Mumbai News: NCLAT Sets Aside NCLT's Liquidation Order For Prabhat Technologies, Cites Violation Of Natural Justice

Mumbai: The National Company Law Appellate Tribunal (NCLAT) has set aside an order of the Mumbai bench of the National Company Law Tribunal (NCLT) that had directed liquidation of Prabhat Technologies (India) Ltd. The appellate tribunal observed that the NCLT passed the order without giving the resolution applicants an opportunity to be heard, thus violating principles of natural justice.

The appeals were filed by Essar (India) Ltd and a group of three individual applicants, including Mr. Parag Malde, who had submitted a resolution plan that had been approved by 98.15% of the Committee of Creditors (CoC) in November 2020.

The NCLT had rejected this plan and instead ordered liquidation of the corporate debtor on January 9, 2024, after State Bank of India (SBI) — one of the financial creditors — raised concerns over a disputed property listed as a source of funds in the plan.

However, the NCLAT bench comprising Judicial member Yogesh Khanna and technical member Ajai Das Mehrotra held that the NCLT failed to issue any notice to the appellants or examine the allegations of fraud raised by SBI regarding the ownership of a flat in Girgaon, Mumbai, which formed only 1.5% of the total resolution value.

“This impugned order is a non-speaking order and even against principles of natural justice,” the NCLAT stated, pointing out that the applicants were not given an opportunity to respond to the fraud allegations nor was any formal application filed by the Resolution Professional or the full CoC to support the liquidation request.

The appellate tribunal noted that the property in question was that the property was owned by Parag Malde, and had been mortgaged to a bank consortium, including SBI, since 2014 after a registered sale deed was executed.

The tribunal further observed that even SBI itself had accepted this property as valid collateral until a purported fraudulent resale was brought to light. Malde has since filed a civil suit and criminal complaint against the vendors.

The NCLAT criticised the NCLT’s reliance solely on SBI’s oral submissions, ignoring its earlier direction to file a formal application to record the collective withdrawal of consent by all consortium members, including Union Bank of India and Bank of India — neither of whom submitted such an application.

Given that the resolution plan offered a recovery of Rs 77.98 crore, which was a far higher than the liquidation value of Rs 23.45 crore, the NCLAT observed it was commercially prudent to consider the resolution plan instead of opting for liquidation.

The appellate tribunal remanded the case back to the NCLT for a fresh hearing, directing the adjudicating authority to examine all issues raised, including the legality of the consent withdrawal and the applicability of key judgments such as EBIX Singapore Pvt Ltd vs. Committee of Creditors of Educomp Solutions.

The NCLT has been instructed to dispose of the matter with a reasoned order within eight weeks of the next appearance.