August 9, 2021
Code – Insolvency and Bankruptcy Code, 2016
CIRP – Corporate Insolvency Resolution Process
AA – Adjudicating Authority (NCLT)
CD – Corporate Debtor
FC – Financial Creditor
OC – Operational Creditor
CoC – Committee of Creditors
IRP – Interim Resolution Professional
RP – Resolution Professional
RA – Resolution Applicant
The AA had ordered the initiation of CIRP, based on the OC’s argument about the faulty procedure followed by the CD – in sending the invoices to a different company address, in the lack of proof of delivery of material etc. The Appellant/CD argued that there was a valid pre-existing dispute on the amount of claim, based on invoices. The OC countered that the CD, in its reply to the demand notice, had falsely claimed a dispute about an outstanding amount without supporting invoices and delivery challans.
The Appellate Tribunal observed that a high turnover with the positive net worth may reflect good fund flow, but it does not substantiate a good cash flow. It held that there was no proof of CD’s counterclaim from OC, as it was unsupported by any documentary evidence, and confirmed the CIRP against the CD.
The OC had moved an application before the AA u/s. 12A of the Code, in terms of a settlement arrived with the CD. But the CoC had not yet been constituted in the matter. The AA had not taken up the matter for hearing and therefore, the Appellant had preferred an appeal.
The Appellate Tribunal allowed the withdrawal in the exercise of the powers conferred u/r. 11 of the NCLAT Rules. It ordered termination of the CIRP against the CD, and also exempted the CD from filing a notarized affidavit.
The Appellant viz. Assistant Commissioner of CGST & Central Excise had challenged the impugned order passed by the AA, approving the resolution plan submitted by Respondent No. 2. The Appellant had submitted claims of statutory dues to the tune of Rs. 73.76 crores, but the approved resolution plan towards statutory dues and claims was settled at nil value, and the claims stood extinguished. The Appellant argued that neither the impugned order nor the resolution plan had shown the reasons for arriving at nil value. It was submitted that the CD had evaded huge penalty and duty payable to the Central Government and that the resolution plan was discriminatory against the OC (government dues).
Respondent No. 1 contented that the approved resolution plan showed nil value on account of the valuation report and liquidation value computed in accordance with Section 30(2) of the Code. It was claimed that there had been no discrimination against the Appellant, as the provisions for workmen and employees and OCs (other than workmen and employees) have been provided on humanitarian grounds and for the continuous support of the CD.
The Appellate Tribunal noted that the liquidation value of the CD was valued at far below the amounts due and payable even to the secured FC, and provisions for workmen and other OCs could not be defaulted upon. The Appellate Tribunal relied on Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Limited to conclude that the resolution plan as had been passed was binding on the Appellant.
The Appellant had approached the Appellate Tribunal against the alleged material irregularities by the Liquidator of the CD. The Appellant had not filed an application u/s. 60(5) of the Code before the AA, and had directly filed an appeal before the Appellate Tribunal. The appeal was not admitted, and disposed of with the liberty to approach the concerned AA.
The application had sought a clarification in Paragraph 24 of Deccan Value Investors LP VS Dinkar T Venkatasubramanian & Ors RP of Amtek Auto Ltd where the Appellate Tribunal had observed that “lease has been entered into in accordance with law for renewing the existing lease hold rights”. The Applicant alleged that the aforesaid observation resulted in an anomalous situation contrary to the ratio of the judgment read as a whole. The Respondent relied on Delhi Administration v. Gurdip Singh Uban and Ors. to contend that the application was not one for clarification, but in reality had sought a review of the judgment of the Appellate Tribunal.
The Appellate Tribunal noted that the Code did not have any provisions to review/rehear any of its judgments. In Action Barter Private Limited v. SREI Equipment Finance Limited & Anr, the Appellate Tribunal had held that Rule 11 of the NCLAT Rules was limited in scope and could not permit reviewing the findings on merit or revising the judgment. Thus, the application for clarification was dismissed.
The Appellant alleged that the RP of the CD had not cleared their lease rent, maintenance bill and water bill. As per the lease agreement between the Appellant and the CD, the latter was obliged to pay the lease rent, maintenance and other charges along with GST, and interest in case of delay in payment of rent. The Appellant pointed out that the dues relate to the period after CIRP and such non-payment was in violation of Rule 31 & 32 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Appellate Tribunal held that lease rent, electricity and water bill are essential supplies that would form part of the Insolvency Resolution Process Cost vide Chapter IX of the Regulations r/w Sections 5(13)(e) and 14(2) of the Code.
The brief facts were that after the approval of the resolution plan by the CoC, the Respondent herein made a claim based on an arbitral award to the tune of Rs.35,67,05,337/-, with a delay of 287 days. The RP denied the claim, quoting that claims can be submitted only within 90 days of the CIRP date. The appeal was against the order of the AA directing the RP to consider the claim of the Respondent on merits.
The Appellant relied on Essar Steel India Ltd. v. Satish Kumar Gupta where the Supreme Court held that a successful resolution applicant cannot suddenly be faced with undecided claims after the resolution plan submitted by him had been accepted, as this would amount to a hydra head popping up. On the other hand, the Respondent relied on Brilliant Alloys Private Limited v. S. Rajagopal, where it was held that the time stipulation is merely directory and not mandatory. It was argued that the Respondent was unaware of the public notice inviting claims against the CD.
The Appellate Tribunal held that the AA was erroneous in view of Regulation 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 while observing that paper publication was not a proper service. The Appellate Tribunal observed that the RP had not failed in its duty in ascertaining the complete financial position of the CD. It was held that whenever any claim is filed after an extended period provided in Regulation 12(2) of the Regulations, the RP should reject the claim, and there is discretion with the RP in this regard. Thus, the appeal was allowed and the impugned order was set aside.
~ By Manikanda Prabhu J
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