has a total 109 employees along with 14 employees serving notice period and superannuation. The Respondent estimates that, the process of liquidation, in all likelihood, subject to other external factors should be completed within a year. Therefore, as per the estimate of the liquidator, the cost of the liquidation process may not exceed INR 80 crores approximately – which has been computed by factoring in the receipts during liquidation period minus expenses incurred during the said period and CIRP costs.”

The liquidator contended that even after distribution of INR 223 crores, as sought in the appeal, the Corporate Debtor would have sufficient liquidity of approximately INR 80 (eighty) crores to enable him to run the liquidation process smoothly in accordance with law.

In the light of above submissions, the NCLAT reversed the decision of the Adjudicating Authority and directed for distribution of INR 223 crores as submitted by the Liquidator subject to undertaking by the members of the CoC to return the amount in the event they are paid any amount in excess to their entitlement as per waterfall mechanism under Section 53 of the Code. The impugned order was set aside.[IDBI Bank Ltd. v. Liquidator, EPC Constructions (India) Ltd., 2022 SCC OnLine NCLAT 43, decided on 27-01-2022]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance by:

For Appellant: Tushar Mehta, Sr. Advocate with Akshay Sapre, Advocate

For Respondent: Pulkit Sharma, Swarnendu Chatterjee and Shriraj H. Khambete, Advocates

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