Court ruling: Claims during non-implementation period not priority debts under Insolvency and Bankruptcy Code

The court held that claims received during the non-implementation period between July 18, 2018, and July 7, 2019, could not be considered as insolvency resolution process costs or liquidation costs. As a result, these claims did not have priority over other dues as per the law. The judgment emphasized the application of section 53 of the Insolvency and Bankruptcy Code in determining the order of priority for various debts during the liquidation process.

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Issues Involved:
Clarification on the treatment of claims received during the non-implementation period between July 18, 2018, and July 7, 2019, under the Insolvency and Bankruptcy Code, 2016.

Analysis:

1. Background and Appointment of Liquidator:
The applicant, serving as the liquidator of the corporate debtor, sought clarity regarding claims received during the non-implementation period post the approval of the resolution plan on July 17, 2018, until the commencement of liquidation on July 8, 2019. The resolution plan was approved after the initiation of the corporate insolvency resolution process by the State Bank of India.

2. Failure to Implement Resolution Plan:
The applicant highlighted that the successful resolution applicant, Liberty House Group Pte Ltd., failed to implement the resolution plan, causing costs to accrue during the non-implementation period. These costs included workmen's dues, administrative costs, unpaid security personnel costs, and professional fees, despite the plant and business operations being shut down.

3. Claim Treatment and Priority:
The applicant raised concerns about the priority of claims accrued during the non-implementation period, especially those of workmen and employees. The application aimed to clarify whether these claims should take precedence over other dues as per the provisions of the Insolvency and Bankruptcy Code.

4. Legal Definitions and Regulations:
The judgment delved into the definitions of "insolvency resolution process costs" and "liquidation costs" as outlined in the Insolvency and Bankruptcy Code. It also referenced specific regulations regarding liquidation costs, fees payable to the liquidator, and costs essential for completing the liquidation process.

5. Distribution Pattern and Order of Priority:
Section 53 of the Insolvency and Bankruptcy Code concerning the distribution of proceeds from the sale of liquidation assets was examined. The section detailed the order of priority for various debts, including workmen's dues, debts owed to secured creditors, wages, financial debts, and dues to government entities, among others.

6. Disposition of the Application:
The judgment concluded that claims received during the non-implementation period could not be classified as insolvency resolution process costs or liquidation costs. Therefore, these claims did not hold priority over other dues as per the law. The statutory treatment of claims under section 53 of the Insolvency and Bankruptcy Code was deemed applicable for the resolution of the issue at hand.

In summary, the judgment provided a detailed analysis of the treatment of claims accrued during the non-implementation period under the Insolvency and Bankruptcy Code, emphasizing the order of priority and legal definitions governing such claims during the liquidation process.

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