Tribunal decision: Vendor payments during insolvency process are essential costs

The Tribunal partly allowed the appeal, directing the Resolution Professional not to deduct Rs. 34 crores from the final payment to the Appellant, considering it as Corporate Insolvency Resolution Process (CIRP) costs. The Tribunal emphasized that payments to vendors during CIRP were essential to maintain the Corporate Debtor as a going concern and should be classified as CIRP costs.

---

---

Issues Involved:
1. Modification of the Approved Resolution Plan.
2. Compliance with Regulations 42 and 44 of the Liquidation Process Regulation 2016.
3. Deduction of Rs. 34 crores from the final payment to the Appellant.
4. Inclusion of amounts towards LC payments and Bank Guarantee payments in the total admitted claim of the Appellant.
5. Classification of the Non-Fund Based Facility as financial debt.
6. Treatment of the amount paid to vendors during CIRP as interim finance or CIRP cost.
7. Role and responsibilities of the Resolution Professional and Committee of Creditors.

Analysis of Judgment:

1. Modification of the Approved Resolution Plan:
The Appellant sought modification of the Approved Resolution Plan to comply with Regulations 42 and 44 of the Liquidation Process Regulation 2016. The Adjudicating Authority rejected this request, stating that the decisions of the Committee of Creditors (CoC) passed with the required majority percentage are binding on all stakeholders, including dissenting members.

2. Compliance with Regulations 42 and 44 of the Liquidation Process Regulation 2016:
The Appellant argued that the Resolution Plan did not comply with Regulations 42 and 44, which pertain to the distribution of proceeds and completion of liquidation. The Tribunal noted that the CoC's decisions are binding, and the Adjudicating Authority's role is to ensure compliance with the Code and Regulations.

3. Deduction of Rs. 34 crores from the final payment to the Appellant:
The Appellant contended that the Rs. 34 crores paid to the vendors of the Corporate Debtor (CD) should not be treated as recovery and deducted from the final payment. The Tribunal found that the payments made to vendors against the Letter of Credit (LC) during the Corporate Insolvency Resolution Process (CIRP) should be considered CIRP costs and should not be deducted from the Appellant's final payment.

4. Inclusion of amounts towards LC payments and Bank Guarantee payments in the total admitted claim of the Appellant:
The Appellant sought the inclusion of amounts towards LC payments and Bank Guarantee payments in its total admitted claim. The Tribunal agreed that these amounts should be considered CIRP costs, as they were necessary to keep the CD as a going concern during the CIRP.

5. Classification of the Non-Fund Based Facility as financial debt:
The Appellant argued that the Non-Fund Based Facility (NFB Facility) falls within the definition of financial debt under Section 5(8)(h) of the IBC. The Tribunal acknowledged that the NFB Facility was necessary for the CD's operations and should be treated as interim finance or CIRP cost.

6. Treatment of the amount paid to vendors during CIRP as interim finance or CIRP cost:
The Tribunal emphasized that the payment of the amount to vendors during CIRP should be treated as CIRP cost. The Resolution Professional (RP) admitted that the continuation of the NFB Facility was essential for the CD's operations. Therefore, the payments made to vendors should not be deducted from the Appellant's final payment under the Resolution Plan.

7. Role and responsibilities of the Resolution Professional and Committee of Creditors:
The Tribunal highlighted the duties of the RP under Sections 20 and 25 of the IBC to maintain the CD as a going concern and raise interim finance with CoC's approval. The RP's suggestion to the CoC to either treat the amount as interim finance or deduct it from the Appellant's payment was deemed erroneous. The Tribunal clarified that it was the RP's responsibility to classify the expenses as CIRP costs and obtain CoC's approval for payment.

Conclusion:
The Tribunal partly allowed the appeal, directing the RP not to deduct Rs. 34 crores from the final payment to the Appellant, as it constituted CIRP costs. The Tribunal emphasized that the payments made to vendors during CIRP were necessary to keep the CD as a going concern and should be treated as CIRP costs.

---