TaxTMI 
TaxTMI 
2022 (1) TMI 773
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..... Ramesh Chandra Prusti Advocates for Respondent No. 6. Ms. Shreyas Mehrotra, Advocates for R7 Mr. Shaunak Mitra, Advocates for Respondent No. 8. JUDGMENT DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER 1. The present appeal has been filed by the Appellant- 'Varrsana Ispat Limited', through its Liquidator Mr. Anil Goel under Section 61 of the 'Insolvency and Bankruptcy Code, 2016' (in short 'Code') against the impugned order dated 26.06.2020 passed by the 'Adjudicating Authority' (National Company Law Tribunal), Kolkata Bench in I.A No.531/KB/2020 in CP No. (IB) 543/KB/2017. The Appellant has sought the following reliefs : a. The Appellate Authority be pleased to allow the present appeal and set aside the impugned order dated 26th June, 2020, passed by the Adjudicating Authority, Kolkata bench in IA No.531/KB/2020 in CP No. (IB) 543/KB/2017, qua para 21 (a) and (b) of the order; b. The Appellant Authority be pleased to pass an order declaring the distribution made by the Appellant as per the provision of Insolvency and Bankruptcy Code 2016 is valid. c. The Appellate Authority be pleased to pass any other order in the facts and circumstances ....
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....lary deducted from the salary of the employees with applicable bank interest till the date of payment. IA (IB) No. /KB/2020 is disposed of accordingly. The Registry is directed to send e-mail copies of the order forthwith to all the parties." 3. It is the case of the Appellant/Liquidator that liquidation of the Corporate Debtor (CD) was initiated on 06.08.2019 and 'Liquidation Account' was opened on 28.08.2019 to operate receipts and payments. He constituted a 'Stakeholders Constitution Committee' (SCC) on 07.10.2019 as per Regulation 31A of the 'IBBI (Liquidation Process) Regulations'. It was discussed and decided in the 'SCC' that the CD shall be kept as a going concern and Rs. 20 crore distribution would be done as per Section 53 of the Code (appearing at page no. 105, 115-116, 119 & 121 of the Appeal Paper Book). 'M/s. Varrsana Employees Welfare Association - R1' filed IA No. 1546/KB/2019 in CP No.(IB) 543/KB/2017 that the company is a going concern and there is possibility of revival of CD as the Liquidator taking steps to invite scheme from interested party and Liquidator has admittedly realized substantial amounts of money of Rs. 18 crore and the amount ....
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....s arbitrary and not just and proper. In the said background a question arises as to whether the financial creditors who had received the fund are to be ordered to refund? In this regard it is good to refer to Regulation 43. Reg.43 states that the stakeholders shall return the monies after distribution if the stakeholders are found to be not entitled to at the time of distribution. So no doubt the financial creditors are bound to return any monies received during distribution which they were not entitled to receive during distribution. However, in the case in hand since the CD being in operation and there is enough working capital as submitted by the liquidator (About 40 crores) there is no need to return. However, in the peculiar nature and circumstances brought out in the instant case, it appears to us that the amounts received by the respective financial creditors shall be kept by them in an Interest bearing account of the CD. It would meet the ends of justice in the nature of this case. However, the liquidator is found liable to make good the portion of salary deducted from them with applicable bank interest. 21. In view of the matter, we are allowing the application as....
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.... of Rs. 26 crores was made in two tranches: a.04.06.2020 wherein a sum of INR 21 crores was disbursed. b.16.06.2020 wherein in a sum of INR 5 Crores was disbursed. The aforesaid, is clearly indicative of the fact that the Liquidator has in no manner acted on its own accord and has in fact acted in compliance with the discussions that toll place in the SCC Meetings. (II) Liquidator is bound by the provisions of the Code and Liquidation Regulations. A bare perusal of Regulations 39 of the Liquidator Regulations states that the Liquidator shall recover and realize all assets of and dues to the CD in a time-bound manner for maximization of value for the stakeholders. Notably, after immense efforts made by the Liquidator, a recovery from sundry debtors was made and an amount of INR 26 Crores was disbursed in two tranches. Pertinently, the Liquidator Regulations also prescribed a strict timeline (i.e.90 days from the receipt of the amount) within such moneys received are to be distributed to the stakeholders. In the present case the Liquidator has complied with the said requirement and disbursed the same. Therefore, keeping the distribution pe....
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.... the creditors; (b) to take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor; (c) to evaluate the assets and property of the corporate debtor in the manner as may be specified by the Board and prepare a report; (d) to take such measures to protect and preserve the assets and properties of the corporate debtor as he considers necessary; (e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary; (f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified; [Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.] (g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi or promissory note....
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....he Board. Section 36: Liquidation estate. (1) For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the corporate debtor. (2) The liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors. (3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following:- (a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor; (b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets; (c) tangible assets, whether movable or immovable; (d) intangible assets including but not limited to intellectual prop....
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....ion contrary to this would defeat the purpose of the Code and the purport of the legislature. 'Sale of Liquidation Estate' also includes recovery from 'Sundry Debtors'. It was further submitted that since all the assets of the CD have been attached by the 'Enforcement Directorate' (ED), Liquidator has not sold any assets of the CD. The funds that were disbursed where recovered from old debtors. Despite the disbursement of the funds to 'Stakeholders', the CD continues to have sufficient working capital and is not hampered in any manner. There has been no hindrance in the functioning of the CD as a going concern on account of the said disbursement. 'Liquidator' has recovered Rs. 26 Crores from old debtors. He has also kept the operation of the company as going concern in terms of the directions of the 'Adjudicating Authority' vide order dated 06.08.2019 and even appointed 'Committee of Key Managerial Personnel' comprising of 8 persons. Keeping the surplus fund idle will not serve any purpose and accordingly, he reduced its interest liability. The 'Hon'ble Calcutta High Court' in W.P No. 7962/2020 filed by ED vide order dated 28.11.2020 has stayed the order passed by the 'Adjudicating....
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....e from the working capital of the company in liquidation before sale of the assets of the CD among the banks/financial creditors. The Liquidator admits in the 3rd SCC Meeting that he will file an application for fresh valuation and modification of the list of the stakeholders. The Liquidator has failed to comply with Regulation 32, 34 & 42 of the IBBI (Liquidation Process) Regulations. The Liquidator has also not complied with Section 53 of the Code as assets are to be sold first and then only distribution can take place. The stand of the liquidator is that he is distributing the funds from the excess working capital to reduce the debt burden of the CD, this is not the mandate of the Code. The Central Bank of India, a nationalized bank has got the funds out of this distributions. They have also submitted that the IBBI its order dated 29.10.2020 has expressly held that the Appellant Liquidator has violated the provisions of Section 52 of the Code R/w Regulation 42 of IBBI (Liquidation Process) Regulations, 2016 as well as other provisions of the Code and has held the Liquidator to be guilty illegal and unlawful distribution. This appeal has been filed by the Appellant only to safegu....
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....6 and Regulation 42 of Liquidation Regulations 2016. Admittedly, there is no statutory bar in making disbursement out of available surplus funds to the secured Financial Creditors, dues of which are more that Rs. 837 crores. The Respondent No. 1 consisting of the Employees of the CD who have moved to the Adjudicating Authority are not even the stakeholders (refer to page 36 para ix of the Appeal). As the CD is running smoothly, all the employees are getting their salaries on a regular basis. They have no dues whatsoever against the CD. By distribution of the Surplus Funds to the Financial Creditors, no prejudice will be caused to the Employees and Workmen. Even the Adjudicating Authority in its subsequent order dated 28.05.2021 passed in IA No. 1014/2020 (which had been filed by Respondent No. 1 herein) has held that the workers have no outstanding dues against the CD and therefore they are not eligible to be included in the SCC. At Page 31 para (ix) and Page 36 ground (x) of the Appeal Memo, it has been stated that the CD is being run at its full capacity and there is no scarcity of funds for meeting working capital requirements. At page 173, the present bank balance of the CD is ....
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.... out of the profits made by the CD. As per Section 53(1)(b) of the Code, the Workmen's dues for the period of 24 months preceding the liquidation commencement date and the dues owed to the Secured Creditors rank pari passu. In the present case, no workmen's dues are outstanding and therefore, there will be no need to set apart any amount for payment towards workmen's dues. 16. The learned counsel for the Respondent No.6 - Union Bank of India has submitted that the instant appeal has been filed by the Liquidator is very much justifiable in the eye of law since the CD had availed the financial facilities from the financial creditors under certain terms and conditions and they are in devoid of all such terms and conditions and after becoming the defaulter the financial creditors has the right to recover money lent to the CD because the money which had been lent are nothing but public money and the Financial Creditor (FC) are in duty bound to pay the interest to the depositors. If the amounts are not recovered, then the FC will be in difficulty to provide public assistance and the amount paid by the Liquidator to Performa Respondent No.6 is Rs. 3.69 Crores out of total claim Rs. 114....
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....f India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. (2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator. (3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. Explanation.-For the purpose of this section- (i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the ....
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....uce the output. 20. It is submitted that the Liquidator is justified to pay the money to the Respondent no.6 and other lenders as such the public money id involved for the business operation of the CD. The intention if the Legislature not go against the law of economics and never intent to deprive the secured creditors/lending institutions who has provided debt to the business operation of the CD. The Performa Respondent No.6 being one of the lending bank of the CD put its prayer before this Tribunal to give direction the Liquidator to consider the interest element to the loan amount while arriving the profit of the CD and also direction to pay the said interest amount for such lending bank and the scenario would have been different had the CD being a defunct company and the intention to the legislature is not to deprive any further production. 21. The learned Counsel for the Respondent no.6 - SBER BANK is stated that the application being CP(IB) No.543/KB/2017 was filed by the Respondent No.7 against the Varsana Ispat Limited before the Adjudicating Authority. The said application was admitted by Adjudicating Authority vide judgment and order dated 16.11.2017. Thereafter, si....
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.... amount of Rs. 18.00 crores and odd, lying with the Liquidator and it is directed that the same may be utilized for the operations of the Corporate Debtor to remain Corporate Debtor as going concern for distribution amongst stakeholders in equal manner as per provisions of Section 53 of the Code, which would include the claims of the employees, if any. b. The same Adjudicating Authority - National Company Law Tribunal, Kolkata Bench, vide its order dated 26.06.2020, on a petition filed by the 'Employees Welfare Associations' of the Varsana Ispat Limited - CD has virtually reversed its decision (earlier Adjudicating Authority) by asking the Liquidator that the Stakeholders/Financial Creditor who are in receipt of the funds shall keep the amount in an interest bearing account of the CD and returnable if need arises for operating the CD and also directed the Liquidator to pay the portion of salary deducted from the salary of the employees with applicable bank interest. The order dated 26.06.2020 of the Adjudicating Authority para 21 at page 57 of the Appeal Paper book is extracted below: "21. In view of the matter, we are allowing the application as per the following order....
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....n its interim order dated 29.10.2020 has found that the Liquidator has made distribution without complying with the provisions of the Code and related Regulations and has debarred him from undertaking any new assignments for a period of 90 days from the date of said order. It is also revealed that he has distributed so called surplus fund generated out of collection of old dues from Debtors to the following banks: - i. Central Bank of India ii. Corporation Bank of India iii. UCO Bank iv. United Bank of India v. Indian Overseas Bank All these banks are 'Nationalized Public Sector Banks' and distribution has been done by the Liquidator after taking undertaking that they will return the money, if they are not entitled in accordance with Regulation 43 of the IBBI (Liquidation Process) Regulations, 2016 f. The Respondent no.5 - Union Bank of India has justified the appeal filed by the Liquidator and has stated that the CD availed Financial facility from the Financial Creditors and are entitled to recover the money as these are public money and the financial creditors are duty bound to collect interest thereon. g. For brevity and clarity the various related provis....
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....rn. (1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximise the value of the corporate debtor, he shall endeavour to first sell under the said clauses. (2) For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern. (3) Where the committee of creditors has not identified the assets and liabilities under subregulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee. (4) If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulati....