TaxTMI 
TaxTMI 
2025 (6) TMI 124
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....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. 28.09. 2022, by directing as follows: "The matter is remanded ha....
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.... 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 and bank balance including term deposits, mutual funds and quoted shares, then it would not be the realisation of the asset because it is already available for the purpose of distribution t....
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....y 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 was specifically directed to consider the sales revenue of Rs. 78.47 crores generated during the going concern period as part of "realisation" for the purpose of calculating the Appellant's remuneration under Regulation 4(3) of the ....
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....iance 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" defeats the purpose of incentivising Liquidators to operate the CD efficiently and maximise value. 9. The Appellant had specifically prayed that in the event Regulation 4(3) is deemed inapplicable, the Tribunal may be pleased to lay down....
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....rovisions 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 conditions are satisfied, Section 70 imposes upon the latter person the liability to make compensation to the former in respect of, or to restore, the thing so done or delivered. The important point to notice is that in a case falling under Section 70 the....
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...., 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 in accordance with: * the slab-based structure of fees in the regulations * the value of services rendered, and * judicial directions that guided the Appellant's efforts * to deny fees based on the outcome, despite full compliance with duties, is ....
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....ation; 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 long period of one year and eighty-four days, for which he is being denied any remuneration. 19. The Appellant also furnished a detailed statement of the various duties, actions, and responsibilities performed during his tenure as Liquidator, including: i. Running the Corporate Debtor as a going concern for over a year ii. Managing busin....
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....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 the IBBI (Liquidation Process) Regulations, 2016. Therefore, the Appellant is rightfully entitled to Liquidator's fees as per the prescribed percentage slab. The omission to adjudicate upon this critical component of the claim renders the Impugned Order incomplete and unjust. Submissions made by the Respondent 23. Respondent claims that the main contention of the Applicant in the present Application is regard....
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....te 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 provision, the set mechanism for determining the Liquidator's fee has been given. Firstly, the Liquidator's fee shall be decided by the COC. Secondly, in cases where the fee of the Liquidator has not been decided by the COC, the Liquidator should draw the fee in accordance with Regulation 4 of IBBI (Liquidation Process) Regulations, 2016, which deals with the Liquidator's fee. The relevant provision has been reproduced herein: "Regu....
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....ulations, 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 applicable legal provisions and the present Liquidator is not denying the claim of Applicant for any personal gain or for any reason which is not as per law. This Tribunal may decide the present application as per the applicable laws. Appraisal: 33. In this case the Appellant-Ex-liquidator had sought determination of his fee for the period he was working as Liquidator, as nothing was being paid to him even after the case was remanded by this Appellate Tribunal to the AA. Appellant-Ex-liquidator's pr....
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....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 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 IBBI had also issued show cause notice to the Appellant based on the findings of an inspection conducted by Inspecting Authority in respect of the conduct of the Appellant as Liquidator of CD for drawing fee as Liquidator without any approval from the COC in contraventions to Regulation 4(3) of ....
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....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 taken with retrospective effect based on an IBBI circular dated 28.09.2023. It is also claimed that 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) retrosp....
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....tions 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. However, as per Respondent the said claim does not have any legal basis. The Appellant is entitled to be paid as per the amount realised from the assets of the CD during his period of acting as Liquidator. However, factually 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. 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 fo....
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....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 show cause notice to the Appellant based on the findings of an inspection conducted by Inspecting Authority in respect of the conduct of the Appellant as Liquidator of the CD for drawing fee as Liquidator without any approval from the COC in contraventions to Regulation 4(3) of IBBI (Liquidation Process) Regulations, 2016, and various other provisions of the Code. IBBI in its order on 21.04.2020 ordered that the Applicant must deposit an amount of Rs. 31,09,000/- in the liquidation estate of the CD. The IBBI also observed that the Applicant is at liberty to claim Liquidator fee in accordance with the provisions of Regulation 4(3) of the IBBI ....
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.... the Liquidation Regulations, the liquidation cost under Regulation 2(1)(ea) had four components. IBBI issued another Circular on 28.09.20232 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 25.07.20191, 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 liquidator's fees1 under Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 Prior to 25th July, 2019 Post 25th July, 2019 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: ..... ..... 4. Liq....
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....st" 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 liquidation costs)" given in the table in Regulation 4(2)(b) mandates that all liquidation costs are to be deducted from the realisation amount. However, as per regulation 4(2)(b), "other liquidation cost" is to be deducted from realisation. There is a gap in understanding in the market about what components of the liquidation cost are to be excluded from the liquidation cost to derive "other liquidation cost". The term "Amount of Realisation (exclusive of liquidation costs)" given in the table in Regulation 4(2)(b) mandates that all liquidation costs are to be deducted from the realisation amount. However, as per regulation 4(2)(b), "other liquidation cost" is to be deducted from realisation. There is a gap in understanding in the market about what com....
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....xpenditure 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), these newly added components were always part of the liquidation cost irrespective of the date of commencement of liquidation process. 42. In the light of above clarification issued by IBBI on 28.09.2023 the issue is settled with respect to the cost being incurred to keep the CD as a going concern during liquidation process. As a result, we don't agree with the arguments presented by the Appellant and go along with the arguments of the present Liquidator-Respondent on this count. Basis clarifications noted above we agree with the Respondent that the term "other liquidation cost" could not have meant to exclude certain components of liquidation costs from "liquidation costs" which were added by a subsequent amendment in 20191. 43. The Appellant has relied upon the decision of Hon'ble Supreme Co....
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....putation 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 during the period the Corporate Debtor was being run as a going concern. Appellant has also stated that he has affected the sales of goods amounting to Rs. 78,47,31,773/- during the Corporate Debtor being run as a going concern, upon which he is entitled to fee as a percentage, as provided in Regulation 4(3). To support his contention, the Appellant also relied upon the Circular dated 28.09.20234 issued by IBBI, and strongly relied upon Clause 2.1 of the said Circular, where the phrase 'amount realised' was explained in the said IBBI Circular. 45. It was brought to our notice that the Division Bench of Hon'b1e High Court of Bombay in Amit Gupta Vs. Insolvency anal Bankruptcy Board of India & Anr. [Writ Petition (Lodging) No. 34701 of 2023, Judgement dt. 04.04.2024] had struck down Clause 2.1 and Clau....
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....pplied] 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, 2016. It is to be noted that clause 2.1 was as follows: "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. Where the asset is already liquid such as cash and bank balance including term deposits, mutual funds, and quoted shares, there is no 'realisation', and funds are readily available for distribution. The amount realised, thus, implies the proceeds from the sale/realization from the liquidation of assets which are not liquid. Therefore, the liquidator is not entitled to a fee on realisation for these liquid assets and is entitled to a fee only on distribution....
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....ub-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 payable on realization under sub- regulation (3) only after such realized amount is distributed." [Emphasis supplied] As per this provision, the set mechanism for determining the Liquidator's fee is that firstly, the Liquidator's fee shall be decided by the COC. Secondly, in cases where the fee of the Liquidator has not been decided by the COC, the Liquidator should draw the fee in accordance with Regulation 4 of IBBI (Liquidation Process) Regulations, 2016, which deals with the Liquidator's fee as noted above. In the present case, where Liquidator fee was not decided by COC, the Applicant was entitled to fee as a percentage of amount realised net of liquidation cost as per Regulation 4 of IBBI (Liquidation Process) Regulations, 2016. And the Applicant shall be paid on realisation of entire assets of the CD as per Section 53 (3) of the IBC. 49. Without going into the details of calculations for determining fees "as a pe....