DS Kulkarni Developers: NCLAT Upholds NCLT Order Approving Resolution Plan but Directs Deletion of Illegal Clauses
Moneylife Digital Team 05 July 2024
While upholding an order passed by the national company law tribunal (NCLT) for a resolution plan (RP) for corporate debtor DS Kulkarni Developers (DSK Developers) Ltd, the national company law appellate tribunal (NCLAT) deleted some clauses from the RP that were contrary to the law.
 
In an order earlier this week (Case No.1142/ND/2023), the NCLAT bench of justice Ashok Bhushan (chairperson) and Barun Mitra (member-technical), said, "The part of the resolution plan being not in accordance with law, which has been approved by the adjudicating authority, the course open for this Tribunal is to either set aside the resolution plan or to delete the clauses, which are not in accordance with law to make the resolution plan compliant. We are of the view that the second course needs to be adopted by deleting the clauses in the resolution plan which are contrary to the law, as per Section 30, sub-section (2), sub-clause (e), so as not to interfere with the other part of the resolution plan, which has been approved."
 
In its order, NCLT has approved the resolution plan submitted by a consortium of Ashdan Properties Pvt Ltd, Classic Promoters and Builders Pvt Ltd and Atul Builders India Pvt Ltd in respect of the corporate insolvency resolution process (CIRP) of DS Kulkarni Developers.
 
NCLAT also gave relief to home-buyers who have filed appeals. Manoj Kumar Agarwal, the resolution professional, did not accept the claims of some home-buyers because, apart from allotment letters, they have not filed any other documents to prove payments to DS Kulkarni Developers.
 
However, NCLAT disapproved the resolution professional's action while asserting that when DS Kulkarni Developers itself acknowledged the payments by issuing allotment letters, it was not open for the resolution professional to take a stand that no payments had been made. It held that the acknowledgement of DS Kulkarni Developers in the allotment letters is sufficient to bind it, including the resolution professional.
 
It says, "The claim of the appellants, who were allottees of the different units allotted by DS Kulkarni Developers clearly sustainable. In the resolution plan, the claims of the home-buyers, whose names have been accepted and admitted, have been proposed to give the units. These appellants, as held by us that their, claims also to be accepted and they are also to be given units as given to other home-buyers whose claims have been accepted. We direct the successful resolution applicant (SRA) to accept the claims of the appellants or home-buyers in the appeals and to give them the same treatment as has been given to other home-buyers so that the resolution plan can be saved from invalidity."
 
Responding to the submission that assets were not available to be considered in the resolution plan in view of the attachment by the directorate of enforcement (ED) under the Prevention of Money Laundering Act (PMLA), NCLAT says this has already been settled by judgments of the tribunal as well as high courts (HCs) and Section 32-A which was inserted in the Insolvency and Bankruptcy Code (IBC) giving overriding effect to all offences committed by corporate debtor before initiation of CIRP, fully entitled the assets of the corporate debtor to be dealt in the resolution plan.
 
The bench emphasised that "The CIRP had to be conducted in accordance with the IBC and CIRP Regulations. The resolution professional, on the basis of whatever record was available and could be obtained from regulatory authorities and investigating authorities, proceeded to the CIRP.”
 
Further, responding to the contention that assets of the third party, including the assets of the subsidiaries or related entities of DS Kulkarni Developers, cannot be made subject matter of the resolution plan, NCLAT explained that "The IBC does not contemplate termination of all contractual agreements, creating legal rights in favour of third parties. There can be cases where the corporate debtor, even during the currency of the CIRP, can terminate contractual agreements as per the clauses of the agreements. But, IBC cannot be used to extinguish contractual agreement, negating rights of third parties."
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