Ex-Director’s Locus & Surplus Funds Plea Rejected, Liabilities Mandate Asset Sale: Delhi HC Dismisses Company Appeals [Read Order]

The Delhi High Court has dismissed two company appeals filed by the appellant. It was also ruled that the ex-director, the appellant, had no locus in the present case. The appellant's defence that surplus funds were available with the Official Liquidator was also rejected, as the Court found that liabilities far exceeded the available resources, thereby necessitating the auction of the Mumbai property.

The case arose from the liquidation of VG Group companies, initiated after the Reserve Bank of India (RBI) barred them from accepting deposits in 1997, and a winding-up petition was filed in 1998. A provisional liquidator was appointed. This followed a winding-up order in 2003. Over the years, multiple properties of the group have been sold to discharge liabilities. Even then, the claims from depositors, statutory authorities and creditors continue to exceed the available funds.

The property in dispute was valued at Rs 88.9 cr and auctioned in January 2024. Beekalene Fabrics Pvt. Ltd. (BFPL) emerged as the sole bidder at the reserve price, depositing 25% of the consideration.

Two appeals were filed. In V.K. Sharma, ex-director’s appeal, he argued that the sale was premature, pointing to surplus funds with the Official Liquidator and suggesting alternative assets, such as Gurgaon land, could be sold instead. He also claimed locus as a contributory and relied on revival schemes pending before the Company Court.

In ABR Emerald LLP’s appeal, it was argued that the subsequent bidder sought to challenge the auction, offering a higher amount after failing to participate earlier. Though initially dismissed, the Supreme Court restored the appeal conditionally, directing the deposit of 30% of the proposed bid to enable the consideration of the adequacy of BFPL’s bid.

The Official Liquidator and BFPL opposed both appeals, stressing that liabilities exceeded ₹470 crore, including statutory dues of over ₹366 crore, investor claims of ₹72 crore, and obligations to RBI under the Investor Protection Fund. They argued that liquidation must proceed unhindered, and revival attempts had already failed.

The division bench of Justice Anil Kshetrapal and Justice Harish Vaidyanathan Shankar addresses the issue of locus standi. It noted that earlier precedents had denied ex-directors to challenge liquidation proceedings in their individual capacity.

The court also found that outstanding liabilities, including those to statutory bodies, financial creditors, and investor deposits, far exceed the available funds. The auction proceeds are essential to discharge claims and ensure the protection of public deposits. The Appellant cannot obstruct the lawful discharge of these obligations under the guise of alleged surplus funds or delay in crystallisation of claims.

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