Appellate tribunal sets aside jurisdictional overreach, upholds liquidator's compliance with insolvency laws.

The appellate tribunal partially allowed the appeal by setting aside the Adjudicating Authority's order, which exceeded its jurisdiction by reviewing its own decision. It emphasized the liquidator's compliance with the Insolvency and Bankruptcy Code and related regulations, justifying the distribution of funds. The tribunal disposed of the pending application without issuing any cost orders.

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Issues Involved:
1. Legality of the distribution of funds from working capital and profit before the liquidation of assets.
2. Validity of salary deductions from employees by the liquidator.
3. Compliance with the Insolvency and Bankruptcy Code, 2016 (IBC) and related regulations by the liquidator.
4. Jurisdiction and powers of the Adjudicating Authority (NCLT) in reviewing its own orders.
5. Impact of the IBBI's interim order on the liquidator's actions.

Detailed Analysis:

1. Legality of the Distribution of Funds from Working Capital and Profit Before Liquidation of Assets:
The Adjudicating Authority initially allowed the distribution of funds among stakeholders, including employees, as per Section 53 of the IBC. However, this decision was reversed in a subsequent order, which held that such distribution from working capital and profit before liquidating the assets was not in conformity with the provisions of the Code and Regulations. The liquidator had distributed Rs. 21 Crore to various banks, justifying it as a measure to reduce the debt burden of the Corporate Debtor (CD). The liquidator argued that keeping surplus funds idle served no purpose and that the distribution was in compliance with the Code and Liquidation Regulations. The liquidator also took undertakings from the financial creditors to return the money if found not entitled, as per Regulation 43 of the IBBI (Liquidation Process) Regulations, 2016.

2. Validity of Salary Deductions from Employees by the Liquidator:
The Adjudicating Authority found the pay cuts from the salaries of the employees to be arbitrary and unjust. It directed the liquidator to repay the deducted salary amounts with applicable bank interest. The liquidator complied with this order and paid the deducted amounts to the employees in June 2020, with the interest paid in September 2020. The liquidator contended that there were no subsisting claims from employees and that all employees were receiving their salaries regularly.

3. Compliance with the Insolvency and Bankruptcy Code, 2016 (IBC) and Related Regulations by the Liquidator:
The liquidator argued that all disbursements were made following decisions taken in Stakeholders Consultation Committee (SCC) meetings and were in line with the Code and Liquidation Regulations. The liquidator emphasized that the recovery from old debtors formed part of the liquidation estate and that the distribution was done within the stipulated 90 days from receipt, as required by Regulation 42. The IBBI, however, found that the liquidator had violated the provisions of the Code and related regulations, leading to a temporary prohibition on the liquidator from undertaking new assignments.

4. Jurisdiction and Powers of the Adjudicating Authority (NCLT) in Reviewing its Own Orders:
The Adjudicating Authority's order dated 26.06.2020 effectively reviewed and reversed its earlier order dated 14.01.2020. The appellate tribunal noted that the Adjudicating Authority only has the power to rectify any mistake apparent from the record under Section 420 of the Companies Act, 2013, read with Rule 154 of the NCLT Rules, 2016. The Code provides for appeals to the Appellate Tribunal under Section 61. The appellate tribunal concluded that the Adjudicating Authority exceeded its jurisdiction by reviewing its own order, which amounted to an appeal rather than a rectification of a mistake.

5. Impact of the IBBI's Interim Order on the Liquidator's Actions:
The IBBI's interim order dated 29.10.2020 found that the liquidator had made distributions without complying with the provisions of the Code and related regulations, resulting in a 90-day prohibition on the liquidator from taking new assignments. The liquidator contended that the distribution was made after taking appropriate undertakings from the banks and was in compliance with the Code. The appellate tribunal observed that the liquidator had acted in accordance with the decisions taken in SCC meetings and had complied with Regulation 43 by obtaining undertakings from the financial creditors.

Conclusion:
The appellate tribunal partially allowed the appeal by setting aside the impugned order of the Adjudicating Authority dated 26.06.2020. It held that the Adjudicating Authority had exceeded its jurisdiction by reviewing its own order. The tribunal emphasized that the liquidator's actions were in compliance with the Code and related regulations, and the distribution of funds was justified. The pending application was disposed of, and no order as to costs was made.

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