TMI Blog2022 (1) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Authority is upheld then the realisation of the dues of Financial Creditors will be postponed indefinitely which is contrary to the declared objects of Code. Even otherwise in the case of a going concern, Even the account of the borrower is regular, the dues of the Financial Creditors are repaid out of the profits made by the CD. As per Section 53(1)(b) of the Code, the Workmen s dues for the period of 24 months preceding the liquidation commencement date and the dues owed to the Secured Creditors rank pari passu. In the present case, no workmen s dues are outstanding and therefore, there will be no need to set apart any amount for payment towards workmen s dues. The Adjudicating Authority in its impugned order dated 26.06.2020 has reviewed its own order dated 14.01.2020 in C.A(IB) No.1546/KB/2019 in CP (IB) No.543/KB/2017. The Adjudicating Authority (NCLT) has only power to rectify any mistake apparent from the record in accordance with Section 420 of the Companies Act, 2013 R/w Rule 154 of NCLT Rules, 2016. The Code also provides for appeals and Appellate Authority vide section 61 of the Code - the appeal is partially allowed by setting aside the impugned order of Adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the account of the liquidator/CD before liquidating the assets is not in accordance with the provisions of the Code and Regulations. So also we hold that the pay cut from the salary of the employees of the CD is arbitrary and not just and proper. In the said background a question arises as to whether the financial creditors who had received the fund are to be ordered to refund? In this regard it is good to refer to Regulation 43. Reg.43 states that the stakeholders shall return the monies after distribution if the stakeholders are found to be not entitled to at the time of distribution. So no doubt the financial creditors are bound to return any monies received during distribution which 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 nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the view that there is no justification for the Liquidator to withhold the aforesaid amount of ₹ 18.00 crores and odd, lying with the Liquidator and it is directed that the same may be utilized for the operations of the Corporate Debtor to remain Corporate Debtor as going concern for distribution amongst stakeholders in equal manner as per provisions of Section 53 of the Code, which would include the claims of the employees, if any. Clause 5. With the aforesaid observations the application CA(IB) No.1546/KB/2019 stands disposed of accordingly. 5. It was submitted by the Liquidator in compliance with the aforesaid order and as discussed in the 3rd SCC Meeting on 03.02.2020, he disbursed ₹ 21 Crore on 04.02.2020 and ₹ 5 Crore on 16.06.2020. While disbursing the amount to the Stakeholders, he took and undertaking from them in accordance with Regulation 43. ₹ 21 Crore has been distributed to the following banks: Sl. Name of the Financial Creditor Amount 1. Central Bank of India 48,91,920 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king 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 operating the CD; c. The liquidator is directed to pay the portion of salary deducted from the salary of the employees with applicable bank interest till the date of payment. IA (IB) No. /KB/2020 is disposed of accordingly. The Registry is directed to send e-mail copies of the order forthwith to all the parties. 7. The Liquidator has also convened a meeting of KMPs of the CD who are running the steel plant and discussed about the working capital available with the CD. That it was found that the working capital available with the CD was sufficient for the requirement. Therefore, it was decided that funds are not required for the operations of the CD and should be distributed as per the order of the Adjudicating Authority (Appearing at page no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Regulations. (III) Balance Salary and Interest has been paid to the employees therefore, employees have no locus to challenge the disbursement of money. As directed by the Adjudicating Authority vide the impugned order dt 14 th January 2020 , the Liquidator has disbursed the amount that had been deducted from the salary of the employees of the CD in June 2020 itself. While there was a minor delay in making payment of the interest accrued, the same has been paid to them in September, 2020. Pertinently, the SCC Meeting dated 01.10.2020 also records that the payment has been made to the employees as directed vide impugned order. Furthermore, it is also to highlight herein that vide order dated 28.05.2021, the Adjudicating Authority has held that since there is no subsisting claim of the employees, there is no question of including a representative of the workmen and employees on the SCC. Thus, the employees today have no locus to challenge the decisions of the SCC/disbursement of amounts to the stakeholders. It is also apposite to highlight herein that currently, the CD is running smoothly and all the employees are getting their salaries on a regular basis. Therefore, dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate debtor in the ordinary course of its business; (h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself; (i) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities; (j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code; (k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor; (l) to investigate the financial affairs of the corporate debtor to determine undervalued or preferential transactions; (m) to take all such actions, steps, or to sign, execute an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir value recovered through proceedings for avoidance of transactions in accordance with this Chapter; (g) any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest; (h) any other property belonging to or vested in the corporate debtor at the insolvency commencement date; and (i) all proceeds of liquidation as and when they are realised. (4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation:- (a) assets owned by a third party which are in possession of the corporate debtor, including- (i) assets held in trust for any third party; (ii) bailment contracts; (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund; (iv) other contractual arrangements which do not stipulate transfer of title but only use of the assets; and (v) such other assets as may be notified by the Central Government in consultation with any financial sector regulator; (b) assets in security collateral held by financial services providers and are subject to netting and set-off in multi-lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the R1 is challenged to the order of the Adjudicating Authority dated 14.01.2020 passed by the Coordinate Bench before the same bench. It has also been stated had they been aggrieved vide order dated 14.01.2020 of Adjudicating Authority in CP (IB) No.1546/KB/2019 in CP(IB) no.543/KB/2017, they should have appealed before this Appellate Tribunal. However, despite availability of statutory remedy, the Adjudicating Authority has wrongly heard and allowed the application and passed the impugned order. Such orders passed by the Adjudicating Authority in IA No.531/KB/2020 is a review petition and is not accordance with Section 40 (2) of the Companies Act, 2013 (for short Act) which provides for that other than rectification of error it tantamount to appeal and accordingly, the Adjudicating Authority should have rejected the application and should not have gone for modification of the order dated 14.01.2020. There are no provisions in the Adjudicating Authority Rules to review its own order. Therefore, the impugned order is passed without jurisdiction. Based on this impugned order of 26.06.2020 of Adjudicating Authority the IBBI has prohibited the Liquidator for acting as a Resolution P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 26.06.2020 passed by the Adjudicating Authority in IA No. 531/2020 in CP No. 543/KB/2017 wherein it was held that distribution of the funds from the working capital and profits to the stakeholders until assets have been liquidated and till the liquidator realises the complete liquidation value is not in conformity with the Code and its Regulations. The loan account of the CD was taken over by Omkara Assets Reconstruction Private Limited from Indian Overseas Bank (IOB) and Central Bank of India (CBI) vide Assignment Agreements dated 23.11.2020 and 29.12.2020. The Respondent No.2 had filed an IA No. 277/2021 for Substitution in place of Respondent no. 2- IOB and Respondent No. 3- CBI and the same was allowed by this Tribunal vide order dated 17.02.2021. The Respondent No. 2 is supporting the present appeal. The impugned order dated 26.06.2020 passed by the Adjudicating Authority is bad in law and the same is liable to be set aside by this Tribunal. In this regard, the Respondent No. 2 subscribes to all the grounds which have been taken by the Appellant in the Memo of the Appeal. 14. It is also stated that the percentage of Share (Voting Right) as per total debt of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y purpose whatsoever. On the other hand, the payment to the secured Financial Creditors out of the available funds will reduce the interest liability of the CD. As per Regulation 42(1) of Liquidation Regulations 2016, the Liquidator before commencement of distribution has to file the list of stakeholders and the Asset Memorandum with the Adjudicating Authority. As per the Memorandum of Appeal, (refer to Page 29 30) both the above compliances have already been made by the Liquidator. Hence, there is no justification in restraining the Liquidator from making the distribution to the Financial Creditors as per Section 53 of Code. As per the prevailing practice in the Hon ble High Courts, the Official Liquidators obtain an undertaking from the Banks and FIs before disbursing any amounts. By these undertakings, the Banks and FIs agree to refund the amount disbursed to them in case it is found subsequently that any excess payment has been made to them. In the present case also as per Page 23 para (xxix), the Liquidator has already obtained the undertaking from the Financial Creditors. In the present case, there is an order of attachment under Prevention of Money Laundering Act . Though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority should take pragmatic view in deciding the instant matter since public money is involved in the instant matter. 17. It is stated that the Adjudicating Authority has clearly permitted the Liquidator to utilise the fund for the operation of the CD and the said fund may be equally distributed among the stakeholders but the order dated 26.06.2020 has completely tied the hands of the creditors to get their money back which not only affects the business of the FCs but also affects the public at large. The return of money paid by the Liquidator will certainly affect all the stakeholders and section 53 of the Code does not restrict the Liquidator from disbursing funds in accordance with Section 53 of the Code and therefore, there is no violation of regulations as alleged. Section 53 of the Code, as enumerated below: Section 53: Distribution of assets. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I (Liquidation Process) Rules, 2016. The Liquidator has formed a SCC to discuss and/or exonerate the CIRP and after forming the same several meetings were held by the Liquidator with the SCC in order to reconcile the recovery made by the banks during the period of the CIRP and a Distribution Chart was also made dealing with the recovery made by the banks. In all the meetings held on different times and in all the meeting discussion was held on putting efforts to revive the CD by way of the Scheme of Compromise or Arrangements as per Section 230 of the Companies Act, 2013. In the meeting held on 01.10.2020 the liquidator apprised before the SCC as the steps taken by the Liquidator in order to obtain a scheme of arrangement or compromise. a. An Application filed before the Adjudicating Authority under Section 230 of the Companies Act, 2013 (ACT). b. An Application for extension of the time for 90 days beyond the liquidator commencement date from 05.11.2019 to invite the scheme for Compromise or arrangements under Section 230 of the Act. c. Application filed under Section 66 for fraudulent transaction before the Adjudicating Authority. d. Application filed by the Liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank as its members, and the Respondent is merely an invitee in the said SCC. 22. It is also submitted that a meeting of the SCC was held on 03.02.2020 at the Corporate Office Central Bank of India, N.S. Road, Kolkata wherein the distribution as per Section 53 of the Code for the Secured Creditors having first charge on the current assets of Varsana Ispat Limited was discussed. The minutes of the meeting of the SCC dated 03.02.2020 categorically records as under: All the secured creditors except SBER Bank is having first charge on the Current Assets of the CD. SBER Bank is having second charge on the Current Assets, therefore, would not be disbursed in this disbursement . 23. It is stated by the Respondent No.6 that in terms of the aforesaid, the Respondent did not receive any money during the disbursement which is the subject matter of challenge in the present appeal before the Appellate Tribunal. The Respondent is a Proforma Respondent and no averment has been made against the Respondent. Further, no relief has been sought against the Respondent in the present appeal. The Respondent has not received any funds from ₹ 21 Crore (approx.) which has been disbursed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring account of the CD, and returnable as per Regulation 43, if need arises for operating the CD; c. The liquidator is directed to pay the portion of salary deducted from the salary of the employees with applicable bank interest till the date of payment. IA (IB) No. /KB/2020 is disposed of accordingly. The Registry is directed to send e-mail copies of the order forthwith to all the parties. It is also being observed that there is no subsisting claims of the employees and all the employees are getting their salary on a regular basis. c. All CIRP costs and liquidation costs have been recouped. It is also revealed from the written submission of the Liquidator wherein at page no.14, he has enclosed order dated 28.05.2021 of the Adjudicating Authority in IA No.1014/KB/2020 in CP(IB) No.543/KB/2017 that the gratuity claim of the employee is also not existing and accordingly, the Adjudicating Authority has held vide para 10.1 of the order dated 28.05.2021 that the prayer of inclusion of the representative of the workmen of the employees on the SCC is not acceded to since the workers at this point of time do not have a subsisting claim. It is also observed from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. (2) In cases other than those covered under sub-regulation (1), the liquidator shall be entitled to a fee (a) at the same rate as the resolution professional was entitled to during the corporate insolvency resolution process, for the period of compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013); and (b) as a percentage of the amount realised net of other liquidation costs, and of the amount distributed, for the balance period of liquidation, as under: Amount of Realisation / Distribution (In rupees Percentage of fee on the amount realised / distributed in the first six months in the next six months thereafter Amount of Realisation (exclusive of liquidation costs) On the first 1 crore 5.00 3.75 1.88 On the next 9 crore 3.75 2.80 1.41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee. (4) If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation 32 within ninety days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of regulation 32.] 39. Recovery of monies due. The liquidator shall endeavor to recover and realize all assets of and dues to the corporate debtor in a time-bound manner for maximization of value for the stakeholders. 42. Distribution. (1) Subject to the provisions of section 53, the liquidator shall not commence distribution before the list of stakeholders and the asset memorandum has been filed with the Adjudicating Authority. (2) The liquidator shall distribute the proceeds from realization within 22[ninety days] from the receipt of the amount to the stakeholders. (3) The insolvency resolution process costs, if any, and the liquidation costs shall be deducted before such di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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