2024 (3) TMI 929 - AT - Insolvency and Bankruptcy

Financial creditors must contribute to liquidation process costs despite challenging non-banking financial institution status under RBI Act Section 45-I(e)

The NCLAT Chennai dismissed an appeal challenging an order directing financial creditors to contribute towards liquidation process costs. The appellant ... Liability to contribute towards Liquidation Process Costs - scope of Financial Institution - Appellant points out that neither the Appellant nor the Debenture Holders, it acts on behalf of the fall within the definition of Non-banking Institution, under Section 45-I(e) of the RBI Act and hence, not liable to contribute towards Liquidation Costs - HELD THAT:- As a matter of fact, in view of the rejection of the Resolution Plan, by the Members of the Committee of Creditors, and in view of the CIRP Period, expiring on 17.02.2020, the Resolution Professional, preferred an Application, as per Section 33(1) of the Code, seeking Liquidation of the Corporate Debtor. The Adjudicating Authority / Tribunal, by an Order dated 13.03.2020, passed an Order of Liquidation, for the Corporate Debtor. Also that, the Adjudicating Authority, had appointed the 1st Respondent / Liquidator as Liquidator, through an Order dated 13.03.2020. The 1st Respondent / Petitioner / Liquidator, had informed the 3rd Respondent / Phoenix ARC Private Limited, through letter dated 26.08.2020, their respective Share of Liquidation Costs of Rs.36,74,771/-, (which includes, the approved Liquidation Costs and Liquidator Fee) and requested to remit their respective Share as a whole or at least 30% within 5 days, from the issuance of the Letter. In fact, the 1st Respondent / Petitioner / Liquidator, had provided the Liquidator’s Fee Estimate, as per Letter dated 26.08.2020, as per Regulation 4(2)(b) of the Liquidation Process Regulations, 2016 - It is represented on behalf of the 1st Respondent / Petitioner / Liquidator that any delay, in depositing the Liquidation Costs by the Respondents, is delaying the Liquidation Process and the Liquidator, is unable to perform his duties, as mandated under the I & B Code, 2016. Petition is filed in a Bona fide manner, and in the interest of Justice, the said Application, may be allowed by issuing necessary directions to the Respondents, to forthwith defray the portion of Liquidation Process costs, as per Regulation 2A of the IBBI (Liquidation Process) Regulations. The filing of a Certified Copy (Paid Cost Copy), is not an empty ritualistic formality, in the considered opinion of this Tribunal. It cannot be gainsaid that only when the Petitioner / Appellant / Aggrieved Party, applies within the prescribed period of Limitation, as envisaged, under Section 61 (2) of the Code, the time taken to secure the Certified Copy, will be excluded from the Computation of Period of Limitation - In terms of Rule 22(2) of the NCLAT Rules, 2016, a Certified Copy of the Impugned Order, shall accompany every Appeal to be filed, before the Office of the Registry. Only in a Paid Certified Copy, by an Aggrieved Party, the details Viz. when the Application for Certified Copy of the Impugned Order was made by the Applicant, when it was made ready, when it was handed over / taken delivery, etc., will find a place, ofcourse, duly signed by the Deputy / Asst. Registrar of the Adjudicating Authority / Tribunal. Considering the entire conspectus of the attendant facts and circumstances of the instant case, in an encircling manner, comes to an irresistible conclusion that the Impugned Order, dated 25.05.2023 in IA No. 399 / BB / 2020 in CP (IB) No. 189 / BB / 2018, passed by the Adjudicating Authority / NCLT, Bengaluru Bench, in directing the Appellants, 1st Respondent and two other Respondents, to Defray their portion of Liquidation Process Costs, is free from any legal infirmities. Appeal dismissed. Issues Involved:1. Whether the Appellant is liable to contribute to the Liquidation Process Costs.2. Whether the Appellant qualifies as a Financial Institution under the I & B Code, 2016 and RBI Act, 1934.3. Whether the Impugned Order is a reasoned and speaking order.4. Whether the appeal was filed within the prescribed limitation period.Summary:1. Liability to Contribute to Liquidation Process Costs:The Appellant contended that it was called upon to contribute to the Liquidation Process Costs, which it argued were neither due nor payable as it had opted out of the Liquidation Process. The Appellant represented Debenture Holders who were Secured Financial Creditors and argued that neither it nor the Debenture Holders were Financial Institutions, and hence, not liable to pay these costs under Regulation 2A of the IBBI (Liquidation Process) Regulations, 2016.2. Qualification as a Financial Institution:The Appellant argued that it did not fall within the definition of a Financial Institution as per Section 3(14) of the I & B Code, 2016 and Section 45-I of the RBI Act, 1934. The Appellant, being an Investment Manager, primarily invested in Secured and Redeemable Non-convertible Debenture Instruments on behalf of certain Debenture Holders. The Appellant contended that it and the Debenture Holders it represented were not Financial Institutions and thus not liable to contribute to Liquidation Costs. The Tribunal, however, observed that the Appellant had invested up to Rs. 55 crores by subscribing to 5500 redeemable secured non-convertible debentures, thus falling within the purview of a Financial Institution as mandated under Section 45 (i) (c) (i) and 45 (I) (c) (ii) of the RBI Act, 1934.3. Reasoned and Speaking Order:The Appellant claimed that the Impugned Order was not a speaking order. However, the Tribunal noted that the Adjudicating Authority had dealt with the main contentions raised by the Appellant and provided reasons for its decision, including references to previous judgments and relevant regulations. The Tribunal concluded that the Impugned Order was a reasoned and speaking order.4. Limitation Period:The Appellant did not apply for a Certified Copy of the Impugned Order and filed the appeal based on the order accessed from the Tribunal's website. The Tribunal emphasized the necessity of filing a Certified Copy of the Impugned Order as per Rule 22(2) of the NCLAT Rules, 2016. The Tribunal directed the Appellant to file the Certified Copy within two weeks from the date of pronouncement of this judgment.Conclusion:The Tribunal dismissed the appeal, holding that the Impugned Order was free from any legal infirmities and that the Appellant, being a Financial Institution, was liable to pay the Liquidation Process Costs. The Tribunal also mandated the filing of a Certified Copy of the Impugned Order within two weeks.