Locus standi in IBC appeals and distribution of cash profits during liquidation upheld under the liquidation framework.
An appeal under Section 61 of the Insolvency and Bankruptcy Code was held maintainable only at the instance of an aggrieved person, and ex-director and employee appellants were found not to have shown sufficient legal interest to challenge the order. The Tribunal also held that accumulated cash profits lying in the corporate debtor's bank account during liquidation could be distributed under the liquidation framework, because the order did not concern sale proceeds of liquidation assets and there was no breach of Section 53 of the Code or Regulations 32, 41 and 42 of the Liquidation Process Regulations. The impugned order was upheld and the challenge dismissed with costs.
Issues: (i) Whether the appellants had locus standi and whether the appeals were maintainable under the Insolvency and Bankruptcy Code, 2016. (ii) Whether the liquidator could distribute accumulated cash profits lying in the corporate debtor's bank account during liquidation in accordance with the waterfall mechanism.
Issue (i): Whether the appellants had locus standi and whether the appeals were maintainable under the Insolvency and Bankruptcy Code, 2016.
Analysis: The appeals were filed by persons claiming to be an ex-director and an employee, even though the liquidation order had already been passed and the application before the Adjudicating Authority had already arrayed representatives of employees and shareholders. The Tribunal held that an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 lies only at the instance of an aggrieved person, and the appellants did not show a sufficient legal interest to challenge the impugned order.
Conclusion: The appeals were not shown to be maintainable at the instance of the appellants.
Issue (ii): Whether the liquidator could distribute accumulated cash profits lying in the corporate debtor's bank account during liquidation in accordance with the waterfall mechanism.
Analysis: The impugned order did not direct distribution of sale proceeds of liquidation assets. It concerned accumulated cash profits already lying in the corporate debtor's bank account. The Tribunal held that the liquidator, being custodian of the liquidation account, was justified in seeking directions for distribution of such surplus amounts, and found no violation of Section 53 of the Insolvency and Bankruptcy Code, 2016 or of Regulations 32, 41 and 42 of the IBBI (Liquidation Process) Regulations, 2016.
Conclusion: The distribution of accumulated cash profits was held to be permissible and in accordance with law.
Final Conclusion: The impugned order was upheld, the appellants' challenge failed, and the Tribunal found the appeals to be an abuse of process warranting dismissal with costs.
Ratio Decidendi: In liquidation, accumulated cash profits lying in the corporate debtor's account may be distributed to stakeholders under the liquidation framework, and an appeal challenging such distribution must be brought by a legally aggrieved person with maintainable locus standi.
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AI Drafter ✕
TaxTMI 
