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Judgment
DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER
The Appellant has filed the appeal under Section 61 of the ‘Insolvency and Bankruptcy Code 2016’ (the Code) against the impugned order dated 22.03.2021 passed by the ‘National Company Law Tribunal, New Delhi Court-III (the Adjudicating Authority) in IA -1129/2021 in IB -1330(ND)/2019.
The Appellants are aggrieved by the impugned order, particularly, to the extent whereby the Appellants were directed by the Adjudicating Authority to contribute proportionately in accordance with their voting share towards CIRP /Liquidation costs. In sum and substance, the Appellants have prayed for following reliefs:
“i.To set aside the order dated 22.03.2021 in IA -1129/2021 In IB - 1330(ND)/2019 In the Matter Of M/S Elan Professional Appliances Private Limited Vs. M/S Customized Kitchen India Private Limited passed by the Ld. Adjudicating Authority.
ii.to set aside the directions in order dated 22.03.2021 in IA-1129/2021 directing the appellants to contribute proportionately in accordance with their voting share towards CIPR/Liquidation cost;
iii.To set aside the appointment of R-l as the liquidator;
iv.To pass any such further or other order(s) as this Hon'ble Appellate Tribunal may deem fit and proper in the facts and circumstances of the case to grant justice to the appellants and the company.”
Learned Counsel for the Appellants submitted that one Operational Creditor M/s. Elan Of the Corporate Debtor filed a petition under Section 9 of the Code for initiating CIRP alleging a default of Rs. 12,78,783/-(Rupees Twelve Lakh Seventy-eight Thousand Seven Hundred Eighty-three) and the same was admitted on 18.02.2020 by the Adjudicating Authority. Since IRP was not proposed by Operational Creditors, so the Adjudicating Authority appointed the IRP as par the prevalent system.
Public announcement was made on 05.03.2020 and five operational creditors filed their claims. Total claim was for Rs. 1,93,14,065/- and IRP accepted the claim of Rs. 1,22,07,343/-. The Operational Creditor on whose behest CIRP commenced didn’t file their claim and on 09.03.2020 filed Form- RA for withdrawal of CIRP.
The Operational Creditor’s claim was settled for Rs. 8 Lakh. Form-FA dated 09.03.2020 didn’t accompany any bank guarantee or other thing for paying the cost of IRP.
The Appellants have alleged that the so called operational creditor to settle the claim agreed to reimburse the fees and expenses of RP and RP has raised an invoices of Rs. 1.43 lakh which includes professional fees of Rs. 1 Lakh.
The first meeting of CoC was held on 19.03.2020 and RP informed that M/s. Elan has agreed to pay him Rs. 1.42 Lakh. However, the first CoC meeting rejected withdrawal from CIRP. The Appellant No.2 averred that he was willing to join CoC meeting through electronic means but no link was sent to him and minutes has wrongly recorded the same. He has alleged wrongdoing by the CD. They have also alleged that the Director of the CD has diverted the funds of the CD and has purchased property in his name. 2nd CoC onwards meeting continued till 7th CoC meeting. The bill of IRP went on increasing from Rs.1.53 lakh to Rs.7,56,930/- till 2nd CoC Meeting and then until 6th Meeting held on 01.02.2021 it went upto Rs.14,67,570/- and finally the company has gone into Liquidation vide the Adjudicating Authority order dated 22.03.2021 and the same is reproduced below:
The Ld. Counsel for the Appellant has submitted that this is a case of total manipulation by the RP who has taken advantage of lack of knowledge of operational creditors and has landed into this problem.
The Ld. Counsel for the Respondent on enquiry was asked by the Bench why he went on continuing with the CIRP when the assets are very few and even CIRP costs cannot be recovered by selling all the assets of the CD whereas the IRP/RP claim is for Rs.18,59,183/-. There was no Financial Creditor in this case to be a part of CoC and only operational creditors who are members of the CoC.
The Liquidator in person submitted that he has not received any amount from Operational creditor or from the appellant and since the CoC has not voted for settlement so he has continued with CIRP and CoC members are duty bound to bear the CIRP expenses proportionately.
Mr. Harshit Goel Ld. Amicus Curiae submitted that the suspended directors R2 & R3 have not given him any relevant paper to move forward with the case but based on available documents it looks like that IRP/RP/Liquidator should have closed the process at the initial stage itself when he could perceived that CD has only few assets like furniture etc. Now even if the CD is put to sale all the assets, they will not be in a position to realize even the bare fees of the IRP/RP.
We have carefully gone through the submissions made by ld. Counsel for the Appellant and the Liquidation in person including Amicus Curiae for the other Respondents and we are having the following observations:
a. This is a clear case of misusing the provisions of the Code both by the Operational Creditor who has initiated the CIRP and the RP also.
b. The Appellants are small suppliers and they don’t want to be burdened with additional liability as their business is in a very bad shape and they have lost already a crore plus.
c. The only recourse available to come out of the situation is the provisions of Section 53 of the Code which provides to meet first the IRP cost and Liquidation cost to be paid in full and, thereafter, for distribution in accordance with the provisions with the Code. For brevity & clarity, the same is reproduced herein below:
“Section 53: Distribution of assets.
53.(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 :—
(a)the insolvency resolution process costs and the liquidation costs paid in full;
(b)the following debts which shall rank equally between and among the following :—
(i)workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and
(ii)debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;
(c)wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;
(d)financial debts owed to unsecured creditors;
(e)the following dues shall rank equally between and among the following:—
(i)any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;
(ii)debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;
(f)any remaining debts and dues; (g) preference shareholders, if any; and
(h)equity shareholders or partners, as the case may be.
(2)Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator.
(3)The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction.
Explanation.—For the purpose of this section—
(i)it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and
(ii)the term "workmen's dues" shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013.”
d. In view of aforesaid facts and circumstances, we are unable to agree with the Adjudicating Authority that the Operational Creditors are to bear the cost of CIRP/Liquidation and hence, we set aside the impugned order to the extent para 9.IX as appearing supra and rest part of the impugned order we uphold. Let Liquidation be continued and let amount be realized during Liquidation and be distributed in accordance with section 53 of the Code. We, accordingly, dispose of the appeal. No order as to costs.
Interim order, if any, stands vacated.