9911796707
TMI Blog2020 (9) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness on profit. The applicant contends that the Liquidator in violation of the regulations and provisions of the Code and in disobedience of the order of this Adjudicating Authority (AA) dated 14.01.2020, disbursed an amount of Rs. 21 Crores and thereafter another 5 crores to the financial creditors of the Corporate Debtor and also arbitrarily reduced the salary of employees in violation of the Ministry of Home Affairs Circular during the Covid 19 lockdown and accordingly, prayed for restraining the Liquidator from deduction of the salaries of the employees as well as for issuing direction for reversal of payments granted to the secured financial creditors. 3. The applicant has prayed for an urgent hearing of the unnumbered I.A. alleging certain illegal, wrongful and motivated acts on the part of the Liquidator during pendency of liquidation process. The urgency set out in the application has been found satisfactory. As lockdown was declared due to pandemic COVID-19 situation, the normal operation of NCLT Kolkata Bench is yet to be resumed, the unnumbered application was listed on today for hearing through video conferencing (VC) by giving advance notice from the Registry to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated any regulation or provisions of the Code nor arbitrarily decided the deduction of the salary from the employees and executives. He would submit that the steps for inviting schemes under section 230 of the Companies Act, 2013 has yet to be taken. He would say that the Corporate Debtor Company is a going concern till now and since the Liquidator has not received any scheme he has to take steps to sell the Corporate Debtor as a going concern and still is on finding prospective buyers. According to him, all the assets of the Corporate Debtor were attached by order dated 28.11.2017 and the matter is before the PMLA (AT) and that he has filed application praying for de-attachment of the properties of the CD attached by the authorities under PMLA and it is pending before the AA for disposal. He further said that the fund was distributed after maintaining requirements to meet working capital so as to reduce the burden of the Corporate Debtor as per provisions of IBC, 2016. According to him, the distribution of the funds to the secured creditors would not affect the working of the Corporate Debtor Company and did not suffer any damage due to loss of funds due to such disbursement of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not mean that the working capital fund kept in the Corporate Debtors account is to be availed for distribution without affecting the cash flow of Corporate Debtor keeping and continuing the company as a going concern. He would further submit that the Liquidator can only distribute the proceeds of the sale and not the working fund. He also referred to section 53(1). Reading Section 53(1) he submitted that the proceeds from the sale of liquidation assets alone are permitted to be distributed under Section 53 among the stakeholders following the waterfall mechanism. According to him, there is a clear violation of the order of the Tribunal and Regulation 42. He further submitted that as per Regulation 42, Liquidator is empowered to distribute subject to the provision of Section 53 and he Liquidator shall not commence distribution before filing list of stakeholders and asset memorandum with the Adjudicating Authority. According to him the Liquidator has filed an application for permission for amending the list of stakeholders and therefore the list of stakeholders filed with the Tribunal along with the progress report is not final. None of the assets have been sold and all money k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to him it was done for reducing the burden of the dues of the Corporate Debtor. We are unable to see any such power being vested on the liquidator. Powers and duties of a liquidator is detailed under section 35 of the Code. As per section 35(1)(o) such other function of the liquidator is to be specified by the IBBI. The functions of the liquidator also specified by the IBBI by notifying IBBI (Liquidation Process) Regulations, 2016. The power of distribution of proceeds realised by the liquidator appears to us laid down under Chapter VII of the IBBI (Liquidation Process) Regulations, 2016. 13. Highlighting the timeline to be followed by the Liquidator, as per Regulation 42(2) the Ld. Sr. Counsel for the R4 attempted to convince us that the proceeds under the said regulation may be other than funds collected by the liquidator other than liquidating the assets of the CD. According to him as per Sub-Regulation (2) of Regulation 42, Liquidator shall distribute from the receivable amount within 90 days of the receipt. In the present case proceedings have not been initiated. Therefore, the Liquidator shall distribute from the realization within 90 days from the receipt of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke section 53 and Regulation 42(2) at this stage where admittedly liquidating the assets, chance of revival by way of compromise or arrangement has not been completed. So can profit, working capital kept for uninterrupted cash flow be distributed by the liquidator for the sake of reducing the future burden of the CD? Our answer is in the negative. 16. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptcy Code, 2016, which would include the claims of the employees, if any." 18. The above said order in our considered view never allowed the liquidator to have an interim distribution pending liquidating the assets for the reason that there were no claims from the workmen or employees were pending for distribution. The above said discussions lead us to a conclusion that 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. This point is answered accordingly. Point No. (ii): 19. Coming to the pay Cut from salary of employees it appears to us 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich they were not entitled to receive during distribution. However, 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 to us that the amounts received by the respective financial creditors shall be kept by them in an Interest bearing account of the CD. It would meet the ends of justice in the nature of this case. However, the liquidator is found liable to make good the portion of salary deducted from them with applicable bank interest. 21. In view of the matter, we are allowing the application as per the following orders: a. The distribution of funds from working capital and profit to the stakeholders until assets have been liquidated, and till the liquidator realizes the complete liquidation value is not in conformity with the provisions of the Code and Regulations; b. The stakeholders/financial creditors who are in receipt of the funds shall keep the amount received by them in an interest bearing account of the CD, and returnable as per Regulation 43, if need arises for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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