Liquidator Cannot Outsource Core Duties: NCLT Hyderabad Directs Deloitte To Refund ₹7.48 Crore In Lanco Case

The National Company Law Tribunal (NCLT), Hyderabad, has held that while liquidation rules allow a liquidator to appoint professionals to assist in the process, that power cannot be used to outsource the liquidator's own statutory duties or claim payments beyond the prescribed fee structure.

Applying this principle, the tribunal directed Deloitte Touche Tohmatsu India LLP to refund ₹7.48 crore to Lanco Infratech's liquidation estate.

Under the liquidation framework, Regulation 7 permits a liquidator to appoint professionals to assist in discharging duties, while Regulation 4 prescribes how the liquidator's own fee is to be calculated. The tribunal said the two cannot be conflated.

“The engagement of professionals under Regulation 7 is only to provide supplementary or specialised assistance, and cannot be utilised to delegate or duplicate the Liquidator's statutory duties. In the present case, the material on record establishes that the work performed by DTTILLP overlapped with the functions of the Liquidator, and the payments made to it were over and above the permissible remuneration under Regulation 4”, the tribunal held.

A coram of Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri held that former liquidator Savan Godiawala acted contrary to the insolvency framework by paying Deloitte, a firm in which he was a partner, for work that substantially overlapped with his own functions.

The tribunal allowed an application filed by IDBI Bank against Godiawala and Deloitte. It directed that ₹7,48,73,065 paid to Deloitte during Lanco Infratech's liquidation be restored to the liquidation estate.

Lanco entered insolvency resolution in August 2017. The company was sent into liquidation in August 2018 after no resolution plan was approved. Godiawala was appointed as liquidator.

Soon after, he appointed Deloitte as a professional support entity for the liquidation process. The arrangement provided for a monthly retainer of ₹50 lakh, apart from taxes and expenses. Godiawala was a partner in the firm.

IDBI argued that lenders had objected to the arrangement early in the liquidation process. It said the payments reduced the amount available to creditors.

Godiawala opposed the plea. He argued that Lanco's liquidation was exceptionally large and complex. It involved admitted financial creditor claims exceeding ₹54,000 crore, geographically dispersed assets, subsidiaries, infrastructure projects and multiple litigation proceedings. He argued that professional support was necessary.

Deloitte also opposed the application. It said it had rendered substantial services and that the arrangement had been disclosed to stakeholders.

The tribunal, however, found that much of the work assigned to Deloitte was work the liquidator himself was expected to perform. This included claim verification, auction strategy, stakeholder coordination and preparation of reports.

“Fee arrangement adopted by Respondent No.1 in engaging Respondent No.2 (DTTILLP) was contrary to the scheme of the Code and the Liquidation Regulations.”

The bench noted that when liquidation was being considered, the Committee of Creditors had specifically insisted that the statutory fee structure be followed. It found no basis for allowing separate payments to Deloitte for overlapping work.

The tribunal also referred to disciplinary proceedings initiated by the Insolvency and Bankruptcy Board of India against Godiawala over the same arrangement. It noted that the Delhi High Court had upheld disciplinary findings against him.

Holding that the payments improperly depleted the liquidation estate and reduced creditor recoveries, the tribunal directed the refund of the ₹7.48 crore.