Pending Avoidance Applications No Bar To Dissolution Of Corporate Debtor: NCLT Hyderabad

The Hyderabad Bench of the National Company Law Tribunal (NCLT) on 6 May held that pendency of avoidance applications, including those relating to preferential, undervalued, fraudulent and extortionate (PUFE) transactions, cannot preclude dissolution of a corporate debtor under Section 54 of the Insolvency and Bankruptcy Code, 2016, particularly in view of Regulation 44A of the Liquidation Process Regulations.

Judicial Member Justice Rajeev Bhardwaj and Technical Member Sanjay Puri allowed an application filed by the liquidator of Urban Farmart India Private Limited seeking dissolution of the corporate debtor. The Bench observed:

“We further note that there is one Interlocutory Application pertaining to PUFE transactions pending before this Tribunal. In terms of Regulation 44A of Liquidation Regulations, the pendency of avoidance application shall not preclude the dissolution of the Corporate Applicant”

The corporate debtor had entered liquidation after the failure of the corporate insolvency resolution process (CIRP). During liquidation, the liquidator conducted six rounds of e-auctions for the sale of movable assets, including retail fixtures, refrigeration units, DG sets and other operational equipment. The first five auctions failed due to lack of bidders, while the sixth auction held in January 2026 succeeded, yielding a realisation of Rs. 12.20 lakh.

The Tribunal noted that the liquidation value of the assets was approximately Rs. 18.69 lakh. However, actual realisation was lower as the assets were old, used and had limited marketability. It further recorded that the total CIRP and liquidation costs exceeded Rs. 27.50 lakh, leaving no surplus available for distribution to creditors after partial meeting of liquidation expenses.

A key issue before the Bench was the pendency of an interlocutory application filed by the liquidator in August 2025 concerning PUFE transactions. Despite this, the Tribunal proceeded with dissolution, relying on Regulation 44A of the IBBI (Liquidation Process) Regulations, 2016, which clarifies that pendency of avoidance proceedings shall not prevent dissolution of the corporate debtor.

The Bench also noted that an operational creditor holding 26.22% voting share in the Stakeholders' Consultation Committee consented to continue pursuing the avoidance proceedings on behalf of stakeholders even after dissolution. It further observed that any recoveries arising from the PUFE proceedings would be distributed among stakeholders on a pro-rata basis in accordance with their voting shares.

Finding that all requirements under Section 54 of the IBC and Regulation 45 of the Liquidation Regulations had been complied with, the Tribunal ordered dissolution of Urban Farmart India Private Limited with immediate effect and directed the liquidator to intimate the Registrar of Companies and the Insolvency and Bankruptcy Board of India.

Accordingly, the NCLT disposed of the case and directed the registry to consign the file to records.

For Applicant: Ms. MS Mano Ranjani, Advocate