NCLT Hyderabad Directs Reconsideration Of Sarda Agro Scheme After HC Removes Wilful Defaulter Tag

The Hyderabad Bench of the National Company Law Tribunal (NCLT) on 22 May allowed an application filed by Ashok Kumar Sarda, promoter and former director of Sarda Agro Oils Limited, and Vijay Sarda, a shareholder, and directed the liquidator to reconsider their compromise scheme.

Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri held that the scheme required reconsideration after the Telangana High Court set aside the wilful defaulter classification that had led to their ineligibility under the Insolvency and Bankruptcy Code (IBC). The Bench held:

“However, the Hon'ble High Court of Telangana, vide judgment dated 02.09.2024, passed in W.P. No.30334 of 2023, has set aside the declaration of the aforesaid ex-Directors as wilful defaulters. Consequently, the basis on which the Applicants were treated as ineligible under Section 29A of the Code no longer survives. Accordingly, we are of the considered view that the pending Scheme of Compromise and Arrangement submitted by the Applicants deserves to be reconsidered strictly in accordance with the law.”

The applicants challenged the rejection of their compromise proposal submitted under Section 230 of the Companies Act, 2013 during the liquidation process of Sarda Agro Oils Limited. The company entered Corporate Insolvency Resolution Process (CIRP) in August 2019 pursuant to a petition by Allahabad Bank and was ordered into liquidation in January 2023.

Initially, the applicants proposed a settlement of Rs 29 crore, which they later revised to Rs 34.71 crore and further increased to Rs 43 crore after discussions with stakeholders and lenders. They also deposited Rs 4.3 crore as earnest money to show bona fides.

The liquidator rejected the scheme on 26 October 2023, holding that the applicants were ineligible under Section 29A of the Insolvency and Bankruptcy Code read with Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016.

He based the rejection on the wilful defaulter classification of former directors Jagdish Prasad Sarda and Manohar Lal Sarda by Indian Bank. Since Ashok Kumar Sarda is the brother of the former directors and Vijay Sarda is the son of Jagdish Prasad Sarda, the liquidator treated them as connected persons and declared them ineligible.

The applicants argued that the Telangana High Court, by judgment dated 2 September 2024, set aside the wilful defaulter classification, and therefore the basis for ineligibility no longer survived. They contended that the rejection could not stand in law and sought reconsideration of their scheme.

The liquidator opposed the plea, arguing that authorities must assess eligibility on the date of submission of the scheme. He also submitted that statutory timelines for considering a compromise or arrangement had expired and that another shareholder proposal remained under consideration in the liquidation process.

The Tribunal noted that the rejection rested solely on the wilful defaulter status of the former directors. Since the Telangana High Court had set aside that classification, the foundation for the rejection no longer survived.

Accordingly, the NCLT directed the liquidator to reconsider the scheme in accordance with law while allowing the liquidation process to continue.

For the Applicants: Mr. V. Raghunath, Advocate.

For Respondent No. 2 (Liquidator): Ms. Vazra Laxmi and Mr. G. Madhusudhan Rao, Advocates.