TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 773
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndent 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 of the present Appeal and in the interest of the justice and equity. 2. W....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A (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 is disbursed, the cash flow of the CD will have no adverse impact on the operation of the Company. 4. However, the Adjudi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 per the following orders: a. The distribution of funds from working capital and profit to the stakeholders until assets have been liquidated, and till the liquidator realizes the complete liquida....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nner 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 pending until the conclusion of the liquidation process would be wholly contrary to the provisions of the Code and the Liquidation Regulations. (III) Balance Salary and Interest has been paid to the employees therefore, employees have no locus to challenge the disbursement of money. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 in the name and on behalf of the corporate debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the corporate debtor in the ordinary course of its business; (h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sets 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 property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights; (e) assets subject to the determination of ownership by the court or authority; (f) any assets or their value recovered through proceedings for avoidance of transactions in accordance with this Chapter; (g) any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest; (h) any other property belonging ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 Authority' wherein the assets of the CD were d-attached. The 'Respondent No.1 - Varrsana Employee Welfare Association' are continuously creating unnecessary hindrance to the resolution process of the CD without any locus standi and is not even a part of SCC. It is unfortunate to point out that IA No.531/2020 filed by the R1 is challenged to the order of the Adjudicating Authority dated 14.01.2020 passed by the Coordinate Bench before the same bench. It has also been stated had they been aggrieved vide order dated 14.01.2020 of Adjudicating Authority in CP (IB) No.1546/KB/2019 in CP(IB) no.543/KB/2017, they shou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l 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 safeguard himself from any further IBBI proceedings and not safeguard interest to the CD. He is acting in collusions with Respondent Lenders to get higher fee by making illegal distributions among the lenders. 13. It is submitted by the Respondent No.2 that the present appeal has been filed by the Appellant against order dated 26.06.2020 passed by the Adjudicating Authority in IA No. 531/2020 in CP No. 543/KB/2017 wherein it was held that distribution of the funds from the working capital and profits to the stakeholders until assets have been liquidated and till the liquidator realises the complete liquidation value is n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Rs. 12.01 crores. As per page 57, it has been recorded in the impugned order that there is enough working capital of Rs. 40 crores. 15. It is also stated that the Claims of the secured Financial Creditors have been admitted for Rs. 837.36 crores to keep the surplus funds idle would not serve any purpose whatsoever. On the other hand, the payment to the secured Financial Creditors out of the available funds will reduce the interest liability of the CD. As per Regulation 42(1) of Liquidation Regulations 2016, the Liquidator before commencement of distribution has to file the list of stakeholders and the Asset Memorandum ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 114.93 Crores as on 31.10.2020 and the Performa Respondent No.6 is a renowned institution running its Banking business for a long time with the trust and hope of people of this country, therefore, there is no chance of running away from its liability or responsibility and the Adjudicating Authority should take pragmatic view in deciding the instant matter since public money is involved in the instant matter. 17. It is stated that the Adjudicating Authority has clearly permitted the Liquidator to utilise the fund for the operation of the CD and the said fund may be equally distributed among the stakeholders but the order dated....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 proceeds are insufficient to meet the debts in full; and (ii) the term "workmen's dues" shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013. 18. It is also stated that the Liquidator herein from the date of inception of the CIRP has taken all the measure as enumerated and permitted under the Code and also IBBI (Liquidation Process) Rules, 2016. The Liquidator has formed a SCC to discuss and/or exonerate the CIRP and after forming the same several meetings were held by the Liquidator with the SCC in order to reconcile the recovery made by the banks during the period of the CIRP and a Distribution Chart was also made dealing with the recovery made by the banks. In all the meetings held on different tim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntion 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, since no resolution of Varsana Ispat Limited could be achieved, the Adjudicating Authority vide order dated 06.08.2019 ordered liquidation of Varsana Ispat Limited. Subsequently, the Appellant constituted a SCC in terms of Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016. The said SCC comprises of Central Bank of India, UCO Bank, Indian Overseas Bank and Corporation Bank as its members, and the Respondent is merely an invitee in the said SCC. 22. It is also submitted that a meeting of the SCC was held on 03.02.2020 at the Corporate Office Central Bank of India, N.S. Road, Kolkata wherein the distribution as per Section 53 of the Code for the Secured Creditors having first charge on the current assets of Varsana Ispat Limited was discussed. The minutes of the meeting o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 orders: a. The distribution of funds from working capital and profit to the stakeholders until assets have been liquidated, and till the liquidator realizes the complete liquidation value is not in conformity with the provisions of the Code and Regulations; b. The stakeholders/financial creditors who are in receipt of the funds shall keep the amount received by them in an interest bearing account of the CD, and returnable as per Regulation 43, if need arises for operating the CD; c. The liquidator is directed to pay the portion of salary 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." It is also being observed that there i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tified 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 provisions in regard to the realization during the liquidation process and its distribution are given hereunder: section 35, 36 53 of the Code as stated (supra). h. Regulation 4, 32A, 39 & 42 IBBI (Liquidation Process) Regulations 2016:- "4- Liquidator's fee. (1) The fee payable to the liquidator shall be in accordance with the decision taken by the committee of creditors under regulation 39D of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. (2) In cases other than those covered under sub-regulation (1), the liquidator shall be entitled to a fee (a) at the same rate as the resolution professional was entitled to during the corporate insolvency resolution process, for the period of compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013); and (b) as a percentage of the amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....consultation committee. (4) If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation 32 within ninety days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of regulation 32.] 39. Recovery of monies due. The liquidator shall endeavor to recover and realize all assets of and dues to the corporate debtor in a time-bound manner for maximization of value for the stakeholders. 42. Distribution. (1) Subject to the provisions of section 53, the liquidator shall not commence distribution before the list of stakeholders and the asset memorandum has been filed with the Adjudicating Authority. (2) The liquidator shall distribute the proceeds from realization within 22[ninety days] from the receipt of the amount to the stakeholders. (3) The insolvency resolution process costs, if any, and the liquidation costs shall be deducted before such distribution is made." As it looks the recovery from the Debtors are also forming part of liquidation estate and it is also revealed that he has complied with Regulation 43 of the IBBI Regulations by taking appropriat....