TaxTMI 
TaxTMI 
2025 (6) TMI 124
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.... a year, substantial recoveries made during going concern operations, and absence of any allegations of misconduct or inefficiency. Brief facts of the matter 2. Before proceeding further, we are bringing the chronology of events as captured below, leading to the present Appeal: Date Particulars 29.09. 2017 Admission of Corporate Debtor into CIRP 11.10. 2017 to 07.08. 2018 Appellant served as IRP / RP 08.08. 2018 to 31.10.2019 Appellant served as liquidator 01.11.2019 By order of NCLT Chandigarh, Appellant was replaced as liquidator on health grounds and present Respondent, Ravinder Kumar Goel, was appointed as Liquidator, taking the place of Appellant. 18.11.2020 IA 893/2020 filed by Appellant before NCLT Chandigarh for claiming liquidation fees from 08.08.2018 -31.10.2019 28.09. 2022 NCLT Chandigarh dismissed IA 893/2020 with the observations: "No case has been made out by the Ex-Liquidator in the present case regarding any realization or distribution beyond the sale of one asset i.e. Toyota C.ar, and released an amount of Rs.2,60,000/-." 11.03. 2024 NCLAT New Delhi vide order dt. 11.03.2024 set aside NCLT order dt....
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....(3), the Liquidator is entitled to a fee as a percentage of the amount realized, ..... He has also referred to a circular of the IBBI dated 28.09.2023 in which the word 'amount realized' has been explained/clarified. Clause 2.1 of the said circular read as under: "2.1 Amount realised: Regulation 4(2)(b) provides that the fee shall be "as a percentage of the amount realised net of other liquidation costs, and of the amount distributed for the balance period of liquidation...." "Amount realised means an amount that is being realised from the sale of an asset where the asset changes form. ..... Clarification: 'Amount realised' shall mean amount realised from assets other than liquid assets such as cash and bank balance including term deposit mutual fund, quoted share available on start of the process after exploring compromise and arrangement, if any." 9. On the basis of the aforesaid, it is contended that it has now been clarified by the IBBI that 'amount realized' would mean the amount realized from the sale of the asset where the asset changes form. He has been candid enough to submit that where the asset is already liquid such as cash a....
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....annot be taken with retrospective effect based on an IBBI circular dated 28.09.2023. A subordinate legislation such as a circular cannot operate retrospectively to alter vested rights or obligations unless expressly permitted by the parent statute. In the present case, the Corporate Debtor ceased to carry on business as a going concern on 31.03.2019 - well before the amendment came into force - and, thus, all relevant facts, conduct, and financial events had already crystallised under the then existing legal framework. Applying the amended Regulation 2(1)(ea) retrospectively to include operational expenses prior to 25.07.2019 as liquidation cost and, consequently, reducing the Appellant's entitlement to zero, amounts to altering accrued benefits ex-post facto and is legally untenable. 5. Appellant has relied on the decision of the Hon'ble Supreme Court in (1987) 3 SCC PD Aggarwal and Ors vs State of UP and Ors, wherein it was served that there is no cavil with the proposition that the government has the power to make and amend rules giving retrospective effect. 6. There were clear and binding directions issued by the NCLAT in its Order dated 11.03.2024, wherein the Tribunal w....
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....ion costs, which includes sales revenue generated from continuing operations. The Appellate Tribunal had already held that the sales turnover of Rs. 78.47 crores must be treated as "realisation." The AA's rejection amounts to non-compliance with the law laid down by the Appellate Tribunal. Regulation 4(3) of the Liquidation Regulations provides for the computation of Liquidator's fees as a percentage of "amount realised net of other liquidation costs." The term "realisation" includes all receipts earned during the liquidation period, including sales generated through going concern operations. However, the AA in para 19 erroneously disregarded this sales turnover and misapplied Regulation 4(3). Further, for the purpose of computation of realisation, neither the IBC nor Rules/Regulations made thereunder, nor the IBBI (Liquidation Process) Regulations, 2016, intend to create a distinction between the classes or types of assets under the liquidation estate of the Corporate Debtor. The distinction between the current and the fixed assets under the IBC propounded by the Respondent is purely fictional and non-est in the eyes of law. This restrictive interpretation of "realisation" def....
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....ation in some manner at least, if it felt that the remuneration could not be paid as per Regulation 4(3) of IBBI (Liquidation Process) Regulations, 2016. 11. In Mulamchand vs State of MP (1968) 3 SCR 214, the Supreme Court held that the provisions of Section 175 (3) of the Government of India Act are mandatory in character and based on public policy. Therefore, the formalities that are stipulated when contracts are entered into on behalf of the government cannot be waived or dispensed with. In dealing with a claim made under Section 70 of the Contract Act, this Court then went on to hold: "...... In other words, if the conditions imposed by Section 70 of the Indian Contract Act are satisfied then the provisions of that section can be invoked by the aggrieved party to the void contract. The first condition is that a person should lawfully do something for another person or deliver something to him; the second condition is that doing the said thing or delivering the said thing he must not intend to act gratuitously; and the third condition is that the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof. If these conditi....
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....he liquidation estate of the CD. 14. The Appellant also contends that the fundamental purpose of the IBC is to maximise the value of assets for the benefit of stakeholders. Running the company as a going concern pursuant to the directions of AA itself, was intended to preserve asset value and employee livelihood. Denying fees to the Liquidator simply because the operations resulted in a net loss discourages future Liquidators from undertaking going concern operations, thereby undermining the very objective of the Code. Sections 20 and 35(1)(e) of the IBC stress the importance of preserving the Corporate Debtor as a going concern to ensure value maximisation. The Liquidator's actions were in furtherance of this objective. Denying the fees amounts to a punitive action and punishing the Liquidator for a bona fide effort to preserve and enhance value is solely because the operations resulted in a net loss this sets a regressive precedent and undermines the Code's purpose. 15. Regulation 4(3) does not make the payment of Liquidator's fee contingent upon net profitability or surplus realisation. Even in cases of lower or no realisation, the Appellant is entitled to remuneration....
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....ectation must arise either from an express or implied promise; or a consistent past practice or custom followed by an authority in its dealings; c. Thirdly, expectation which is based on sporadic or casual or random acts, or which is unreasonable, illogical or invalid cannot be treated as a legitimate expectation; d. Fourthly, legitimate expectation operates in relation to both substantive and procedural matters; e. Fifthly, legitimate expectation operates in the realm of public law, that is, a plea of legitimate action can be taken only when a public authority breaches a promise or deviates from a consistent past practice, without any reasonable basis; f. Sixthly, a plea of legitimate expectation based on past practice can only be taken by someone who has dealings, or negotiations with a public authority. It cannot be invoked by a total stranger to the authority merely on the ground that the authority has a duty to act fairly generally." 18. The Appellant claims that its case squarely falls in the ambit of law summarised by the Supreme Court with respect to payment of remuneration for having worked for the CD on the directions of AA for a lon....
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....taining and adjudicating a fresh ground post-remand, the AA has exceeded its jurisdiction and committed a grave procedural illegality that undermines the finality of appellate directions and opens the door to endless litigation. 22. In addition to running the CD as a going concern, the Appellant claims to be actively and successfully pursuing the recovery of various outstanding government dues for the benefit of the liquidation estate. These include: (1) Recovery of outstanding GST refunds amounting to Rs.1,39,75,410/- (2) Recovery of outstanding duty drawback of Rs. 4,60,386/- (3) Recovery of insurance claim amounting to Rs. 8,30,77,161/- (4) Recovery from PM Yojna Fund of Rs. 22,920/- These recoveries were directly attributable to the Appellant's efforts and have been recorded in the Liquidation Progress Reports. However, the AA, in the Impugned Order dated 04.03.2025, failed to make any reference to these substantial realisations and recorded no reasoning as to why the Appellant is not entitled to fees on such recoveries. These sums qualify to the assets of the CD and qualify as "amount realised" within the meaning of Regulation 4(3) of ....
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....Liquidator fee in accordance with the provisions of Regulation 4(3) of the IBBI (Liquidation Process) Regulations, 2016. 26. There is no explicit provision in IBC pertaining to any payment of monthly remuneration to the Liquidator. Sections 34 (8) and (9) of the Code deal with the fee to be paid to the Liquidator. The Liquidator shall be paid for the conduct of liquidation proceedings in proportion to liquidation estate assets decided by the Board. Relevant portion of Section 34 of the Code has been reproduced herein as under: "Section 34. Appointment of Liquidator and fee to be paid- (8) An Insolvency Professional proposed to be appointed as a Liquidator shall charge such fee for the conduct of liquidation proceedings and in such proportion to the value of the liquidation estate assets, as may be specified by the Board. (9) The fees for the conduct of the liquidation proceedings under sub-section (8) shall be paid to the Liquidator from the proceeds of the liquidation estate under Section 53." 27. It is further submitted that Regulation 4 of IBBI (Liquidation Process) Regulations, 2016, specifically pertains to Liquidator's fee. As per this pro....
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....ss during the period when CD was being run as a going concern. However, it is submitted that there is no provision in law for any fee to be paid to a Liquidator for sales and realisation made during the period of CD being run as a going concern, including current assets, if any. The Code and the regulations only provide for fee to Liquidator pursuant to sale and realisation of assets of CD, where the provision for sale of assets is provided in Regulation 32 of IBBI (Liquidation Process) Regulations, 2016. 31. In any case, the IBBI Order dated 21.04.2020 against the Applicant has not been set-aside by any authority till date and the same still holds ground. By way of present application, the Applicant is trying to question the legality and validity of the said IBBI Order. 32. In this regard the present Liquidator also sent an email on 19.11.2020 requesting the Applicant to deposit the amount of Rs. 31,09 lakhs pursuant to IBBI Order dated 21.04.2020, however, the same has not been deposited till date. It is further submitted that the present Liquidator is only acting as an officer of the Tribunal to assist in the best possible manner by apprising this Tribunal with the applica....
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.....11 lakhs presuming the CD is liquidated for Rs. 159.17 crores. However, the said claim does not have any legal basis. Appellant is entitled to be paid as per the amount realised from the assets of the CD during his period of acting as Liquidator. And during the tenure of Appellant only one asset being a Toyota car was sold and an amount of Rs. 2,60,000/- was realised for the same. AA has interpreted the term "realisation" under Regulation 4(3) to mean only proceeds from sale of assets in liquidation and has ignored the substantial revenue generated by the CD during the period it was operated as a going concern. Such a narrow interpretation defeats the purpose of Regulation 4(3) which permits computation of the Liquidator's fee based on realisation net of other liquidation costs, which includes sales revenue generated from continuing operations. The Appellate Tribunal had already held that the sales turnover of Rs. 78.47 crores must be treated as "realisation." Net realization was Rs.81,38,63,787. There is no provision in law for any fee to be paid to a Liquidator for sales and realisation made during the period of CD being run as a going concern, including curren....
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....on is Rs.81,38,63,787 and the Liquidation Cost is only Rs.7,97,02,365, then it will amount to a Profit of Rs. 73,41,61,422, which it claims to be highly unrealistic. Opening balances of finished stocks and debtors have been realised by the Appellant during the liquidation period for an amount of about Rs. 52 crores, and there is no element of cost incurred during the liquidation period on the realisations of such stocks and debtors. Liquidator is entitled to fee on realisation of such assets, forming a part of the liquidation estate of the CD Even if it is assumed that the said sales can be considered as Realisation for the purpose of Regulation 4 as aforesaid to determine the fees of Liquidator, then also the same can be determined only after excluding the LiquidationCost, which in present case is Rs.1,25,11,89,961.02 and once this is deductedfrom the purported realisations stated to be made by Applicant, then nothing remains as realisation for which any fees can be paid in terms of Regulation 4. 35. Appellant claims that the amended definition of "liquidation cost" under Regulation 2(1)(ea), as inserted vide notification dated 25.07.2019, cannot be tak....
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....ate a distinction between the classes or types of assets under the liquidation estate of the Corporate Debtor. The distinction between the current and the fixed assets under the IBC propounded by the Respondent is purely fictional and non-est in the eyes of law. This restrictive interpretation of "realisation" defeats the purpose of incentivising Liquidators to operate the CD efficiently and maximise value. Appellant also claims that the basis for dismissal of the Appellant's claim in the Impugned Order dated 04.03.2025 namely, that the operational costs exceeded the realisations and therefore no fee is payable, was neither a ground raised by the Respondents in the earlier round before the AA nor argued before the NCLAT in the prior Appeal. 36. The respondent which is the present liquidator claims that herein Liquidator fee was not decided by COC, therefore, the Appellant is entitled to fee as a percentage of amount realised net of liquidation cost as per Regulation 4(3) and the Appellant shall be paid on realisation of entire assets of the CD as per Section 53 (3) of the IBC. Appellant claims a fee of Rs. 111.11 lakhs presuming the CD is liquidated for Rs. 159.17 crores. Ho....
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....ns as realization for which any fees can be paid in terms of Regulations 4 of the Liquidation Regulations. 23. As a sequel to the discussion above, we are of the considered view that the Applicants' claim for fees amounting to Rs,188,02,261/- is not tenable under Regulation 4 read with 2(1) (ea) of the Liquidation Regulations read with section 5(16) of the IBC. 24. As a result, the present IA is dismissed, however without any costs, and disposed of accordingly." [Emphasis supplied] 38. We further note that the Appellant was appointed as Liquidator on 08.08.2018 and continued to hold office as the Liquidator up to 31.10.2019. During this period, the Appellant drew an amount of Rs. 31.09 lakhs as remuneration for acting in the capacity of Liquidator of the CD, out of the funds of the CD in liquidation, which was drawn out of the liquidation estate. It is pertinent to mention here that no resolution was approved by the COC in its meeting pertaining to the liquidation proceedings. However, the Appellant continued to draw the same fee that he was charging in the capacity of Resolution Professional without any authorisation from the COC. IBBI had also issued....
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....od from the liquidation commencement date till repayment of interim finance, whichever is lower; (vii) the amount repayable¹[***] under sub-regulation (3) of regulation 2A; (viii) any other cost incurred by the liquidator which is essential for completing the liquidation process: Provided that the cost, if any, incurred by the liquidator in relation to compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013), if any, shall not form part of liquidation cost. Comparative picture reveals that the above amendment expanded the items of cost to be considered for determination of Liquidators fees. Before amendment dated 25th July, 20191 in the Liquidation Regulations, the liquidation cost under Regulation 2(1)(ea) had four components. IBBI issued another Circular on 28.09.2023^2 only to clarify the position, on the four new components of liquidation cost, which are discussed hereinafter. 40. It is also to be noted that vide the same notification of 25.07.2019^1, IBBI modified the Regulation 4 with respect to liquidator's fees, which is noted as below with both amended and amended version in a tabular form: Regulation 4 for liquid....
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....sation only after such realised amount is distributed. Clarification: Regulation 4 of these regulations, as it stood before the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019 shall continue to be applicable in relation to the liquidation processes already commenced before the coming into force of the said amendment Regulations.] It is to be noted that both in amended as well as unamended provisions the fees payable to the Liquidator shall be as a percentage of the amount realised net of other liquidation costs, and of the amount distributed, for the balance period of liquidation. For further clarification with respect to "other liquidation cost" as noted in Regulation 4(2)(b), IBBI issued another circular on 28.09.2023 Clarification w.r.t. Liquidators' fee under clause (b) of sub-regulation (2) of Regulation 4 of IBBI (Liquidation Process) Regulations, 2016 dated 28.09.2023., the relevant extract of which are noted as below, which provides detailed clarification for determination of Liquidators fees, as extracted below: "The term "Amount of Realisation (exclusive of liq....
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....ent amendment in 2019. Clarification: The "other liquidation cost" in regulation 4(2)(b) shall mean liquidation cost paid in priority under section 53(1)(a), after excluding the liquidator's fee." [Emphasis supplied] 41. On the contrary, the Appellant has tried to argue that it is incorrect to hold that the entire operational expenses incurred during the going concern period (eg, purchase of raw materials, salaries, utilities, etc) constitute "liquidation costs" under Regulation 2(1)(ea), without offsetting the substantial sales revenue generated during that period. It claims that the true cost of keeping the CD as a going concern is the net operational loss, ie, operational costs minus sales revenue, not the gross expenses alone. It also claims that by including the gross expenditure without adjusting for income grossly inflates the liquidation cost and misrepresents the actual economic burden on the estate. We don't find any ambiguity in the above clarifications in the IBBI circular that, since these four new components are paid in priority to payment to stakeholders as per Section 53 of the Code by virtue of it being liquidation cost under Section 53(1)(a), ....
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....lised under the unamended regime, which was preserved for ongoing liquidation processes as per the clarification in the 2019 amendment itself. Appellant claims that during the liquidation period from 08.08.2018 to 31.10.2019, the Appellant oversaw business operations that generated a turnover of approximately Rs. 278.47 crores and effected recoveries from various government authorities, including over Rs. 81 crores in GST refunds and Rs. 28 crores in insurance claims. These sums were duly included in the liquidation estate and reported in progress reports. The Appellant had sought determination of his fee under Regulation 4(3), which permitted computation on the basis of realisations net of liquidation costs. Alternatively, the Appellant had sought to lay down an equitable and reasonable basis for computation of remuneration and grant such other reliefs as may be just and proper in the facts and circumstances of the case. The main contention of Appellant before this Appellate Tribunal as well as NCLT has been that his entitlement to fee cannot be based only on the sale of Asset (car which was sold for Rs. 2,60,000/-), but should also include realizations from the sale of goods duri....
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....he Adjudicating Authority noted as follows: "Thus, in view of the aforesaid facts and circumstances, the present appeal succeeds and the impugned order is hereby set aside whereby the application filed by the appellant bearing I.A. No. 893 of 2020 has been dismissed. The matter is remanded back to the Learned Tribunal which restoring the application I.A. No. 893 of 2020. The parties are directed to appear before the Tribunal on 20.03.2023. It is made clear that the appellant shall give a break- up of the sales that has been made during the period of liquidation i.e. within six months, next 6 months, next one year etc. and the Tribunal shall take into consideration the sales effected by the Liquidator in terms of Clause 2.1 of the circular dated 28.09.2023 and pass an appropriate order in accordance with law." [Emphasis supplied] Post the order of this Appellate Tribunal dated 11.03.2024, the Division Bench of Hon'b1e High Court of Bombay in case of Amit Gupta (supra), in its judgment dated 04.04.2024 struck down Clause 2.1 and Clause 2.5 of the IBBI Circular dated 28.09.2023 as being ultra vires the IBBI (Liquidation Process) Regulations, 2016, and the IBC,....
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....ion proceedings under sub-section (8) shall be paid to the Liquidator from the proceeds of the liquidation estate under Section 53." 48. Further, when we look into the provisions of the Regulation which governs the payment of Liquidator's fees, we note that remuneration can be paid to Appellant only in terms of Regulation 4 (3) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, as applicable to the Corporate Debtor, i.e., the unamended Regulation which stood before the amendment on 25.07.2019, i.e., "Regulation 4. Liquidator's fee. (1) The fee payable to the liquidator shall form part of the liquidation cost. (2) The liquidator shall be entitled to such fee and in such manner as has been decided by the committee of creditors before a liquidation order is passed under sections 33(1)(a) or 33(2). (3) In all cases other than those covered under sub-regulation (2), the liquidator shall be entitled to a fee as a percentage of the amount realized net of other liquidation costs, and of the amount distributed, as under. XXXX XXXX (4) The Liquidator shall be entitled to receive half of the fee....