TaxTMI 
TaxTMI 
2025 (8) TMI 505
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....ank Limited Vs. Hema Engineering Industries Ltd. under Section 60(5)(c) read with Section 52(5) of the IBC, read with rule 11 of the National Company Law Tribunal Rules, 2016, whereby the aforesaid IA of the appellant was rejected by the Adjudicating Authority. 2. Brief factual matrix necessary for disposal of the instant appeal is that a Petition under Section 9 of the IBC was filed by an Operational Creditor ('OC') namely, M/s PR Rolling Mills Pvt. Ltd. whereon vide order dated 05.04.202, the CIRP Process was initiated against the Corporate Debtor. Since, no Resolution Plan was approved by the CoC Members, initiation of liquidation and application for appointment of liquidator of the CD was approved by the Adjudicating Authority vide its order dated 17.05.2022 whereby the Respondent Mr. Vikas Garg, was appointed as the liquidator of the CD (herein after referred to as Sole Respondent). 3. It is also transpired that a public announcement in terms of Section 38 of the IBC read with Regulation 12 of the Insolvency and Bankruptcy Board of India, (Liquidation Process) Regulations, 2016 (herein after referred to as 'Liquidation Regulations') was made for the purpose of inviting c....
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....appears to have been taken by the liquidator on 30.07.2022 but the same could only be communicated to the appellant on 09.08.2022. It is vehemently submitted that as the timeline provided under Section 21A of the Regulations was to be over by 15.08.2022 there was no ample time available to the appellant to realise Security Interest in the said assets. 8. It is vehemently submitted that though it has been specifically pleaded by the appellant before the Adjudicating Authority that the decision taken by the liquidator/Respondent on 30.07.2022 has only been communicated vide email dated 09.08.2022 and therefore, there was no time available for the appellant to have realised the Security Interest in the assets identified for the purpose however, the Adjudicating Authority has committed manifest illegality in not considering this aspect of the matter in right perspective. 9. It is submitted that the time line of 90 days provided under Regulation 21A of Regulations would commence from the date of initiation of the liquidation process however, since the identification of the properties for the purpose of realisation of the Security interest was a condition precedent therefore it was....
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....e Respondent has relied on following case laws: (i) Moser Baer Karamchari Union vs. Union of India, (2023) 9 SCC 499. (ii)Shikshak Sahakari Bank Ltd. vs. Mr. Jagdish Kumar Parulkar, CA (AT) (Ins) No. 2023 of 2024. (iii) Small Industries Development Bank of India (SIDBI) vs. Shri Vijender Sharma, CA (AT) (Ins) No. 1027 of 2021. (iv) State Bank of India vs. Navjit Singh, CA (AT) (Ins) No. 151 of 2022. (v) Sunil Kumar Jain & Ors. vs. Sundaresh Bhatt & Ors. (2022) 7 SCC 540. (vi) Assam Tea Employees Provident Fund Organization, through an authorized representative vs. Mr. Madhur Agarwal & Anr., CA (AT) (Ins) No. 262 of 2022. 15. We have heard Ld. Counsel for the parties and have perused the written submissions filed by them and also the record. 16. Before proceeding further, it would be in the interest of justice to recall relevant provisions of the IBC and liquidation Regulations, 2016 in order to appreciate the submissions advanced by Ld. Counsel for the parties. 17. Section 36 of the IBC which talks about the liquidation estate, is hereby reproduced as under: "36. (1) For the purposes of liquidation, the liquidator shall....
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.... Government in consultation with any financial sector regulator; (b) assets in security collateral held by financial services providers and are subject to netting and set-off in multi- lateral trading or clearing transactions; (c) personal assets of any shareholder or partner of a corporate debtor as the case may be provided such assets are not held on account of avoidance transactions that may be avoided under this Chapter; (d) assets of any Indian or foreign subsidiary of the corporate debtor; or (e) any other assets as may be specified by the Board, including assets which could be subject to set-off on account of mutual dealings between the corporate debtor and any creditor. 18. Section 37 of the IBC is also relevant and the same is also being reproduced below: "37. (1) Notwithstanding anything contained in any other law for the time being in force, the liquidator shall have the power to access any information systems for the purpose of admission and proof of claims and identification of the liquidation estate assets relating to the corporate debtor from the following sources, namely: - (a) an information utility; ....
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....and apply the proceeds to recover the debts due to it. (5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force. (6) The Adjudicating Authority, on the receipt of an application from a secured creditor under subsection (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in accordance with law for the time being in force. (7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall- (a) account to the liquidator for such surplus; and (b) tender to the liquidator any surplus funds received from the enforcement of such secured assets. (8) The amount of insolvency resolution process costs, due fr....
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....l 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 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 of 2013). 20. Regulation 21 A of IBBI (Liquidation Process), 2016 liquidation Regulations, 2016 is at the centre of the controversy and is also reproduced as under: "21A: Presumption of security interest. (1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may....
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.... the dues required to be paid under Section 53 of the IBC is now settled and in this regard following case laws may be considered. This tribunal in Company Appeal (AT) Ins. No. 987 of 2022 in the matter of "Regional P.F. Commissioner Vs Ashish Chhawchharia, Resolution Professional for Jet Airways (India) Ltd. & Anr. relying on the law laid down by the Hon'ble Supreme Court in "Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others, (2009) 10 SCC 123" has held as under: - "118. Challenge to the Resolution Plan by the Appellant is on the ground that Section 11 of the 1952 Act requires priority over all other dues and further Section 36(4)(a)(iii) excludes provident fund dues from the liquidation estate of the Corporate Debtor. We have already dealt with provisions of Section 36(4)(a)(iii) in foregoing paras of this judgment. Now, we, need to look into Section 11 of 1952 Act. The Section 11 of the 1952 Act provides for priority of payment of contributions over other debts. Learned counsel for the Appellant has relied on judgment of the Hon'ble Supreme Court in "Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commi....
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....in above case has also been followed in other cases decided by this Tribunal in Company Appeal (AT) (Insolvency) No. 262 of 2022, Assam Tea Employees Provident Fund Organization, through an Authorized Representative V. Mr. Madhur Agarwal & Anr. as well as in Small Industries Development Bank of India (SIDBI) v. Shri Vijendra Sharma, Company Appeal (AT) (Insolvency) No. 1027 of 2021 wherein it has been reiterated that the compliance of regulations 2(ea), 2-A, 21-A and 37 of the Liquidation Process Regulations and Section 52/53 of the IBC are absolutely necessary even if the secured creditor proceeds to realise its security interest. In State Bank of India v. Navjit Singh Company Appeal (AT) (Insolvency) No. 151 of 2022 this Tribunal opined again to the following effect: - "6. We have considered the submissions of Learned Counsel for the parties and perused the record. In so far as the claim of the Appellant is concerned of Rs. 29,34,54,879.59/- it has been admitted by the Liquidator the said claim is the claim admitted in the Liquidation Process and no further adjudication was called for with regard to the said claim. In the present case, the admission of the claim is no....
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....ly with respect to those workmen/employees who actually worked during CIRP when the corporate debtor was a going concern, their wages/salaries are to be included in the CIRP costs and they shall have the first priority over all other dues as per Section 53(1)(a) IBC. Any other dues towards wages and salaries of the employees/workmen of the corporate debtor shall have to be governed by Section 53(1)(b) and Section 53(1)(c) IBC. Any other interpretation would lead to absurd consequences and violate the scheme of Section 53 read with Section 5(13) IBC. If any other interpretation, more particularly, the interpretation canvassed on behalf of the appellants is accepted, in that case, the wages/salaries of those workmen/employees who had not worked at all during CIRP shall have to be treated and/or included in the CIRP costs, which cannot be the intention of the legislature." Hon'ble Supreme Court in Moser Baer Karamchari Union v. Union of India, (2023) 9 SCC 499 while considering issues relating to the status and protection of workmen's dues in insolvency resolution opined as under: - "41. When we turn our attention to the Code, it is to be first noted that in terms of Secti....
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....y interests in the manner provided in the section, are to be deducted from the proceeds of any realisation by such secured creditors. They are to be transferred and included in the liquidation estate. Subsection (9) of Section 52 of the Code states that where proceeds for realisation of the secured assets are not adequate to repay the 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) to sub-section (1) of Section 53 of the Code. 43. To protect the interest of the workmen where the secured creditor does not relinquish its security interest to fall under Section 53 of the Code, Regulation 21-A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 has been enacted, and it requires that the secured creditor, who opts to realise its security interest as per Section 52 of the Code, has to pay as much towards the amount payable under clause (a) and sub-clause (i) to clause (b) of sub-section (1) of Section 53 of the Code to the liquidator within the time and the manner stipulated therein. The workmen's dues, even when the secured creditor opts to....
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....d to the appellant i.e. secured creditor on 09.08.2022 via email. It appears to be admitted to the parties that 90 days after liquidation commencement date were ending on or before 15.08.2022. It is also conspicuous that though the liquidator in its reply before the Tribunal has stated that a decision taken by him on 30.07.2022 was communicated on the same day however, the reply of the liquidator filed before the Tribunal is silent on the point as to how this decision has been communicated. Before us also it has not been clarified as to how the decision allegedly taken on 30.07.2022 by the liquidator has been served on appellant/bank. A copy of an email sent by liquidator to appellant on 09.08.2022 enclosing therewith copy of decision taken on 30.07.2022 has been placed on record by appellant which has also not been denied by the Respondent. Thus it can be safely taken that the decision which has been taken by the liquidator permitting the appellant/bank secured creditor to realize his security interest in specific properties on 30.07.2022 could only be communicated to the appellant on 09.08.2022 and the 90 days' timeline as per Regulation 21 (2) (a) was expiring on 15.08.2022. Cer....
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....he Applicant bank into the common pool of the Corporate Debtor; F. Pass an order declaring the decision issued by the Respondent vide letter dated 08.09.2022 and 30.07.2022 as null and void; G. Pass an order holding that the Applicant is not liable to pay for gratuity and provident fund in view of the fact that these funds do not form part of the liquidation estate; and H. Pass such other or further order(s) as this Hon'ble Tribunal deem fit and proper in the facts and circumstances of the case." The above prayers would sufficiently indicate that the prayers of the appellant was to permit him to first realize the security interest in view of Section 52 of the IBC and thereafter he would be obliged to pay the amount communicated by the liquidator i.e. 10750291/- towards the liquidation cost and workmen dues as provided under Section 53 of the IBC. The intention of the appellant not to pay the requisite dues in terms of Section 53 of the IBC may also be gathered from the email sent by it to the liquidator on 14.09.2022 whereby a request has been made to withdraw letter dated 08.09.2022 whereby liquidator has informed the appellant of inclusion of the....
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....ue of the same and request you to handover the possession of the assets, wherein charge has been not relinquished. 9. Further, without prejudice to our right to refute / dispute the Cost estimate or lay challenge to any of the steps being taken in the Liquidation process so far, we hereby state that in so far as the retail exposure of the Bank is concerned, we will make the payment of revised estimated Cost within a period of 15 days from the date of receipt of revised estimated liquidation cost from your office. Kindly take note of the fact that vehicles constituting the retail exposure of the Bank are fast depreciating assets. Delay in realization of vehicles has already resulted in diminution of value. Kindly extend necessary cooperation for sale of those assets/vehicles. 10. Further, with respect to undertaking by the Bank for making payment of Rs.89,63,788/-towards Gratuity and Provident Fund, it is stated that a secured FC realizing security interest in terms of Section 52 IBC, is only obligated, in terms of S. 52 (8) IBC, to contribute payment of insolvency resolution process costs and not liquidation cost. Nowhere in the entire 18 Code or Regulations frame....
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....from assets is not in accordance with Regulation 21A of IBBI (Liquidation Process) Regulations. As regards undertaking with respect to PF/Gratuity, please note the security interest can be permitted to be realised only subject to verification. Since PF/ Gratuity dues do not constitute the assets of the CD in terms of Sec 36 the same can't be verified as security interest under Sec 52 and can't be permitted to be appropriated by a secured creditor. You are also requested to refer to the decision of Hon'ble NCLT in case of Precision Fasteners Ltd. referred in the decision dated 30.07.2022. The judgement in case of Savan Godiwala has also been dealt in decision dated 30.07.2022. You are requested to refer to the decision dated 30.7.2022 on the subject. We have taken note of relinquishment of charge on P&M and current assets. Further requests for making contributions with respect to retail exposure is not clear. Please note that 120 days from Liquidation Commencement Date have since lapsed and it is not possible for us to provide further 15 days as the same shall affect the entire liquidation process". 31. Thus it is evident from the above material that....
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.... the Board. Regulation 2(ea) (ea): "liquidation cost" under clause (16) of section 5 means-(i) fee payable to the liquidator under regulation 4; (ii) remuneration payable by the liquidator under sub-regulation (1) of regulation 7; (iii) costs incurred by the liquidator under sub-regulation (2) of regulation 24; (iv) costs incurred by the liquidator for preserving and protecting the assets, properties, effects and actionable claims, including secured assets, of the corporate debtor; (v) costs incurred by the liquidator in carrying on the business of the corporate debtor as a going concern; (vi) interest on interim finance for a period of twelve months or for the period from the liquidation commencement date till repayment of interim finance, whichever is lower; (vii) the amount repayable 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, sha....
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....ch is applicable in this case. The Liquidator's fee is also prescribed under Regulation 4. Regulations 4(1) and 4(1A) provides primacy to CoC and consultation Committee. The Respondent's claim that the Liquidator is entitled for a fee under Regulation 4(2)(b) only when he has actually realised or distributed any amount is not tenable in the light of Regulation 21A". In Small Industries Development Bank of India (SIDBI) vs. Shri Vijender Sharma, CA (AT) (Ins) No. 1027 of 2021, another coordinate Bench of this Appellate Tribunal while considering Regulation 21 A held as under in para no. 16, 21. "16. It is clear from Regulation 21-A of the Liquidation Process Regulations, 2016 that after presumption of security interest by secured creditor, the secured creditor shall pay as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53, as it would have shared in case it had relinquished the security interest, to the liquidator within ninety days from the liquidation commencement date. Quite obviously this was not done by the appellant as is evident from the order dated 8.7.2020 in CA No.135/2019 by which the Ap....
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....ulation 21A, sub-regulation (2) shall not apply, since he was not communicated the estimated amount by the Liquidator. In this context, we may further notice second proviso of Regulations 21A (2), which provides as follows: "21A (2) xxx xxx Provided that where the amount payable under this sub-regulation is not certain by the date the amount is payable under this sub-regulation, the secured creditor shall pay the amount, as estimated by the liquidator: Provided further that any difference between the amount payable under this sub -regulation and the amount paid under the first proviso shall be made good by the secured creditor or the liquidator, as the case may be, as soon as the amount payable under this sub- regulation is certain and so informed by the liquidator." 22. The second proviso clearly protects the interest of the secured creditor to the extent that if there is any difference between the amount payable under sub-regulation (2) and the amount paid under the first proviso, the Liquidator or the creditor, as the case may be, is to do the needful. Thus, even if, a secured creditor, who does not write to the Liquidator for any estimation o....
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....titutional validity of Regulation 2A and 21A of The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. However, the same is not relevant here, and the Respondent No. 3 are directed to pay the portion of the Liquidator's fees which is pending against them' and by referring to the decision of this `Tribunal', in State Bank of India V. Navjit Singh dated 16.03.2022 (vide Comp. App (AT) (INS) No. 151 of 2022), wherein it was held that `even if the Secured Creditor proceeds to realise its Security Interest it is liable to pay fee as contemplated under Regulation 21 A(2)(a). Further, Hon'ble NCLAT in the case of `Small Industries Development Bank of India v. Shri Vijender Sharma', dated 02.11.2022, in Company Appeal (AT) (Insolvency) No. 1027 of 2021, held that compliance of regulations 2 (ea), 2-A, 21-a and 37 of the Liquidation Process Regulations and Section 52/53 of the IBC are absolutely necessary even if the Secured Creditor proceeds to realise its Security Interest', and opined that the Respondent Nos. 1, 2 & 3 were to defray their portion of `Liquidation Process Costs', in terms of Regulations 2A of the IBBI (Liquidation Process) Regulations, 2016, ....