TaxTMI 
TaxTMI 
2026 (9) TMI 2010
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....ocate, Mr. P. Prashanth & Mr. Gautam S Raman, Advocates For the Respondents : Ms. S. Umamaheswari, Advocate for R1 Mr. P. Prashanth, Advocate for R2 JUDGMENT [Per: Jatindranath Swain, Member (Technical)] 1. These four appeals have been filed, challenging the common order passed by the learned NCLT in the interlocutory applications. IA Nos. 1838/2023, 167/2023, 1240/2023, 1421/2023 and 1735/2024 in IBA/288/2018. By virtue of the said impugned order, the learned NCLT allowed the prayer of the liquidator made in IA/1838/2023 to permit the liquidator to ratify the OTS transaction dated 17.07.2021 between Tamil Nadu Mercantile Bank (TMB) and Mr. S.V. Ramasamy and to sell the assets of the CD to the personal guarantor, rejected the prayer of Sri Sivajothi spinning Mills Pvt Limited made in IA/167/2023 and IA/1240/2023 for return of the EMD with applicable interest which had been forfeited by the liquidator, partially allowed the prayer made by ex-liquidator Mr. S. Muthuraju in IA/1421/2023 by ordering payment of Rs. 20 lakhs towards remuneration along with expenses incurred by him till date from out of the liquidation account and directed TMB to remit the forfeited amount ....
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....tor of the CD preferred the Company Appeal (AT) (Ins) No. 550/2019 before this appellate tribunal, which by its order dated 26.09.2019, stayed the order of liquidation subject to the condition that the promoter Director pays Rs. 7.30 crore in three instalments to TMB within a period ending on 31.03.2020 and also pays the requisite fees to the RP/liquidator in full, at the rate of Rs. 50,000/- per month along with associated costs, including litigation expenses, in the event of which the CIRP commenced against the CD will stand set aside and the CD will go out of the CIRP. This appellate tribunal also directed that on failure to pay the total amount to the TMB and the RP/liquidator as directed, the liquidation proceedings may continue, if ordered by this Tribunal. Subsequently, as the promoter director was not in the position to comply with the aforesaid conditions and pay the first two instalments, the order of stay was vacated, and the appeal was dismissed by the order dated 11.12.2019. 4. The liquidator, on disposal of the appeal by NCLAT, initiated auction proceedings of the CD's assets. There was no bidder for first 3 auctions. Thereafter, on 21.01.2021, the liquidator issue....
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....even when auction of the properties of the CD is underway, which is totally contrary to the provisions of the Code, that he is not willing to pay the liquidator's fees and that there is no provision under IBC to come out of the liquidation process once liquidation is ordered, except by way of a scheme under Section 230 of the Companies Act or by sale of the CD as a going concern. Based on such observations made as above, Ld. NCLT proceeded to pass the order dated 12.05.2023, rejecting the application MA/3/2022 and directing the liquidator to proceed with the E-auction process in accordance with law and to distribute the proceeds thereof in terms of Section 53 of the IBC, 2016. The said order has not been challenged by any of the parties till now and has attained finality. 5. Meanwhile, the Honourable High Court of Madras passed orders in the writ petition 5192/2021 on 10.11.2021, holding, thereby, that since parties have resolved the disputes between them and the bank's claim has now been met, the petitioner (suspended Director), will be entitled to the benefit of the forfeited money, subject to the right of the relevant purchaser to challenge the forfeiture on the ground of unj....
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....d consequent to which TMB has also issued an account closure certificate dated 06.08.2021, certifying that the CD has closed the loan account on 17.07.2021 under OTS. He has contended that the said position has been noted by the Hon'ble High Court of Madras in the order dated 10.11.2021 in WP/5192/2021 with the observations as follows: " 'nothing remains of the petition, though certain formalities have to be complied with before National Company Tribunal". "It is also recorded that a part of the consideration deposited by a successful bidder at an auction in connection with the present matter had been forfeited by the official liquidator. Since the bank's claim has now been met, it will be the petitioner who will be entitled to the benefit of the forfeited money, subject to the right of the relevant purchaser to challenge the forfeiture on the ground of unjust enrichment, in accordance with law." ' (ii) In view of the same, the appellant Mr. S.V. Ramasamy has contended that the forfeited amount, which were deposited by Sivajothi Spinning Mills, and which were paid to TMB consequent to its forfeiture, should be transmitted to him as he has taken over the debts of the....
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....cannot be fixed by the respondent S. Muthuraju without getting approval from SCC or NCLT, that fee for Mr. S. Muthuraju was not fixed in the manner prescribed under the Code, that Mr. S. Muthuraju has not done anything during the said period to merit payment of fees, and that the said fee of Rs. 20 lakh was ordered to be paid without giving an opportunity to him to counter the same and hence the direction as above should be set aside. He has further submitted that the claim of the OC (operational creditor) TCP Limited is inadmissible because it was not verified during CIRP and that the present liquidator merely submitted the said claim vide a memo in Sr. No. 1404 dated 18.03.2024 without verifying the same, and even otherwise also, no amount is payable to the OC and the entire forfeited amount ought to have been given to him in priority after settling the liquidation and CIRP expenses, since he has stepped into the shoes of FC by settling the entire claim of TMB (v) This has been strongly countered by both the erstwhile liquidator, Respondent No. 1 and the present liquidator, Respondent No. 3. Respondent No. 1 has stated that the appellant, as well as the respondents, had agreed....
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....the aforesaid purposes instead of asking Mr. S.V. Ramasamy to settle the said claims. 9. The appellant's contention had been that the forfeited amount was already paid to it prior to the OTS and therefore the said forfeited amount should not be used right now to pay the liquidation costs, including the fee payable to both the Erstwhile Liquidator and the present liquidator and to settle the claims of the operational creditor. It has further stated that the claim of the operational creditor was never deliberated in any meeting, nor it was verified at any stage, and it is an inadmissible claim. Further, the direction to pay Rs. 20 lakh to erstwhile RP as fee, and other expenses should be set aside because the said claim was not placed before any meeting and no work or coordination has been done by him. Moreover, it had agreed to a final settlement amount of Rs. 9.50 crore under the assumption that it will retain the amount of Rs. 52.27 lakh paid out of the forfeited EMD amount. Further, since Mr. S.V. Ramasamy, the guarantor, has not abided by the conditions of OTS and has kept legal proceedings pending, the impugned order may be set aside, and the forfeited amount may be allo....
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....ve been fully settled by payment of Rs. 9.50 crores to it by Mr. S.V. Ramasamy, its claims stand extinguished and it cannot hold on to the said amount. e) Regarding the payment of fees and other liquidation expenses, she has submitted that this was agreed upon during the proceedings held on 28.05.2024, where the personal guarantor had agreed to pay Rs. 4.5 lakh to her and with respect to claim of erstwhile liquidator, the Bank had stated that it has no objection to the forfeited amount to be distributed as per law. 11. Respondent Mr. S.V. Ramasamy, the personal guarantor, has stated in his counter that he had filed MA No. 3/2022 to withdraw the CP/288/IB/2018, which was rejected by Ld. NCLT and hence he should not be blamed for continuing litigation against TMB. He has submitted that after paying off the loan extended by TMB to the CD in full, he has stepped into the shoes of the sole financial creditor and hence he has the first right to the amount available in the liquidation account, which is the forfeited amount. He has further submitted that having agreed to the OTS amount and having accepted the same, the Bank cannot take a different stand now when he is being ask....
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....e assets is more than the reserve price and the value of the highest bid submitted in the auctions conducted so far. Ld. NCLT ratified the same, and permitted the liquidator to hand over the assets of the CD to Mr. S.V. Ramasamy on the grounds that the resolution of insolvency of CD is pending for more than 6 years, the resolution plan submitted by the promoter during CIRP was rejected, the scheme proposed by the promoter for whose implementation, NCLAT stayed the liquidation proceedings for 3 months also failed, 4 e-auctions conducted to sell the asset of CD also failed, that amount offered and paid to TMB in the said settlement is way above the reserve price and the offer of the highest bidder, that the personal guarantor is eligible under Section 29A of the Code to participate in the sale of the assets of the CD, and therefore the objectives of the Code of value maximisation of CD will be achieved if the said transaction between the personal guarantor (who is also the promoter) and the financial creditor TMB is treated as a private sale of the assets of the CD under Regulation 33 and 37 of IBBI (Liquidation Process) Regulations. On the said reasoning and citing the Doctrine of N....
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....bmits that the bank has no objection as to the return of the forfeited amount to be distributed as per law." The said order remains unchallenged by either of parties. Hence, the objection of TMB that the said forfeited amount should be permitted to be kept by TMB is not permissible and is accordingly rejected. 16. Now we turn our attention to the manner in which distribution of the aforesaid forfeited amount was done, which is the main bone of contention in the instant appeals. Ld. NCLT, in its order dated 12.09.2024, proceeded to direct that this amount be distributed as Rs. 20 lakh to Mr. S. Muthuraju, erstwhile liquidator, Rs. 4.5 Lakh to Ms. E. Santhanalakshmi, present liquidator and the balance to the operational creditor TCP Limited, in accordance with Section 53 of the Code. This part of the order has been hotly challenged by Mr. S.V. Ramasamy and TMB. Both of them contend that Mr. S. Muthuraju should not be paid Rs. 20 lakh because his fees has not been fixed in accordance with the provisions of the Code and because he has not done any work or, coordination in the said period for which he claims the fee. However, Mr. S. Muthuraju in his counter has given a table detai....
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....s come up with a peculiar argument that by settling the dues of the Corporate Debtor with TMB he has become the sole Financial Creditor in the liquidation proceedings of the Corporate Debtor and hence he has the first right to the proceeds of liquidation estate and therefore the amount available in the liquidation account being the forfeited amount should be given to him after settling the CIRP and liquidation costs instead of giving it to the Operational Creditor. It is seen that Mr. S.V. Ramaswamy has settled the dues of the Corporate Debtor to the bank TMB, but there is no assignment of debt. It is inconceivable how he becomes a financial creditor to the Corporate Debtor, when he has not sought substitution of TMB by himself in the liquidation proceedings. At the most, he can be described as the buyer of the assets of the Corporate Debtor in a private sale apart from being the promoter. Given this, in the role as a buyer, he will have no locus to claim any amount from the liquidation estate and in the role as a promoter, he will have to be the last person in the queue during the distribution of proceeds realised out of the liquidation estate. Hence, he will be entitled to the fo....