A gavel placed on a block for this arranged photograph (Source: Freepik)

IBC - Creditor Vs Liquidator: What Went Wrong In Abhijeet MADC Energy’s Liquidation

A lender has sought the liquidator’s removal in the first such instance under India’s bankruptcy law where the majority of cases end with piecemeal sale of stressed assets.

Edelweiss Asset Reconstruction Company Ltd. has moved the insolvency court against the liquidator appointed for Abhijeet MADC Nagpur Energy Pvt. Ltd., according to the petition—BloombergQuint has reviewed a copy. It alleges that the liquidator, Vinod Kumar Kothari, didn’t conduct the process in a fair and transparent manner by settling a Rs 30-crore claim with Reliance Infrastructure Ltd. for a third of that amount. Edelweiss said Kothari put a 271-MW power plant on auction at a reserve price of Rs 55 crore, a low amount for the unit.

“The future with the present liquidator does not inspire confidence,” the petition said. “The applicant humbly prays that the liquidator may be replaced and necessary orders in this regard be passed.”

The Mumbai bench of the National Company Law Tribunal on Wednesday sought Kothari’s response and scheduled the matter for March 7.

Liquidation, or selling assets in parts, is a growing concern among financial creditors since, under the Insolvency and Bankruptcy Code, 2016, it’s entirely conducted by the liquidator without the involvement of lenders. What amplifies their fears is that of the 381 bankruptcy cases settled through the new law so far, more than three-fourths ended in liquidation.

What Happened

In this case, Edelweiss ARC alleged that Kothari settled a dispute with Reliance Infrastructure for Rs 9.65 crore compared with the original claim of Rs 30 crore without informing the lenders.

According to the petition, Abhijeet MADC Energy in 2007 agreed to build a 271-megawatt power plant in Nagpur for the Maharashtra Airport Development Company Ltd. Against the total cost of Rs 1,500 crore, it borrowed Rs 1,200 crore. It also struck an agreement with Reliance Infrastructure, an Anil Ambani group company, in 2010 to sell 55MW power.

In the years that followed, Reliance Infrastructure failed to release claims worth over Rs 30 crore raised by Abhijeet MADC Energy, which moved the Maharashtra Electricity Regulation Commission in 2016. The regulator first asked the company to pay the undisputed Rs 9.66 crore, and then in April 2018 ordered it to pay a total of Rs 17.57 crore but Reliance Infrastructure failed to comply.

Abhijeet MADC Energy, already facing insolvency proceedings by then, filed a petition with the Appellate Tribunal for Electricity in August 2018. In the meantime, the NCLT ordered liquidation of Abhijeet MADC Energy, ensuring that Kothari, the resolution professional, was appointed the official liquidator. To be clear, Kothari was appointed resolution professional by the Committee of Creditors which consists of nine financial creditors, with total claims of over Rs 2,000 crore. Edelweiss ARC's claim is at Rs 154 crore.

By October 2018, the Edelweiss ARC petition alleged, Kothari had unilaterally decided to withdraw the petition with the appellate tribunal and agreed to settle the matter with Reliance Infrastructure for Rs 9.66 crore versus the final award of Rs 17.57 crore. The creditor questioned why Kothari suddenly felt that there was no merit in the petition given that he had filed it with the electricity appellate tribunal when he was the resolution professional.

The creditor sought:

  • Another liquidator be appointed.
  • Settlement with Reliance Infrastructure considered null and void.
  • The petition with the appellate tribunal reinstated.

Liquidator’s View

According to Kothari, the settlement saved time and ensured that lenders at least recovered some amount.

“The company had the option of pursuing a contingent claim of Rs 17 crore by way of appeal before the higher authorities,” Kothari said in his response to BloombergQuint’s emailed queries. “However, in that case, the matter would have dragged for a few years, with a chance of losing even the amount as awarded by MERC.”

The trite rule that a present, definite sum of money is more valuable than a contingent, future money, holds much more relevance in liquidation, which is a time-bound process.
Vinod Kumar Kothari, Liquidator

The decision to settle for Rs 9.66 crore as first awarded by the MERC was taken after consultation with the lawyers handling the matter as well as competent professionals of the company, he said.

Will Lenders Get More Say?

The case comes amid concerns over lenders having no say in liquidation.

Liquidators don’t involve financial creditors in any decision, according to a report by the Society of Insolvency Practitioners of India released last month. The first interaction between the liquidator and secured creditors is after the sale of assets to distribute the proceeds, it said. This distribution can be made within six months after realisation—a period they consider too long.

The report was part of a roundtable between representatives of the Insolvency and Bankruptcy Board of India, senior partners from leading law firms, officials from the State Bank of India, insolvency professionals and other stakeholders.

The SIPI recommended that financial creditors be allowed to participate in the appointment and removal of a liquidator in a bankrupt company.