ED Attachment Not Verified: NCLAT says NCLT Committed ‘Manifest Illegality’, Directs Fresh Inquiry [Read Order]

The National Company Law Appellate Tribunal (NCLAT) has set aside an order passed by the National Company Law Tribunal (NCLT), Mumbai, and remanded the matter for fresh consideration, holding that NCLT committed ‘Manifest Illegality’. The bench held after considering the failure to verify the Directorate of Enforcement (ED) attachment

The appeal was filed by Mohan Reddy Bhumi Reddy Gari, a Director of DSK Southern Projects Private Limited (the Corporate Debtor), against an NCLT order that dismissed his application for the release of the flat. The case involves a dispute over the release of a specific flat (No. 2402) in Mantri Pinnacle, Bengaluru, which was not included in the properties attached by the Directorate of Enforcement (ED). The insolvency resolution process for the company had been initiated in 2021, and a resolution plan was approved in 2023.

A key issue in the case is a provisional attachment order passed by the ED in 2019, which covered 14 residential units in Mantri Pinnacle but did not include Flat No. 2402. While the Bombay High Court had initially ordered the release of the attached properties, the Supreme Court later stayed that order. It directed that the ED's attachment from 2019 would continue to operate.

The appellant argued that since the ED never attached Flat No. 2402, it was not covered by the Supreme Court's order and should be released. The NCLT, however, dismissed the application without determining whether the specific flat was actually attached by the ED, suggesting instead that the appellant could approach the financial creditor with an undertaking.

The NCLAT bench, comprising Justice Mohd. Faiz Alam Khan and Indevar Pandey, found that the NCLT had committed a "manifest illegality" by not ascertaining whether the flat was actually attached by the ED. The Appellate Tribunal held that it was the NCLT's duty to adjudicate on this fundamental issue.

The NCLAT has now remanded the case back to the NCLT with directions to determine whether Flat No. 2402 was attached by the ED. If the flat was not attached, the NCLT would have the jurisdiction to order its release. The Appellate Tribunal has directed the NCLT to dispose of the matter within one month of the first appearance of the parties.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates