NCLT Delhi Rejects APS Infra Resolution Plan, Says Resolution Applicant Can't Retain PUFE Recoveries

The Delhi bench of the National Company Law Tribunal (NCLT) has held that a resolution plan allowing the Successful Resolution Applicant (SRA) to retain recoveries from avoidance (PUFE) transactions is contrary to the CIRP Regulations.

Rejecting the resolution plan submitted by SPG Infra Projects Pvt. Ltd. for APS Infra Engineers Pvt. Ltd., the bench ordered the company's liquidation.

"When we talk of distribution, the understanding would be that the same should be distributed amongst the creditors. Could the intention of Regulation be that the proceeds could be retained by the SRA, there could be such provision in the Regulation or the Regulation could say that the Plan will provide that how the proceed would be dealt with," the court observed while interpreting Regulation 38(2)(d) of the CIRP Regulations.

"Though it may not be so, but in some remotest possibility, the proceed may be utilised in the interest of the CD subject to conscious approval by all the creditors, nevertheless the same cannot be retained by RA", it added.

A bench of Judicial Member Ashok Kumar Bhardwaj and Technical Member Atul Chaturvedi also questioned the transparency of the insolvency process.

"The entire process is conducted in suspicious and nebulous manner. The same is approved by CoC which did not include such creditors, in whose favour distribution is provided in the plan," it observed.

The corporate insolvency resolution process (CIRP) began on August 9, 2024. Four resolution applicants submitted plans, and after multiple rounds of bidding, SPG Infra Projects emerged as the successful bidder. Its revised resolution plan, valued at ₹3.6 crore, received unanimous approval from the Committee of Creditors (CoC).

A transaction audit later identified transactions that could be avoided under Sections 43, 45, 50 and 66 of the Insolvency and Bankruptcy Code, prompting the Resolution Professional to file multiple PUFE applications.

The court found that Clause 5.7 of the resolution plan allowed the SRA to retain any recoveries arising from those proceedings, which it held was inconsistent with Regulation 38(2)(d).

The bench noted that the transaction auditor had identified avoidance transactions worth about ₹13 crore, while the resolution plan itself was worth only ₹3.6 crore. Allowing the SRA to retain those recoveries, it said, could leave it richer by more than ₹9 crore and encourage misuse of the insolvency process.

The court also flagged the inclusion of payments to Axis Bank and Kotak Mahindra Bank in the resolution plan even though Axis Bank's claim had been rejected as time-barred and Kotak Mahindra Bank had not submitted a claim.

Calling the situation "quite weird", it said there was no transparency in the invitation of claims from those financial creditors.

The court consequently rejected the resolution plan, ordered the liquidation of APS Infra Engineers Pvt. Ltd., and appointed Yuvraj Tiwari as the liquidator.