2019 (6) TMI 167 - AT - Insolvency and Bankruptcy

Adjudicating Authority's Jurisdiction Over CIRP Exceeded; CoC Actions Limited; Order Set Aside

The Adjudicating Authority exceeded its jurisdiction by converting the Corporate Insolvency Resolution Process (CIRP) to Fast Track Corporate Insolvency ... Whether in a ‘Corporate Insolvency Resolution Process’ triggered u/ss 7 or 9 or 10 of the ‘I&B Code’, the Adjudicating Authority has power to convert the ‘Corporate Insolvency Resolution Process’ as a ‘Fast Track Corporate Insolvency Resolution Process’ u/s 55 of the ‘I&B Code’? - HELD THAT:- In the present case, the application was not filed under Section 55 but u/s 9 of the ‘I&B Code’. In terms of Section 12 ‘Corporate Insolvency Resolution Process’ was required to be completed within 180 days from the date of admission. Sub-section (3) of Section 12 empowers the Adjudicating Authority to extend the period beyond 180 days but it cannot exceed 90 days - the Adjudicating Authority has no jurisdiction to proceed with the ‘Corporate Insolvency Resolution Process’ beyond the period of 270 days having not empowered under the provisions of the ‘I&B Code’. Sub-section (2) of Section 55 of the ‘I&B Code’ stipulates that an application for ‘Fast Track Corporate Insolvency Resolution Process’ can be made against (i) the ‘Corporate Debtor’ whose assets and income is below a level, as may be notified by the Central Government or (ii) the ‘Corporate Debtor’ with such class of creditors or (iii) such other category of corporate persons as may be notified by the Central Government - the ‘Fast Track Corporate Insolvency Resolution Process’ is different from ‘Corporate Insolvency Resolution Process’ against such ‘Corporate Debtor(s)’ as may be notified by the Central Government in terms of clauses (a), (b) & (c) of sub-section (2) of Section 55. The Adjudicating Authority exceeded its jurisdiction by extending the period of 90 days after completion of 270 days of the ‘Corporate Insolvency Resolution Process’ wrongly exercising its power under sub-section (2) of Section 55 which is not applicable - answered in negative. Whether ‘Committee of Creditors’ had jurisdiction to replace the ‘Resolution Professional’ after completion of 270 days? - HELD THAT:- After completion of 270 days, the ‘Committee of Creditors’ ceased to exist and thereby they have no jurisdiction to replace a ‘Resolution Professional’ u/s 22 of the ‘I&B Code’. Even if the decision to replace the ‘Resolution Professional’ is taken prior to 270 days, in absence of any order passed by the Adjudicating Authority, such decision cannot be entertained on completion of 270 days. However, the ground taken by the ‘Committee of Creditors’ can be looked into by the Adjudicating Authority to decide whether the same ‘Resolution Professional’ should be allowed to continue as ‘liquidator’ of the ‘Corporate Debtor’ - answered in negative. Whether Adjudicating Authority is empowered to decide the resolution cost, including the resolution fee payable to the ‘Resolution Professional’? - HELD THAT:- In case ‘Corporate Insolvency Resolution Process’ fails and order of liquidation is passed u/s 33 in such case, the ‘Resolution Professional’ can be removed if it is found that he has violated Section 30(2) or otherwise he is to be allowed to function as ‘liquidator’ - In the present case, as no order has been passed under Section 31, nor any order has been passed by the Adjudicating Authority u/s 33, we hold that the Adjudicating Authority had no jurisdiction to decide the resolution cost including the fee of the ‘Resolution Professional’. The impugned order dated 25th July, 2018 is set aside - The Adjudicating Authority is directed to pass order u/s 31 but if no ‘Resolution Plan’ has been approved, the Adjudicating Authority will pass order u/s 33 of the ‘I&B Code’, more than 270 days having expired - Appeal allowed. Issues Involved:1. Conversion of Corporate Insolvency Resolution Process (CIRP) to Fast Track Corporate Insolvency Resolution Process (FIRP).2. Jurisdiction of the Committee of Creditors (CoC) to replace the Resolution Professional (RP) after 270 days.3. Adjudicating Authority's power to decide the resolution cost, including the resolution fee payable to the RP.Issue-wise Detailed Analysis:Issue No. 1: Conversion of CIRP to FIRPChapter IV of the I&B Code deals with Fast Track Corporate Insolvency Resolution Process. Section 55 specifies that an application for FIRP can be made against corporate debtors with assets and income below a level notified by the Central Government, or with a specific class of creditors or debt amount as notified by the Central Government.In this case, the application was filed under Section 9 of the I&B Code, not Section 55. Therefore, the CIRP was required to be completed within 180 days from the date of admission, with a possible extension of 90 days, totaling 270 days. The Adjudicating Authority does not have jurisdiction to extend the CIRP beyond 270 days under the provisions of the I&B Code.The Corporate Debtor, S.N. Plumbing Private Limited, does not fall under the categories specified in Section 55(2) for FIRP. Thus, the Adjudicating Authority exceeded its jurisdiction by extending the period of 90 days after the completion of 270 days, wrongly exercising its power under Section 55. Accordingly, Issue No. 1 is answered in the negative.Issue No. 2: Jurisdiction of CoC to Replace RP After 270 DaysAfter the completion of 270 days of CIRP, the Adjudicating Authority can pass an order under Section 31 of the I&B Code if a Resolution Plan has been approved by the CoC. In the absence of a Resolution Plan, the Adjudicating Authority must pass an order under Section 33 to initiate liquidation proceedings against the Corporate Debtor.After 270 days, the CoC ceases to exist and thus has no jurisdiction to replace the RP under Section 22 of the I&B Code. Even if the decision to replace the RP is taken before 270 days, it cannot be entertained after the completion of 270 days without an order from the Adjudicating Authority. The grounds for replacing the RP can be considered by the Adjudicating Authority to decide whether the same RP should continue as the liquidator of the Corporate Debtor. Issue No. 2 is also answered in the negative.Issue No. 3: Adjudicating Authority's Power to Decide Resolution CostSection 30(2)(a) of the I&B Code deals with the resolution cost, including the fee of the RP and actual expenses incurred. The RP must examine the Resolution Plan to ensure it provides for the payment of Insolvency Resolution Process Costs in priority to other debts of the Corporate Debtor.Regulations 31, 33, and 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, outline the determination of Insolvency Resolution Process Costs, including the fee of the RP. The CoC is required to determine these costs, which are then included in the Resolution Plan.Once the CoC determines the Resolution Plan, the Adjudicating Authority cannot alter it, except in cases of arithmetical errors. If the CIRP fails and a liquidation order is passed under Section 33, the RP can be removed if found in violation of Section 30(2); otherwise, the RP continues as the liquidator.In this case, no order was passed under Sections 31 or 33. Thus, the Adjudicating Authority had no jurisdiction to decide the resolution cost, including the fee of the RP. Issue No. 3 is answered accordingly.Conclusion:The Adjudicating Authority had no jurisdiction to convert CIRP under Sections 7, 9, or 10 of the I&B Code to FIRP under Section 55. It was duty-bound to pass an order under Section 31 in the absence of a Resolution Plan. The impugned order dated 25th July 2018 is set aside. The Adjudicating Authority is directed to pass an order under Section 31 or Section 33, as appropriate, since more than 270 days have expired.Pursuant to the interim order of this Appellate Tribunal dated 24th September 2018, a sum of Rs. 20 lacs, including GST, has already been paid to the Appellant. While the Resolution Cost will be determined by the Adjudicating Authority, the amount already paid should be adjusted. If further amount is payable, it should be paid to the Appellant. If a lesser amount is determined, the Appellant must refund the excess amount immediately. The appeal is allowed with the aforesaid observation. No order towards cost.