Relief for Telangana govt as NCLAT stays liquidation of Nizam Sugar Factory

In a relief to the Telangana government, the National Company Law Appellate Tribunal (NCLAT) in New Delhi on Wednesday directed the Official Liquidator of the Nizam Sugar Factory in Nizamabad to put the liquidation process on hold. The Telangana government had moved the NCLAT against an earlier order by the National Company Law Tribunal (NCLT) in June, which sought liquidation of the company to repay its outstanding debts.

Once said to be the largest sugar factory in Asia, the company was set up in 1936 by the erstwhile Nizam of Hyderabad on 16,000 acres of land. The Nizam Deccan Sugars Limited (NDSL), popularly known as the Nizam Sugar Factory, was profitable for decades before turning sick in the late nineties. A sick company is defined as a unit or company that has incurred accumulated losses almost equal or exceeding its total net worth by the end of a financial year.

While the NCLT is a quasi-judicial body that deals with cases of civil nature of Indian companies, the National Company Law Appellate Tribunal hears appeals against the orders of NCLT.

During the hearing in front of the NCLAT, the counsel for the state government contended that the Resolution Professional, who conducted the insolvency resolution process, tried to scuttle the revival of the factory in contravention of the rules.

After hearing the case, the NCLAT restrained the liquidator and said that no action should be taken until further orders were issued.

In 2002, the government of N Chandrababu Naidu in united Andhra Pradesh handed NDSL to Delta Paper Company under a joint venture. Later, a legislative committee appointed by Naidu's successor, YS Rajasekhar Reddy, had recommended that the government should take over the factory. However, the recommendation could not be implemented due to the untimely death of YSR Reddy and other subsequent developments.

During the agitation for a separate Telangana state, the TRS had promised to take over the factory and restore it to its former glory.

However, with no development on that front, the private management of the mill had approached the NCLT in 2017, seeking liquidation.