TaxTMI 
TaxTMI 
2021 (6) TMI 357
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Corporate Debtor is stated to be a Public Limited Company incorporated under the Companies Act, 1956 and engaged in the business of manufacturing chemicals in its Unit established in a piece of land measuring an extent of 44.64 cents situated at Canal Road, Basivireddypeta, Nidadavole Village and Mandal, West Godavari District, Andhra Pradesh. 4. As between the Applicant and the Company under liquidation, it is averred that there was a long standing relationship and that the Corporate Debtor/Company under liquidation has availed multiple loans since the year 1963. 5. The Corporate Debtor had defaulted in repayment of Medium Term Loans granted to it by the Applicant in a sum of Rs. 7,15,00,000/- and in relation to which security has been created by the Corporate Debtor by way of a Memorandum of Deposit of Title Deeds dated 05.04.2012, 30.03.2013 and 31.01.2014 in relation to the property as described in Paragraph supra. 6. In addition, deeds of hypothecation were also created in favour of the Applicant with respect to Plant & Machinery of SSP Plant, NKP Granulated Mixture Plant, Bio-Fertilizer Plant etc. 7. In view of the default which had arisen, it is averred that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Applicant being the Secured Creditor having the 1st charge filed its claim under Form D on 25.08.2020 within the time allowed and also sought for the enforcement of its security interest mortgaged to the Applicant. 12. The response from the Respondent came forth for the above, vide e-mail dated 11.09.2020, in relation to the receipt of the claim wherein it was intimated to the Applicant that the claim is under verification. Thereafter, it was also communicated by the Applicant that the Applicant will realize the security interest of not less than Rs. 25 Crore vide e-mail dated 15.09.2020. 13. In the meanwhile, on 09.09.2020, a communication was received from the Respondent to the Applicant and Maximus ARC Limited, the other Financial Secured Creditor, disclosing the liquidation cost budget for the period between 27.07.2020 and 31.12.2020 and also sought from the Applicant to transfer a sum of Rs. 1,55,375/- towards liquidation cost for the above period. 14. The Applicant submits that in relation to the demand of the liquidation cost with a view to ensure a smooth and speedy closure of the issues on hand, the same was remitted. 15. However, it is contended by the App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Operation of the letter dated 08.10.2020 from the Respondent and the e-mail dated 28.10.2020 from the Respondent as the same are based on Insolvency and Bankruptcy Code, 2016 which is ultra vires. c) Declare that letter dated 08.10.2020 from the Respondent and the e-mail dated 28.10.2020 from the Respondent is untenable and unlawful. d) Injunct the Respondent from going ahead and enforcing the Applicant's security interest and realise the proceeds from the sale of the security interest. e) Injunct the Respondent from obstructing the Applicant from enforcing its security interest u/s. 52(1)(b) of IBC. f) Injunct the Respondent from proceeding to conduct 1st SCC on 17.11.2020. g) Pass any such further orders as this Hon'ble Tribunal may deem fit in the circumstances of the case. 20. In relation to the legal issue as sought to be raised by the Applicant to avoid payment of portion of the liquidation cost as directed by the Respondent, a counter statement has been filed by the Respondent to the effect that Regulation 21(A) of the Liquidation Process Regulations, 2016 as sought to be projected by the Applicant is not inconsis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stries Ltd., referred supra, the result is an undue advantage to a single Creditor prejudicing the interest of the Corporate Debtor and its other stakeholders and as a consequence of which the amendment as proposed to the Liquidation Regulations which have been notified on 25.07.2019. 25. However, in the above context, Regulation 2(A) was introduced under which Regulation the Liquidator is required to call upon the Financial Creditors, being Financial Institutions to contribute to the excess of the Liquidation Costs over the liquid assets of the Corporate Debtor and further it is in relation to the above said context, Regulation 21A also was notified. 26. Taking into consideration the power vested with the Board viz., IBBI u/s. 240 of IBC, 2016 to issue such Regulations, an attempt is also made in the counter as filed by the Respondent/Liquidator to make a distinction between liquidation assets as given under Section 53(1) of IBC, 2016 and the liquidation estate as defined under Section 36 of IBC, 2016 and that consciously the legislature had been careful in using the term "liquidation asset" under Section 53 of IBC, 2016 and "not liquidation estate" and in the circumstances ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the dues of workmen. The said section entitled the Liquidator to recover the cost of preservation of security if the secured leaders sell assets independently. The secured creditor was liable to pay his portion of the expenses incurred by the Liquidator for the preservation of the security before its realisation by the secured creditor. Regulation 21 of the Regulations may provide that if a secured creditor, instead of relinquishing his security and proving for his debt, proceeds to realise his security, he shall be liable to pay his share of the expenses incurred by the Liquidator for the preservation of the security before its realisation by the secured creditor. 29. Further during the course of submissions it is also brought to the notice of this Tribunal, the report of the Insolvency & Bankruptcy Board of India pertaining to the Regulation 21(A) in relation to payment for liquidation expenses as given in paragraph Nos. 7.6 to 7.8 of the said report which are relevant for the instant case and it is reproduced as below:- 7.6 The Committee discussed whether a secured creditor that opts to stand outside the liquidation process under Section 52 should be mandated to bea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to attend and in the circumstances the Applicant has chosen to challenge the said meeting. 32. In view of the above, it is stated that the present Application has been filed by the Applicant/Secured Creditor is not maintainable and is liable to be dismissed and for this purpose the Respondent/Liquidator also seeks to rely on the submissions made in the counter filed to I.A./1205/2020 (SR No. 1267/2020) as well as its Application in Application I.A. No. 39 of 2021 seeking inter alia for a declaration on his part that the Auction Notice dated 01.01.2021 issued by the Respondent/Secured Creditor as null and void and injunct it from proceeding in terms of the auction notice in view of the Asset described therein having become a part of the Liquidation estate with effect from 24.10.2020 taking into consideration Regulation 21A(2)(a) of the IBBI (Liquidation Process) Regulations, 2016. 33. Since the facts leading to the filing of the respective applications are in common, both the applications are taken together and is sought to be disposed of accordingly. 34. Before going into the merits of the applications, it is required to be noted that a prayer has been sought for by the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Taking into consideration the above decision rendered by the Hon'ble Apex Court in the Sterlite Industries case referred to supra and also as held by the Hon'ble Supreme Court in the matter recently decided of Embassy Property Developments Ltd. vs. State of Karnataka concerning this very own Tribunal that it cannot be considered as a "Court', we are of the considered view that this Tribunal does not have the power to strike down any provisions of the Statute nor the Rules and Regulations framed thereunder. In the circumstances this Tribunal is not required to delve any further on the said relief sought for striking down Regulation 21A of IBBI (Liquidation Process) Regulations, 2016 any further and the same stands rejected. 36. However, it is required to be noted that this will not detract of this Tribunal from going into the issue of any inconsistency, if any prevalent as between the Statute, namely IBC, 2016 and the Rules and Regulations framed thereunder by virtue of the delegated legislation either to the Central Government or to the Regulator, namely IBBI as sought to be portrayed by the Applicant/Secured Creditor and if that were so in relation to the limited pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es Act, 2013 (18 of 2013), if any, shall not form part of liquidation cost.'. Prima facie perusal of the above said Regulation 2(1)(ea) of Liquidation Process Regulations, 2016 demonstrates that the Liquidation cost has several components in it and as can be incurred by the Liquidator during the process of Liquidation. 39. With a view to secure the Liquidation Costs and thereby not to leave the Liquidator high and dry for want of funds in carrying out the Liquidation Process which he had agreed to undertake for the benefit of the stakeholders concerned predominantly of the creditors, IBBI has framed regulations, both under IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016 (for short hereinafter called as "IRCP Regulations') prior to Liquidation under Regulation 39B of the said Regulations for meeting the Liquidation Cost and the fees of the Liquidator as provided under Regulation 39D of the said Regulations as a situation has been envisaged by the Regulator in framing these Regulations taking into consideration that the companies covered under the CIRP are predominantly commercially Insolvent Companies and in the circumstances short of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quid assets if it is less than estimated liquidation costs and the Resolution Professional, the process being prior to Liquidation, shall submit the Plan in relation to sharing of liquidation cost to this Adjudicating Authority both in the case of an application seeking approval of a Resolution Plan or for seeking Liquidation of the Corporate Debtor. At this stage, it is required to be noted that there is no distinction being made between a Financial Creditor having a charge over the assets or not and the term used is 'COC in general. 41. Now coming to the stage where the Corporate Debtor is ordered to be liquidated, then Regulations concerning liquidation, namely IBBI (Liquidation Process) Regulations, 2016 become applicable and it is required to be noted that the said Regulations contemplate a situation in the absence of Plan being proposed in relation to Liquidation Costs under Regulation 39B of IRCP Regulations, 2016 of which we have already noted as above, under Regulation 2A of the Liquidation Process Regulations as framed by IBBI. The said Regulations as well, for ready reference is reproduced below:- 2A. Contributions to liquidation costs. (1) Where....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 5(16) of IBC, 2016 read with Regulation 2(1)(ea) of Liquidation Process Regulations as framed by IBBI, be that by a secured financial creditor who chooses to exercise its option to realise on its own its security interest or a secured creditor who relinquishes its security to be aggregated to the Liquidation Estate for realisation and distribution by the Liquidator in accordance with Section 53 of the IBC, 2016 and the water fall mechanism provided thereunder or in relation to a financial creditor not secured at all who will also be covered under Section 53 of IBC, 2016. 43. At this stage, it will also be appropriate to consider the provisions of Section 52 of IBC, 2016 on which much reliance was placed by the Ld. Counsel for the Applicant/Secured Creditor in relation to contribution to Liquidation Cost by a Secured Financial Creditor opting to realise the security on its own. Section 52 of IBC, 2016 is also extracted hereunder, viz., 52. Secured creditor in liquidation proceedings: (1) A secured creditor in the liquidation proceedings may (a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....they shall transfer such amounts to the liquidator to be included in the liquidation estate. (9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause (e) of sub-section (1) of section 53. Perusal of Section 52 of IBC, 2016 shows that a secured creditor having a security interest may either realise such security on its own or relinquish its security interest to be made form part of the Liquidation Estate Assets as constituted under Section 36 of IBC, 2016 and await for the same to be realised and proceeds distributed under Section 53 of IBC, 2016. 44. A careful analysis of Section 52 of IBC, 2016 as extracted above also demonstrates that under the situation where a surplus arises after realisation of the security interest and adjustment of the proceeds against the amount due from the corporate debtor by the Secured creditor opting out, the same is required to be accounted to the Liquidation Estate by such Secured Creditor. However, in case of deficit arising after adjustments of proceeds ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tor can mulct all the components of the Liquidation Costs as defined under Section 5(16) of IBC, 2016 read with Regulation 2(1)(ea) framed pursuant to it by IBBI in the Liquidation Process Regulations, 2016 upon the secured creditor seeking to realise the security interest on its own? This will also lead to inequitable situation which the Regulations, namely IRCP Regulations, 2016 as well as Liquidation Process Regulations, 2016 seem to address as at two stages, namely the Resolution Professional under Regulation 39B of the IRCP Regulations during the CIRP stage itself and thereafter immediately after the commencement of Liquidation Proceedings by the Liquidator under Regulation 2A of Liquidation Process Regulations, 2016 an estimate of liquidation cost is required to be ascertained and also to ascertain the available liquid asset, meaning Cash at Bank and at the hands of the RP/Liquidator. Since this is required to be approved in the COC meeting or the Stakeholders committee meeting depending upon the stage at which the corporate debtor is undergoing the process, the creditors, more particularly the financial creditors including the financial institutions are put on advance notice....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... able to move ahead in relation to realization of the assets of the corporate debtor and thereof disburse to the stakeholders or appropriate in the case of the applicant towards its dues. 48. In this regard, a perusal of the documents and pleadings filed by both the parties in their respective IA shows taking into consideration the steps required to be taken under the provisions of IBC, 2016 by either of the parties as follows:- 49. From the above list of dates in ad seriatim it is quite evident that the cut-off date for realization of the security interest had been specified by the Liquidator itself as 22.01.2021 available to applicant/secured creditor, however, seems to have resiled from the position in view of rebuff on the part of the applicant/secured creditor of his demand in relation to sharing the estimated liquidation cost, raised in terms of Regulation 2A of IBBI (Liquidation Process) Regulations, 2016 vide communication dated 21.10.2020. Even though the Liquidator claims that he had only exercised his right in view of Regulation 21A of Liquidation Process Regulations, 2016 as framed by IBBI, however, we are of the view that the Liquidator has acted with undue haste....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribution to the estimated liquidation costs on the premise that it had opted to realize the security on its own. However, in this regard, it is also required to be noted that the Liquidator cannot demand fanciful sums and any amount claimed, even a single rupee is required to be properly justified with adequate proof or justification being produced in advance to the financial creditors concerned from whom the amounts are demanded as estimated liquidation costs in terms of Regulations 2A particularly read with Regulation 21A of IBBI (Liquidation Process) Regulations, 2016 from a secured creditor envisaged thereunder as a serious consequence follows in view of its non-adherence. 51. To sum up, based on the above elaborate discussions which we thought necessary, this Tribunal chooses to issue the following directions, namely:- i) Taking into consideration the saying that no person is to be prejudiced by the actions of the court (in this case the Tribunal) in view of application pending all along before this Tribunal in IA/1205/2020 as filed by the applicant/secured creditor of which the Liquidator was fully aware as demonstrated by the minutes of the 1st SCC meeting held o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of the security interest, the applicant/secured creditor shall act in terms of Section 52 read with other appropriate provisions, if any and the Regulations framed thereunder. Accordingly, the IA/1205/2020 stands ordered. v) The Application in IA/39/2021 hence filed by the Liquidator stands dismissed. vi) No order as to costs. ============= Document 1 SL. NO. FINANCIAL CREDITORS AMOUNT OF DEBT DUE TO FINANCIAL CREDITORS (Rs.) AMOUNT TO BE CONTRIBUTED TOWARDS LIQUIDATION COST (Rs.) (1) (2) (3) (4) 1 Financial 40 04 institution A 2 Financial 60 06 institution B 3 Non-financial 50 00 institution A 4 Non-financial 50 00 institution B Total 200 10 Document 2 DATE DESCRIPTION 05.03.2020 Resolution passed for liquidation of the CD. Applicant Dissenting. As per Reg.39B of IRCP Regulations fees of Rs.2 lakhs as fixed monthly fee and a variable amount based on realization and distribution fixed in view of absence of Liquid Asset in CD. Applicant in IA/1205/2020 again opposing it and thereby any plan. 27.07.2020 Liquidation ordere....