TMI Blog2020 (9) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as it stood prior to 25.07.2019 and cannot apply the amended Regulations even as a guide in this regard as submitted by the Ld. Counsel for the Scheme proponents. The question of applicability of Regulation 39D of the IRCP Regulations, 2016 as amended from 25.07.2019 cannot also be applied under the circumstances. Thus being conscious that this Tribunal being a creature of the statute and is required to apply the provisions of IBC, 2016 and the Rules and Regulations framed thereunder as it is reflected fastidiously reference to Regulation 4 of the Liquidation Process Regulations, 2016 and closer scrutiny of the same discloses that the Liquidation fees of the Liquidator is required to be computed based on realisation, net of other Liquidation costs and of the amount distributed, and no where the said Regulations uses the term Realization of Sale assets . In the circumstances, the submissions made by the Ld. Counsel for the Scheme proponents that since the transaction cannot be brought under Regulations 32 contemplating various modes of 'Sale' therein cannot hold much water. Applying Regulation 4 of Liquidation Process Regulations, 2016 as it stood prior to amendment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 3. Since a Director of the Corporate Debtor was aggrieved by the Order of liquidation order passed by this Tribunal, an Appeal was filed before the Hon'ble NCLAT in Company Appeal (AT) (Insolvency) No. 696 of 2018 and the Hon'ble NCLAT was pleased to dispose of the Appeal with an observation to the Liquidator to proceed in terms of its decision rendered in Y. Sivaram Prasad -vs- S. Dhanapal and others (Company Appeal (AT) (Insolvency) No. 224 of 2018). Subsequent to the Order in the Appeal, the Scheme for Compromise and Arrangement was received by the Liquidator from the Promoters of the Corporate Debtor and the same was placed before this Tribunal in MA/793/2019 seeking for directions for convening the meeting of the shareholders and creditors for approval of the Scheme which was granted by this Tribunal on 02.08.2019 and in and by said order, the Liquidator was appointed as the Chairman of the meetings directed to be convened and the meeting it is stated was held on 05.09.2019 and the Chairman's report in relation to its outcome was submitted on 12.09.2019 and consequently the Liquidator as the Applicant has moved an Application in CA/1026/CAA/2019 seeking for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the Liquidator's fees is annexed along with the typed set. 6. It is also brought to the notice of this Tribunal in this Application that in view of the Scheme providing for the Liquidator's fees to be decided and approved by the IBBI, despite communications addressed to the IBBI by the Applicant, however, the Liquidator was made to understand by IBBI that the IBBI is only a Regulator and not a Judicial Authority in relation to the issue on hand and in the circumstance the issues raised by the Applicant/Liquidator is required to be placed before this Tribunal and hence this Application. 7. Before going into the merits of this Application it is required to be stated that vide Order in CA/1026/CAA/2019 dated 10.01.2020 this Tribunal has approved the Scheme of Compromise and Arrangement and vide the said order this Tribunal in paragraph 33 has directed the Liquidator as follows:- 33. Thus while sanctioning the Scheme, we direct the Liquidator in any case to obtain an affidavit from the Proponents of the Scheme, that while presenting the Scheme to the Liquidator as per the leeway provided by the Hon'ble NCLAT that they did not suffer any of the disqualifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of this Tribunal dated 10.01.2020 and which observations has invited a scathing rebuttal on the part of the Scheme Proponent. Be that as it may, this Tribunal is not concerned with all those objections as projected by the Scheme Proponents in view of the submissions made by the Ld. Counsel for the Liquidator as well as the Liquidator that the observations made otherwise than in relation to the liquidation cost and fees and the duration of its payment as given in the Scheme is not being pressed and required to be eschewed in view of the reasons given in detail of the Order dated 10.01.2020 passed by this Tribunal in relation to the Scheme and the eligibility of its Proponents to file the Scheme, provided an affidavit to be given as contemplated therein. 12. In the circumstance, this Tribunal is required to consider the prayer as sought for in the Application before this Tribunal and hence this Tribunal is not required to delve into the aspects which has been otherwise raised by the Liquidator in his report dated 24.01.2020 and as to whether there arises a disqualification of the Scheme Proponents under Section 29A of the IBC, 2016 to file and prefer the Scheme before this T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endment made to the Regulations namely, IBBI {Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and IBBI (Liquidation Process) Regulations, 2016; IBBI has sought to amend these Regulations in relation to the fees payable to the Liquidator in case a Scheme being propounded and placed before this Tribunal, subsequent to the order of liquidation. 16. In the circumstance, it is also brought to the notice of this Tribunal that the Regulations as it stood un-amended prior to amendment of the Regulations made w.e.f. 25.07.2019 should apply as the order of liquidation was passed by this Tribunal, which is not in dispute, on 20.09.2018. In this connection, the Ld. Counsel for the Scheme Proponents also relies upon the decision of the Hon'ble Supreme Court of India while considering the prospective nature of the amendment made by the IBBI to the Regulations as held in the matter of Rahul Jain -vs- Rave Scans Pvt. Ltd Ors. in Civil Appeal No. 7940 of 2019 dated 08.11.2019 wherein the Hon'ble NCLAT had initially set aside the Order of the Principal Bench of this Tribunal which approved the Resolution Plan, to be not in-consonance with the amended Regulation 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as below: firstly prior to the amendment of the Regulations made effective from 25.07.2019 and subsequently that of the amended Regulations upon amendment to the Regulations made effective on and from 25.07.2019 by IBBI. PRE AMENDMENT POSITION OF THE IBBI (IRCP) REGULATIONS, 2016 AND IBBI (LIQUIDATION PROCESS) REGULATIONS, 2016 AS WELL AS THE RELEVANT PROVISIONS OF IBC, 2016: - 19. The judicial precedents as laid down in S.C. Sekaran's case as well as Y. Sivaram Prasad's case it must be noted is only in reiteration of the amendments to the Companies Act, 2013 made by virtue of the Eleventh Schedule contained in IBC, 2016 wherein it has been added to the extent that the term 'Liquidator' as given in sub-section 11) and sub-section 16) of the said Act, namely Companies Act, 2013 is to include one appointed under the said Act as well as under IBC, 2016 thereby making a liquidator appointed under IBC, 2016 being one of the persons eligible to file a Scheme under Section 230 of the Companies Act, 2013. Now coming to the definition clauses of IBC, 2016 applicable to a CIRP under Part-II it is seen that Sections 5(16), 5(17) and 5(18) defines the terms Liquidation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... percentage of the amount realized net of other liquidation costs, and of the amount distributed, as under: (4) The liquidator shall be entitled to receive half of the fee payable on realization under sub-regulation (3) only after such realized amount is distributed. 21. A Combined reading of Regulation 2(ea) read with Regulation 4 of IBBI (Liquidation Process) Regulations, 2016 shows that the fees of the Liquidator can be decided by the CoC before a Liquidation order is passed by this Tribunal in terms of Section 33 of IBC, 2016 and in its absence sub-regulation (3) of Regulation 4 of the Liquidation Process Regulations shall come into play wherein it is provided that the Liquidator shall be entitled to a fee both on a percentage of the amount realized net of other liquidation costs, and of the amount distributed as per the percentages given in the table provided under sub-regulation (3) of Regulation 4 itself. The parties are in concord that at the time of passing resolution under Section 33(2) of the IBC, 2016 seeking for liquidation of the Corporate Debtor, the Liquidator's fee being part of the Liquidation cost in terms of Section 5(16) read with Regulation 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h and dry in relation to fees chargeable by him under the Regulation 4 of IBBI (Liquidation Process) Regulations as it stood prior to amendment which never contemplated within its ambit of a Scheme being placed after Liquidation. Hence in order to resolve this issue it is submitted that the amended Regulations for the limited purpose of fixing the Liquidator's fees can be considered as a way of filling the gaps left by the Regulator pre-amendment and in this connection draws the attention to the amended Regulation 4 of IBBI (Liquidation Process) Regulations w.e.f. 25.07.2019 and in particular to sub-regulation (2) of Regulation 4 of the said Regulations. In order to further buttress the submissions, the Scheme Proponents also draws the attention to Regulation 39D of IBBI (IRCP) Regulations, 2016 amended w.e.f. 25.07.2019 as well as Regulation 2B of the IBBI (IRCP) Regulations, 2016, all the said amendments brought forth subsequent to the judicial pronouncements made in S.C. Sekaran's case as well as Y. Sivaram Prasad's case referred to supra reiterating the well established position of law that a Liquidator is entitled to place a Scheme before this Tribunal provided it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee payable on realisation only after such realised amount is distributed. Clarification: Regulation 4 of these regulations, as it stood before the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019 shall continue to be applicable in relation to the liquidation processes already commenced before the coming into force of the said amendment Regulations. 7. Appointment of professionals. (1) A liquidator may appoint professionals to assist him in the discharge of his duties, obligations and functions for a reasonable remuneration and such remuneration shall form part of the liquidation cost. (2) The liquidator shall not appoint a professional under sub-regulation (1) who is his relative, is a related party of the corporate debtor or has served as an auditor to the corporate debtor in the five years preceding the liquidation commencement date. (3) A professional appointed or proposed to be appointed under sub-regulation (1) shall disclose the existence of any pecuniary or personal relationship with any of the stakeholders, or the concerned corporate debtor as soon as he becomes aware of it, to the liquidator. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. A collective reading of the amended Regulations as extracted of both IRCP Regulations and Liquidation Process Regulations, 2016 brings to the fore the contention of the Scheme Proponents that in order to fill the gaps, the amended Regulations can be, in effect, for the limited purpose be taken into consideration to ascertain the fees payable to a Liquidator more as a guide about the thought process of the Regulator in view of the law relating to insolvency as contemplated under IBC, 2016 is in the process of evolving and adopting itself to myriad situations and hence as contemplated under the amended Regulations as extracted above made effective from 25.07.2019 in the case of the Scheme on behalf of its Proponent, it is contended that after Liquidation, the Liquidator herein must be paid only at the same rate as the Resolution Professional was entitled to during the CIRP, for the period from the date of the order of liquidation till its sanction, while considering the compromise and arrangement under Section 230 of the Companies Act, 2013 by this Tribunal and in this connection Regulation 32 of the Liquidation process Regulations is also brought into fray by the Scheme propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations as framed by the IBBI and in its absence, as to whether it is permissible for the liquidator to claim a percentage of fees both on realization of proceeds and its distribution. Again referring to the book authored by Mr. K.R. Sampath, Advocate Solicitor, Supreme Court of England Wales, as referred in the earlier portion of this paragraphs to the 5th Edition brought by the publishers in 2009 has extracted from the stand point of Corporate Law, a decision of Buckley J, rendered in Re. South African Supply Cold Storage Co.(1), (1904) 2 Ch. 268, 286 (Ch. D) at page 613 of the above edition, which is to the following effect:- What does 'reconstruction' mean? To my mind it means this. An undertaking of some definite kind is being carried on, and the conclusion is arrived at that it is not desirable to kill that undertaking but that it is desirable to preserve it in some form, and to do so, not by selling it to an outsider who shall carry it on - that would be a mere sale - but in some altered form to continue the undertaking in such a manner as that the persons now carrying it on will substantially continue to carry it on. It involves, I think, that substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the liquidation processes already commenced before the coming into force of the said amendment Regulations. 29. Thus, this Tribunal is required to only apply in relation to ascertaining the amount of fees payable to the Liquidator, the unamended Regulations i.e. the Regulation of Liquidation Process Regulations as it stood prior to 25.07.2019 and cannot apply the amended Regulations even as a guide in this regard as submitted by the Ld. Counsel for the Scheme proponents. The question of applicability of Regulation 39D of the IRCP Regulations, 2016 as amended from 25.07.2019 cannot also be applied under the circumstances. Thus being conscious that this Tribunal being a creature of the statute and is required to apply the provisions of IBC, 2016 and the Rules and Regulations framed thereunder as it is reflected fastidiously reference to Regulation 4 of the Liquidation Process Regulations, 2016 and closer scrutiny of the same discloses that the Liquidation fees of the Liquidator is required to be computed based on realisation, net of other Liquidation costs and of the amount distributed, and no where the said Regulations uses the term Realization of Sale assets . In the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dator furnishing sufficient proof along with vouchers for having incurred such expenditure. Eventhough Regulation 4 of the Liquidation Process Regulations, 2016 is silent in this regard pre-amendment, post amendment to Regulation 4 of the Liquidation Process Regulations, 2016, w.e.f. 25.07.2019 contemplates different heads under which Liquidation costs can be classified which this Tribunal is of the view can apply on the principle of casus omissus and the Liquidator will be required to furnish by way of statement to the Scheme proponents the heads under which the Liquidation costs is sought to be reimbursed along with vouchers and proof for incurring such payment by the Liquidator. In case of any disputes in relation to the Liquidation costs, save the Liquidator's fees, the parties shall go for mediation before the independent Statutory auditor of the Corporate Debtor who shall after thoroughly scrutinizing the accounts and vouchers in relation to the Liquidation costs, other than the liquidators fees, and in an fair and independent manner ascertain the liquidation costs payable and the liquidation Account, all within a period of 30 days from the date of this order and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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