Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + Tri Insolvency and Bankruptcy - 2020 (9) TMI Tri This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (9) TMI 551 - Tri - Insolvency and BankruptcyReversal of disbursements of funds of the Corporate Debtor distributed to the creditors - grant of interim order restraining the liquidator from deductions of salary payable to the employees. Whether the distribution of funds from the working capital and profits derived out of the operation of the CD includes proceeds fall under Regulation 42(2) read with section 53 of the Code, is available for distribution before liquidating the assets? If not whether the act of distribution amounts to violation of the Regulations and directions to the liquidator dated 14.01.2020 as alleged? - HELD THAT:- Under Regulation 42 of the IBBI [Liquidation Process] Regulations, 2016, the Liquidator can commence distribution once the list of stakeholders and asset memorandum, was finalised, subject to Section 53 of the I & B Code. This process according to us can only be done after the realization of the assets [sale of liquidation assets]. Section 36 provides for creation of a liquidation estate that shall include the assets under sub-section 3 of section 36. Section 53 provides for distribution of the proceeds from the sale of the liquidation assets. As per Regulation 42 (2) of the IBBI (Liquidation Process) Regulations, 2016 the liquidator shall distribute the proceeds from realization within ninety days from the receipt of the amount to the stakeholders. The wording of Section 53 and Regulation 42(2) indicates that the stakeholders may be paid out of the proceeds from the sale of assets. The "proceeds from the sale of assets'' can only be realized after the sale concludes, which means distribution can also be done only after the conclusion of sale and more so after the liquidator realizes the liquidation value, therefore, in our opinion, the liquidator cannot distribute the funds from working capital and profit to the stakeholders until assets have been liquidated and the liquidator realizes the complete liquidation value - the distribution of working capital and profit to the financial creditors before liquidating the assets is contrary to regulations under Chapter VII of the IBBI (Liquidation Process) Regulations, 2016. Thus, the justification offered for distributing the fund by the liquidator is not just and proper and not in conformity with any of the provisions of the Code and Regulations. Whether the pay cut from the salaries of the employees is arbitrary and without their consent? - HELD THAT:- The unilateral decisions of SCC to deduct 20 to 40% from the salary of the employees for the month of April, wherein the factory of the CD is running on profit and gained 9 crore a minimum profit. The submissions that Representatives of executive heads of each department were present at the time of taking decision doesn't indicate that the decision for deduction was with the consent of the majority of the employees. It is also significant to note here that the committee has decided to reverse the amount deducted, to the employees concerned provided they are able to recover dues from the government - The Pandemic has disrupted the entire working of the country be it the government sector, private sector, businesses, educational institutions including judicial work. It is in the said circumstance, here in this matter a steel manufacturing company, is in operation and running on profit. In appreciating their effort to see that the factory was not allowed to shut down for more than one month, they deserve the entire salary for the month of April. The decision for pay cut of the salary of the employees for the month of April is arbitrary and in violation of Ministry of Home Affairs Circular and therefore, not binding on them and they are entitled to get back the same with applicable bank interest till the date of payment. Reliefs and cost - HELD THAT:- The disbursement by the liquidator from the working capital and profit kept in the account of the liquidator/CD before liquidating the assets is not in accordance with the provisions of the Code and Regulations - in the case in hand since the CD being in operation and there is enough working capital as submitted by the liquidator (About 40 crores) there is no need to return. However, in the peculiar nature and circumstances brought out in the instant case, it appears that the amounts received by the respective financial creditors shall be kept by them in an Interest bearing account of the CD. The application is allowed.
|