2022 (8) TMI 318 - Tri - Insolvency and Bankruptcy

Financial Creditors Must Cover Shortfall in Liquidation Costs per Tribunal Directive

Chhaya Gupta, Liquidator of Rajpal Autolink Pvt. Ltd. Versus State Bank of India and Ors.

The Tribunal directed financial creditors to pay remaining liquidation costs if the value falls short, aligning with IBBI regulations. It emphasized ... Seeking appropriate directions against the Respondents to pay the professional fee of the Applicant and to contribute liquidation cost for conducting the Liquidation process of the Corporate Person M/s. Rajpal Autolink Pvt. Ltd. - section 60(5) of the Insolvency and Bankruptcy Code, 2016 r.w. Rule 11 of NCLT Rules, 2016 and Regulation 2A of the IBBI (Liquidation Process) Regulation, 2016 - HELD THAT:- It is noted that as per the order dated 09.08.2021 by this Adjudicating Authority, it was directed to all the financial institutions of the Corporate Person to deposit Rs. 50,000/- each in the account of the liquidator. One of the financial institutions SBI has already deposited the above-said amount. The liquidation value is reported to be less than the liquidation cost. As a result, as per regulation 2A of the IBBI (Liquidation Process) regulation, 2016 the remaining amount of the liquidation cost which is not paid to the liquidator has to be paid by the financial creditor to the liquidator. The liquidation cost as quantified in the application should be paid to the liquidator within 7 days from today - application allowed. Issues:Interpretation of section 60(5) of the Insolvency and Bankruptcy Code, 2016 regarding professional fee payment and liquidation cost contribution.Evaluation of the COC's decision not to appoint a registered valuer for asset valuation.Determination of the responsibility of financial creditors to bear liquidation costs.Assessment of the liquidator's professional fee and expenses incurred during the liquidation process.Analysis:1. Interpretation of Section 60(5) of the Insolvency and Bankruptcy Code, 2016:The Liquidator filed an application under section 60(5) seeking directions for professional fee payment and liquidation cost contribution. The Adjudicating Authority noted the obligation of financial creditors to pay the remaining liquidation cost if the value falls short. The Tribunal directed the financial creditor to pay the liquidation cost within 7 days, aligning with the IBBI regulations.2. COA's Decision on Valuation of Assets:The COC decided not to appoint a valuer due to the absence of assets, which was challenged by the Liquidator. The Liquidator, after taking charge, appointed an auditor to prepare financial statements for accurate asset evaluation. The Tribunal emphasized the importance of proper asset valuation even in cases where assets seem unrealizable, ensuring transparency in the liquidation process.3. Responsibility of Financial Creditors:The Respondents, as financial creditors, disputed the payment of professional fees and liquidation costs, citing lack of directions. However, the Tribunal held that financial creditors, including financial institutions, are responsible for bearing liquidation costs exceeding the value. The Tribunal emphasized the financial creditors' duty to cover expenses beyond the liquidation value.4. Assessment of Liquidator's Expenses:The Respondents raised concerns over the Liquidator's expenses, questioning the necessity and transparency of certain costs incurred. Despite partial payments and agreements on expenses, the Tribunal emphasized the importance of proper representation and cost management by the Liquidator, ensuring accountability and communication with financial creditors.In conclusion, the Tribunal's judgment clarified the obligations of financial creditors, emphasized the importance of accurate asset valuation, and highlighted the need for transparent communication and cost management by the Liquidator during the liquidation process.