NCLT Suspects PUFE Proceedings Avoided To Protect Atharva Auto Logistics Suspended Director, Orders Liquidation

The National Company Law Tribunal (NCLT), Mumbai Bench, has rejected the resolution plan submitted by a suspended director of Atharva Auto Logistics Private Limited and ordered the company's liquidation.

The tribunal observed that the Resolution Professional appeared to have deliberately avoided acting on potentially avoidable transactions, which could have led to the resolution applicant's disqualification under the Insolvency and Bankruptcy Code (IBC). The tribunal also directed the Registry to send a copy of the order to the Insolvency and Bankruptcy Board of India (IBBI) for any appropriate action against the RP

A bench of Judicial Member Lakshmi Gurung and Technical Member Charanjeet Singh Gulati questioned the RP's failure to examine the transactions and initiate proceedings under the IBC.

It remarked, “If the RP had diligently discharged his duties and succeeded in PUFE applications then the resolution applicant being suspended director of the CD would have been ineligible under section 29A. To our mind it appears that no PUFE application is filed merely to avoid disqualification of the present Resolution Applicant under Section 29A(g) of the Code.”

The insolvency process of Atharva Auto Logistics commenced in February 2022. The resolution plan was submitted by Suyog Satish Pachange, one of the company's suspended directors. It was approved by the Committee of Creditors with 66.12% voting share, while Intec Capital Limited, holding 33.88%, did not vote in its favour.

During the proceedings, the tribunal examined advances made to two employees, Dhiraj Kolhe and Dilip Theurkar. A transaction audit report showed that the advances to them stood at approximately ₹2.46 crore and ₹2 crore, respectively, as of December 2022.

It noted that the receivable from Theurkar had been reduced by ₹52.38 lakh through journal entries, most of which were passed after commencement of CIRP. The explanation was that the adjustments related to an invoice dated December 5, 2022, for approximately ₹2.01 crore.

The tribunal questioned the RP's conduct, observing:

“On one side RP had filed application under section 19(2) of the Code against the suspended directors while on the other hand he is himself passing adjustment entries for the period prior to CIRP which conduct of RP is highly questionable.”

The tribunal also questioned adjustments of approximately ₹2.62 crore towards rent and vehicle expenses attributed to Kolhe. The supporting documents included an unregistered leave-and-license agreement and unregistered memoranda of understanding. It noted that the RP had expressed ignorance about the company's office during the hearing.

The registered valuers had assigned a nil value to advances aggregating approximately ₹4.16 crore. The RP was unable to provide cogent reasons for the transactions and informed the tribunal that no action had been taken in respect of PUFE transactions.

The tribunal further noted that Kolhe and Theurkar were employees of the company, with the Information Memorandum recording their designations as Finance Head and Senior Supervisor, respectively. It observed that advances exceeding ₹2 crore each to the company's own employees, supported by unregistered agreements and an unbooked invoice, warranted closer scrutiny.

Apart from these concerns, the tribunal found that the plan did not comply with requirements relating to payment timelines, performance security, financial feasibility, and statutory payment priorities for operational creditors and dissenting financial creditors.

It accordingly rejected the resolution plan and ordered liquidation of the company. Vinit Gangwal was appointed as the liquidator. The Registry was also directed to send a copy of the order to the Insolvency and Bankruptcy Board of India for appropriate action against the RP.