Distribution of liquidation costs based on realization percentage, excluding certain fees, for secured creditors.

The Tribunal concluded that the distribution of CIRP & liquidation costs should be based on the percentage of realization, with insolvency resolution process costs and liquidation costs deducted before distribution. Regulation 2A did not apply to the liquidation proceedings as it commenced before the amendment date. The period of dispute between the liquidator and secured creditor should be excluded when calculating the liquidator's fees. Secured creditors who realized their property were directed to pay liquidation costs incurred after realization from the funds realized.

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Issues Involved:
1. Percentage of distribution of CIRP & liquidation cost.
2. Applicability of Regulation 2A of IBBI (Liquidation Process) Regulations, 2016.
3. Exclusion of the period of dispute between liquidator & secured creditor for calculating the liquidator's fees.
4. Liability of secured creditors to pay liquidation costs after realization of their property.

Issue-wise Detailed Analysis:

I. Percentage of Distribution of CIRP & Liquidation Cost:
The application sought directions on whether the distribution of CIRP & liquidation cost should be based on the percentage of claim admitted or the percentage of realization. The applicant contended that there is no specific provision in IBC, 2016 or the regulations for this calculation. Respondent No. 1 (SIDBI) argued for distribution based on voting rights during CIRP, while Respondents No. 2 & 3 agreed with the applicant's calculation based on realization. The Tribunal emphasized that as per Section 53 of IBC, 2016 and Regulation 42 of IBBI (Liquidation Process) Regulations, 2016, the insolvency resolution process costs and liquidation costs must be deducted before distribution. The fees payable to the liquidator should be deducted proportionately from the proceeds payable to each class of recipients. Hence, the Tribunal concluded that the fees should be calculated on the basis of realization, and Respondents No. 2 & 3 had no objections to this method.

II. Applicability of Regulation 2A of IBBI (Liquidation Process) Regulations, 2016:
The second issue was whether Regulation 2A, amended on 25.07.2019, applied to the liquidation proceedings of the company. The applicant argued that the regulation is not applicable to liquidation processes commenced before the amendment date. The Tribunal agreed, noting that the liquidation process in this case started on 25.09.2018. Therefore, Regulation 2A, which requires financial creditors to contribute to excess liquidation costs, did not apply. The realization from assets was sufficient to cover the liquidation costs, making SIDBI's contention invalid.

III. Exclusion of Period of Dispute for Calculating Liquidator's Fees:
The third issue was whether the period of dispute between the liquidator and the secured creditor should be excluded in calculating the liquidator's fees. The applicant cited delays due to unresolved issues with SIDBI, which were eventually decided by the Tribunal. The Tribunal acknowledged the applicant's bona fide efforts and the circumstances leading to the delay. Thus, it concluded that the period of dispute should be excluded when calculating the liquidator's fees, aligning with the intent of regulation 21A of IBBI (Liquidation Process) Regulations, 2016.

IV. Liability of Secured Creditors to Pay Liquidation Costs After Realization:
The fourth issue concerned whether secured creditors, who realized their property under Section 52 of IBC, 2016, were liable to pay liquidation costs incurred after realization. Respondent No. 3 (Corporation Bank) objected to bearing these costs. The Tribunal noted that the liquidation cost should be met from the funds realized in liquidation, given the peculiar situation where the delay was due to disputes between the applicant and SIDBI. Therefore, it directed the liquidator to prioritize meeting the liquidation costs from the realized funds.

Conclusion:
The Tribunal provided clear directions on each issue, emphasizing the need for proportional calculation of fees based on realization, non-applicability of Regulation 2A to pre-amendment liquidation processes, exclusion of dispute periods for fee calculation, and prioritizing liquidation costs from realized funds. The applications CA/135/2019 and IA/3570 of 2020 were disposed of accordingly.

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