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Judgment
Anant Bijay Singh;
This Appeal has been preferred by PJ Networks Pvt. Ltd. through its Managing Director Mr. Sanjay Seth aggrieved and dissatisfied by the order dated 18.03.2021 passed by the Ld. Adjudicating Authority (National Company Law Tribunal), New Delhi Bench-IV in IA No. 5364/(ND)/2020 in Company Petition No. (IB)/2695/(ND)/2019 whereby and where under the Application filed by "Mr. Pardeep Kumar Lakhani, Resolution Professional of M/s. Dion Global Solutions Ltd." (Respondent herein) was allowed with directions the Respondent No. 1 to 5 herein to refund all payments received by them on 19.08.2020 and 20.08.2020 respectively details of the order as hereunder:
" a) Respondent No. 1 to refund an amount of Rs. 1,26,522/- in the account of corporate debtor under the control of the applicant/RP.
b) Respondent No. 2 to refund an amount of Rs. 89,694/- in the account of corporate debtor under the control of the applicant/RP.
c) Respondent No. 3 to refund an amount of Rs. 4,08,290/- in the account of corporate debtor under the control of the applicant/RP.
d) Respondent No. 4 to refund an amount of Rs. 1,578/- in the account of corporate debtor under the control of the applicant/RP.
e) Respondent No. 5 to refund an amount of Rs. 11,63,683/- in the account of corporate debtor under the control of the applicant/RP.
In the above terms, application is allowed and disposed off."
The facts giving rise in the instant Appeal are as under:
i) The Company Petition No. IB-2695/ND/2019 was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short IBC) by one M/s Mykind Vacations Pvt. Ltd. (Operational Creditor) against the M/s Dion Global Solutions Ltd. (Corporate Debtor) and the same was admitted by the Ld. Adjudicating Authority on 18.08.2020 wherein Mr. Pardeep Kumar Lakhani (Respondent herein) was appointed Interim Resolution Professional (for short IRP).
ii) The Resolution Professional (Respondent herein) filed Application under Section 60(5) of the IBC, 2016 bearing IA No. 5364/(ND)/2020 in Company Petition No. (IB)/2695/(ND)/2019 with the following prayers:
" a) Pass an order to declare the transaction of payment on 19.08.2020 made by Corporate Debtor to Respondent No. 1 as non-est in law and direct Respondent No 1 to pay to the Corporate Debtor a sum of Rs. 1,26,522/- in the Bank Account bearing No. 00030340025085 in HDFC Bank, Sector 125 Noida Branch;
b) Pass an order to declare the transaction of payment on 20.08.2020 made by Corporate Debtor to Respondent No. 2 as non-est in law and direct Respondent No 2 to pay to the Corporate Debtor a sum of Rs. 89,694/- in the Bank Account bearing No. 00030340025085 in HDFC Bank, Sector 125 Noida Branch;
c) Pass an order to declare the transaction of payment on 20.08.2020 made by Corporate Debtor to Respondent No. 3 as non-est in law and direct Respondent No 3 to pay to the Corporate Debtor a sum of Rs. 4,08,290/- in the Bank Account bearing No. 00030340025085 in HDFC Bank, Sector 125 Noida Branch;
d) Pass an order to declare the transaction of payment on 20.08.2020 made by Corporate Debtor to Respondent No. 4 as non-est in law and direct Respondent No 4 to pay to the Corporate Debtor a sum of Rs. 1,578/- in the Bank Account bearing No. 00030340025085 in HDFC Bank, Sector 125 Noida Branch;
e) Pass an order to declare the transaction of payment on 20.08.2020 made by Corporate Debtor to Respondent No. 5 as non-est in law and direct Respondent No 5 to pay to the Corporate Debtor a sum of Rs. 11,63,683/- in the Bank Account bearing No. 00030340025085 in HDFC Bank, Sector 125 Noida Branch;"
iii) The Respondent herein took over the affairs of the Corporate Debtor in terms of Section 17 of the IBC and CIRP Regulations on 27.08.2020. In the 1st CoC meeting the Respondent herein was confirmed as the Resolution Professional of the Corporate Debtor.
iv) Further, the Respondent herein perused the Bank Account bearing No. 00030340025085 in HDFC Bank, Sector 125 Noida Branch of the Corporate debtor, it was found that payments to the tune of Rs. 17,89,767/- have been made by employees on 19.08.2020 and 20.08.2020 to the creditors of the Corporate Debtor (being the vendors and the Government Authorities). The details transactions are as under:
Date
Amount Paid
Description of Payment
19.08.2020
1,26,522
Payment to PJ Networks for the period of 15- 08-2020 to 16-08-2021
20.08.2020
4,08,290
Payment to PF Department : (Employer and Employee contribution) for the month of July 2020
20.08.2020
1,578
Employee State Insurance Department: Employer and Employee Contribution for the month of July 2020
20.08.2020
89,694
Adernalin eSystems Limited: Monthly Subscription for Cloud HR platform
20.08.2020
11,63,683
GST Department: Goods and service Tax for the month of July 2020
v) Further case is that the said payments had been made even before the Respondent herein took charge of the Corporate Debtor and the payments were made for the services availed by the Corporate Debtor prior to the CIRP period. The copy of Bank statements for the month of August 2020 and copy of invoices, challanas and payment proofs have been annexed. The Respondent (RP) immediately, in order to recover the said amount transferred illegally to vendors of Corporate Debtor, filed the application and after hearing the parties the Ld. Adjudicating Authority vide order 18.03.2021 allowed the Application filed by the Resolution Profession (Respondent herein) and hence this Appeal.
Submissions on behalf of the Appellant
The Learned Counsel for the Appellant in his memo of Appeal along with Written Submissions submitted that the Appellant is rendering essential services i.e. "Information Technology Services" as envisaged under Section 14(2) of the IBC, 2016 read with Regulation 32 of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons), Regulations, 2016 (CIRP Regulations).
The Learned Counsel for the Appellant further submitted that the Corporate Debtor claims that it provides technology solutions for wealth managers, brokers, banks and financial institutions etc. The Appellant claim's that for protecting Corporate debtor's financial / consultation transactions etc. requires it requires "Firewall services" which is an "Information Technology Service".
it is further submitted that these essential services being rendered by the Appellant are subscription based and were sold to the Corporate Debtor after a purchase order dated 11.08.2020 (at page 33 of the Appeal Paper Book) was issued. The services were made available to the Corporate Debtor on 15.08.2020 and were subscribed for till 16.08.2021 (at page 63 of the Appeal Paper Book) which is admitted by the Resolution Professional (Respondent herein), are being used by Corporate Debtor even as on date.
It is further submitted that the IRP was appointed vide order dated 18.08.2020 passed while deciding application in terms of Section 9(5) of the IBC, 2016, the copy of which at page 70 to 82 of the Appeal Paper Book.
The Learned Counsel for the Appellant further submitted that in terms of the aforesaid order, the payments for essential services were an exception to the general moratorium as they fell under Section 14(2) of IBC, 2016. Section 14 (2) & (3) of IBC, 2016 reads as under:
"14(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
(3) The provisions of sub-section (1) shall not apply to-
(a) such transaction as may be notified by the Central Government in consultation with any financial regulator;
(b) a surety in a contract of guarantee to a corporate debtor."
The Learned Counsel for the Appellant while referring on Judgment passed by this Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 334 of 2017 " Dakshin Gujarat VIJ Company Ltd. Vs. M/s. ABG Shipyard Ltd. & Anr. dated 08.02.2018 wherein Hon'ble Bench of this Tribunal held as under:
" 13. However, from the provisions of 'I&B Code' and Regulations, we find that no prohibition has been made or bar imposed towards payment of current charges of essential services. Such payment is not covered by the order of 'Moratorium'. Regulation 31 cannot override the substantive provisions of Section 14; therefore, if any cost is incurred towards supply of the essential services during the period of 'Moratorium', it may be accounted towards 'Insolvency Resolution Process Costs', but law does not stipulate that the suppliers of essential goods including, the electricity or water to be supplied free of cost, till completion of the period of 'Moratorium'. Payment if made towards essential goods to ensure that the Company remains on-going as made in the present case for the month of December, 2017, such amount can be accounted towards 'Insolvency Resolution Process Costs', but it does not mean that supply of essential goods such as electricity to be supplied free of cost and the 'Corporate Debtor' is not liable to pay the amount till the completion of the period of 'Moratorium'. If the 'Corporate Debtor' has no fund even to pay for supply of essential goods and services, in such case, the 'Resolution Professional' cannot keep the Company on-going just to put additional cost towards supply of electricity, water etc. In case the 'Corporate Debtor' (Company) is non-functional due to paucity of fund, and has become sick the question of keeping it on going does not arise."
It is further submitted that the Ld. Adjudicating Authority while passing the impugned order as in this matter which is not accordance with law. So, based on these submissions the impugned order is fit to be set aside and the Appeal be allowed.
Submissions on behalf of the Respondent
The Learned Counsel for the Respondent during the course of argument and his Reply Affidavit submitted that the payment to the tune of Rs. 17,89,767/- was made by employees of the Corporate Debtor after the CIRP order was passed by the Ld. Adjudicating Authority imposing moratorium on the Corporate Debtor but before the Respondent received the communication from the Hon'ble NCLT regarding his appointment as the IRP in the CIRP of Corporate Debtor on 24.08.2020.
It is further submitted that the act of transfer of the amount of Rs. 17,89,767/- was during the effect of Section 14 of IBC, it is synonymous to alienation of assets of the Corporate Debtor. Thus, the Respondent filed an application bearing I.A. No. 5364/2020 ("Reversal Application") before the ld. Adjudicating Authority and the Ld. Adjudicating Authority after hearing the parties allowed the said Application on 18.03.2021.
It is further submitted that the instant Appeal filed by the Appellant is based on the presumption that the services being provided by it are "essential services" under Regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. For convenience, this regulation is reproduced below:
"The essential goods and services referred in Section 14(2) shall mean:
Electricity
Water
Telecommunication Services
Information Technology Services
To the extent, these are not a direct input to the output produced or supplied by the corporate debtor Section 14(2)"
However, the Appellant has conveniently ignored that any of the services mentioned in Regulation shall only mean to be an essential service if such service is a not direct input towards the output produced/supplied by the Corporate Debtor. The Appellant falls under this category of essential services which have a direct bearing on the operation of the Corporate Debtor's output.
It is further submitted that it is a settled law established and laid down in Company Appeal (AT) (Insolvency) No. 331 of 2019 "M. Ravindranath Reddy v. G. Kishan and Ors." that a service cannot deemed to be essential if they are direct input to the output produced or supplied by the Corporate Debtor. In fact, such a service can only fit in the category of an "Operational Debt". The relevant extract of the judgment is reproduced below:
"Further, from the usage of the term "goods or services" as given under Section 14(2) of the Code, provides that "essential goods or services", of the corporate debtor shall not be terminated or suspended or interrupted during the moratorium. What constitute essential goods and services are provided under Regulation 32 (Insolvency Resolution Process for corporate persons) Regulation 2016 wherein it is provided that; The essential goods and services referred to in Sec 14(2) shall mean:
1 Electricity
2 Water
3 Telecommunication Services
4 Information Technology Services
To the extent, these are not a direct input to the output produced or supplied by the corporate debtor.
Thus, any debt arising without nexus to the direct input to the output produced or supplied by the corporate debtor, cannot, in the context of Code, be considered as an operational debt, even though it is a claim amounting to debt."
Therefore, the Appellant has a case only as an Operational Creditor at best and cannot presume that the services provided by it are "essential services" under Regulation 32 of the CIRP Regulations and hence, there is no reason for the Appellant to comply with the impugned order.
It is further submitted that the Ld. Adjudicating Authority has considered all these aspects of the matter and rightly passed the impugned order. So, based on these submissions there is no merit in the instant Appeal, the Appeal is fit to be dismissed.
FINDINGS
After hearing the parties and having gone through the pleadings made on behalf of the parties. From the perusal of the Reply Affidavit filed by the Respondent/ Resolution Professional shows that the Appellant herein have not taken the plea of Section 14(2) of the IBC before the Ld. Adjudicating Authority which he has taken valid service which was rendered by the Appellant fall within the definition of essential services. The Ld. Adjudicating Authority in the impugned order which is at page 20 to 27 of the Appeal Paper Book have not discussed the matter.
Further, From the perusal of the paragraph 4 of the impugned order at page 24 of the Appeal Paper Book (supra), all payments were made after the CIRP in the matter (M/s Mykind Vacations Pvt. Ltd. (Operational Creditor) Vs. M/s Dion Global Solutions Ltd. (Corporate Debtor) vide order dated 18.08.2020. Therefore, the Ld. Adjudicating Authority has rightly passed the impugned order to refund all payments received by them on 19.08.2020 and 20.08.2020 respectively.
In view of the above, we are of the considered view that there is no illegality committed by the Ld. Adjudicating Authority while passing the impugned order therefore, we do not need to interfere in the impugned order. The impugned order dated 18.03.2021 passed by the Ld. Adjudicating Authority (National Company Law Tribunal), New Delhi Bench-IV in IA No. 5364/(ND)/2020 in Company Petition No. (IB)/2695/(ND)/2019 is hereby affirmed. There is no merit in the Appeal. The Appeal is hereby dismissed.
Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the Ld. Adjudicating Authority (National Company Law Tribunal), New Delhi Bench-IV forthwith.