Alok Kaushik vs Cheema Spintex Ltd And Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI Company Appeal (AT)(Insolvency) No. 896 of 2022 [Arising out of order dated 30.05.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Chandigarh Bench in IA Nos. 510/2021, 527/2021, 591/2021 & 605/2021 in C.P.(IB) No. 352/Chd/CHD/2018]

IN THE MATTER OF:

Shri Alok Kaushik Erstwhile Resolution Professional of Cheema Spintex Ltd., G-105, Sai Baba Apartment, Sec-9, Rohini, New Delhi - 110085. ...Appellant

Versus

1. Cheema Spintex House No. 176/2, Sector-41A, Chandigarh - 160036. .... Respondent No.1

2. Kotak Commodity Services Pvt. Ltd. Nirlon House, 1st Floor, Dr. Annie Besant Road, Near Old Passport Office, Worli, Mumbai - 400030. ....Respondent No.2

3. IDBI Bank Limited NPA Management Group, IDBI Bank, 7th Floor, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005. ....Respondent No.3

4. State Bank of India, Stressed Assets Management Branch (SAMB), SCO 99-107, First Floor, Sector 8C, Chandigarh - 160018. ....Respondent No. 4

5. Punjab National Bank Zonal Sastgra Centre, SCO 60-61, Sector 17 B, Bank Square, Chandigarh - 160017. ....Respondent No. 5 Present: Company Appeal (AT)(Insolvency) No. 896 of 2022 1 For Appellant: Mr. Rajendra Beniwal and Mr. Aman Singhania, Advocates.

For Respondents: Mr. Kshitij Kumar, Advocate for R-1.

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal, filed under Section 61 of the IBC Code, 2016 ('IBC'

in short) by the Appellant arises out of order dated 30.05.2022 (hereinafter

referred to as 'Impugned Order') passed by the Adjudicating Authority (National

Company Law Tribunal, Chandigarh Bench) in I.A. No. 510/2021 in CP(IB) No.

352/Chd/CHD/2018. By the Impugned Order, the Adjudicating Authority

dismissed the main petition filed under Section 9 of the IBC bearing CP(IB) No.

352/Chd/CHD/2018 as withdrawn, released the Corporate Debtor from the

rigors of the IBC subject to payment of Rs. 8,36,001/- towards reimbursement

of the expenses incurred by the IRP. The present appeal has been preferred by

the Appellant, being aggrieved that CIRP cost and fees payable to him as

Interim Resolution Professional ('IRP' in short) have been rejected and erroneous

remarks passed with respect to duties and functions carried out by him as IRP.

2. The Learned Counsel for the Appellant has also filed I.A. No. 2497 in

Company Appeal (AT)(Ins.) No. 896 of 2022 seeking condonation of delay of 05

days in curing defects and refiling of the present appeal citing sufficient cause.

The I.A. is allowed and delay in refiling after curing defects is allowed. Company Appeal (AT)(Insolvency) No. 896 of 2022 2

3. The brief facts of the case, as stated by the Learned Counsel for the

Appellant, is that a petition under Section 9 of IBC was filed before the

Adjudicating Authority by Kotak Commodity Services Pvt. Ltd., Operational

Creditor for initiating Corporate Insolvency Resolution Process ('CIRP' in short)

against M/s Cheema Spintex Ltd., the Corporate Debtor / Respondent No. 1 in

the present matter. The Adjudicating Authority commenced CIRP proceedings

and Appellant was appointed as IRP. In pursuance of the duties and

responsibilities cast upon IRP by the IBC, public announcement was made

under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 ('CIRP

Regulations' in short). However, before the expiry of the last date of submission

of claims, a settlement was arrived on 12.10.2021 between Respondent No. 1

and the Operational Creditor and the latter submitted Form FA to the IRP

seeking withdrawal from the CIRP. The Appellant/IRP moved an application

before the Adjudicating Authority vide IA No. 510/2021 on 18.10.2021 for

withdrawal of CIRP under Section 12A of the IBC including discharge from

duties as IRP and restoration of the suspended Board of Directors of the

Corporate Debtor.

4. Learned Counsel for the Appellant has further admitted that the ex-

management of the Corporate Debtor had also filed I.A.. No. 527/2021 on

22.10.2021 seeking withdrawal of CIRP and I.A. No. 591/2021 on 17.11.2021

seeking stay on the CIRP of the Corporate Debtor. It is also claimed that IRP

Company Appeal (AT)(Insolvency) No. 896 of 2022 3 appeared before the Adjudicating Authority in respect of the aforementioned

three IAs on 26.10.2021, 18.11.2021, 04.01.2022, 17.02.2022, 22.03.2022,

30.03.2022 and 05.04.2022. It has been further pointed out by Learned

Counsel for the Appellant that one of the Financial Creditors filed a petition on

20.10.2021 seeking initiation of CIRP against the Corporate Debtor under

Section 7 of the IBC. Submission has also been made that since the Adjudicating

Authority had not put a stay on the CIRP proceedings nor passed any

substantive directions on any of the IAs filed by the IRP and the ex-management

of the Corporate Debtor, the IRP proceeded to constitute the Committee of

Creditors ('CoC' in short) in line with the duties and obligations of IRP under

the IBC and CIRP Regulations.

5. It is further submitted that faced with non-cooperation from the ex-

management of the Corporate Debtor to provide custody of the assets of the

Corporate Debtor, the IRP had also filed an application before the Adjudicating

Authority under Section 19(2) of the IBC seeking directions for co-operation from

the ex-management of the Corporate Debtor. It has also been urged that with a

view to ensure that the Corporate Debtor could run as a going concern, the

Appellant had incurred expenses which had been placed before the CoC and duly

ratified by the CoC. It has been claimed that as part of this CIRP exercise, 6 CoC

meetings were conducted by the IRP and 10 progress reports filed before the CoC

including steps undertaken for valuation of the assets of the Corporate Debtor.

It has also been claimed that the Adjudicating Authority on 30.03.2022 while

Company Appeal (AT)(Insolvency) No. 896 of 2022 4 considering the stay application of the Corporate Debtor had also directed the

Appellant/IRP to file the details of his fee charged for conducting the business

of the Corporate Debtor.

6. Learned Counsel for the Appellant has further stated that the withdrawal

application bearing No 510/2021 was finally heard by the Adjudicating Authority

on 05.04.2022 and in the impugned order as issued on 30.05.2022 the

Adjudicating Authority held that CIRP process be closed and that the withdrawal

application having been filed prior to constitution of the CoC, there is no

requirement to obtain the consent of the members of the CoC in this regard.

Feeling aggrieved by this impugned order, the Learned Counsel for the Appellant

has mentioned that the Adjudicating Authority wrongly disallowed the fees and

expenses payable to the IRP for conduct of the CIRP and for making erroneous

remarks about conduct of IRP that it was not in sync with the spirit of IBC. In

defence of IRP's conduct, it has been argued by Learned Counsel for the

Appellant that mere filing of the withdrawal application does not lead to

automatic stay of CIRP proceedings and, therefore, as IRP he is duty-bound

under the CIRP Regulations to complete the CIRP proceedings and for this

purpose he had to engage other professionals and deploy resources thereby

incurring expenses. It has also been claimed that the CIRP costs and IRP's fee

was placed before the CoC and duly ratified by CoC. It has been therefore

contended by the Learned Counsel for the Appellant that classification of

activities undertaken during the CIRP as "essential" and "non-essential" by the

Company Appeal (AT)(Insolvency) No. 896 of 2022 5 Adjudicating Authority in the impugned order is an artificial creation which is

not in terms of the IBC. Further as proof of bonafide on the part of the

Appellant/IRP, the Learned Counsel for the Appellant has claimed that the IRP

appeared regularly before the Adjudicating Authority on each assigned date

which testify that he had been diligent in pursuing the CIRP withdrawal

application filed by him. Hence, despite the best possible efforts put in by the

IRP, the Adjudicating Authority has been wrong in not appreciating the conduct

of the IRP and made adverse remarks without cogent reasons which should

therefore be expunged.

7. The relevant paragraph of the impugned order which has aggrieved the

Appellant/IRP is reproduced below:

"15. At the outset, it is noted that the Interim Resolution

Professional has himself filed IA. No. 510/2021 only after 12

days of commencement of the CIRP but has chosen to continue

with normal functions under CIRP without pursuing the IA. No.

510/2021 with this Adjudicating Authority. Even if it may be

technically correct, it does not sync with the spirit of the Code.

It is also noticed that the Directors have not handed over the

records and assets to the IRP subsequent to their settlement

with the Operational Creditor. This Bench, therefore, proceeds

to categorize the activities for which expenses have been

claimed as mentioned in Para 14 into two different categories:

Company Appeal (AT)(Insolvency) No. 896 of 2022 6 essential and non-essential. We are of the view that activities

mentioned in Sr. No. 1 to 7 of the afore-mentioned table in Para

14, consisting of expenses on account of e-voting agency,

security services, publishing house, payments to advocates

and transaction auditor as essential and allow the expenses

incurred on those activities. The expenses relating to the

valuation are disallowed because the Directors have

admittedly not handed over the records and assets. Similarly,

the payment to advocate for a PUFE transaction for application

under preparation is disallowed because in the absence of

records, it is difficult to justify any payment for the preparation

of such an application. While, we allow the expense of the IRP

amounting to Rs. 1,48,237/-, the payment towards his fees is

restricted to Rs. 2 lakhs as we strongly disapprove his conduct

in not pursuing the present application filed by himself only

and unnecessarily adding to the costs by carrying out non-

essential activities. In the result, the CIRP costs are allowed

to the extent of Rs. 8,36,001/- and the same is to be

reimbursed by the corporate debtor i.e. M/s Cheema Spintex

Limited."

8. We have duly considered the detailed arguments advanced by the Learned

Counsel for the Appellant and perused the records carefully.

Company Appeal (AT)(Insolvency) No. 896 of 2022 7

9. The issues for determination before us is (a) whether in light of the

admitted fact that the IRP himself filed the CIRP withdrawal application

on 18/10/2021 which was just 12 days after commencement of the CIRP,

whether it was justified on the part of the IRP to still continue with the

CIRP proceedings; (b) whether the Adjudicating Authority had erred in

disallowing certain CIRP expenses claimed by the Appellant/IRP by

treating them as "non-essential"; and (c) whether the remarks

disapproving the conduct of the IRP in the present matter by the

Adjudicating Authority stands to reason. As the issues outlined above clearly

overlap each other, we have chosen to examine them conjointly.

10. As a preface to our analysis, we have noted that the Adjudicating Authority

has emphasized upon a few important timelines as abstracted in a tabular chart

which forms part of the impugned order as reproduced below:-

DATES PARTICULARS 06.10.2021 CIRP commenced. 18.10.2021 IA 510/2021 was filed by the IRP under Section 12A of the IBC

read with Regulation 30A Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for withdrawal of the CIRP process on account of the settlement between the OC and the CD.

22.10.2021 IA 527/2021 was filed by the Suspended Director of the CD, Mr. Hardyal Singh Cheema under Rule 11 of the NCLT Rules, for withdrawal of the CIRP as per the decision of the Hon'ble Supreme Court in Swiss Ribbons.

Company Appeal (AT)(Insolvency) No. 896 of 2022 8 Both I.A. 610/2021 and IA 527/2021 were admittedly filed before the constitution of the CoC.

06.11.2021 The first meeting of the CoC takes place.

11. Coming to the factual matrix, it is an undisputed fact that the Operational

Creditor having entered into a settlement with the Corporate Debtor, he had

informed the IRP on 12.10.2021 in the prescribed format, seeking withdrawal of

CIRP. Within six days, on 18.10.2021, the IRP had also filed the CIRP withdrawal

application before the Adjudicating Authority. The Corporate Debtor also had

taken steps on his part before the Adjudicating Authority on 17.10.2021 for stay

on the CIRP and also filed an application on 22.10.2021 for withdrawal of the

CIRP. It is therefore amply clear that all the important stakeholders in the

process were in unison in seeking closure of CIRP and awaiting final directions

of the Adjudicating Authority. It is also pertinent to note that the withdrawal

applications were filed by the stakeholders before the constitution of CoC which

had its first meeting on 06.11.2021. It is also observed that the IRP had been

present before the Adjudicating Authority as and when the matter came up for

hearing on the related IAs and that details of the expenses incurred on CIRP was

filed by the IRP in pursuance to the orders dated 30.03.2022 passed by the

Adjudicating Authority. Yet another crucial point to be borne in mind is that

while examining the expense-details filed by the IRP, the Adjudicating Authority

took cognizance of the fact that records and assets were not handed over to the

IRP by the ex-management of the Corporate Debtor consequent upon their

Company Appeal (AT)(Insolvency) No. 896 of 2022 9 settlement with the Operational Creditor and therefore only the expenses found

essential have been allowed while the remaining disallowed and treated as non-

essential. The Adjudicating Authority after categorizing the costs as essential

and non-essential have allowed the CIRP costs to the extent of Rs. 8,36,001/- to

be reimbursed by the Corporate Debtor. The Adjudicating Authority has also

allowed certain amount as the expenses of the IRP and for payment towards his

fees as contained in Para 15 of the impugned order as excerpted in Para 7 above.

12. Given the material on record and the facts and circumstances in the

present matter, we are inclined to agree with the finding of the Adjudicating

Authority that since the Section 12A application was filed by the IRP before the

Adjudicating Authority well before the constitution of CoC, the IRP's

continuance with the CIRP process without making adequate efforts to seek

pointed clarification from the Adjudicating Authority on whether to proceed with

the CIRP or not, does not reflect well on his conduct. IRP cannot afford to be

unmindful of the fact that he is the driving force and the nerve-center in the

resolution process and is expected to assist in the CIRP process in a fair and

objective manner in the best interest of all stakeholders. Simply by registering

presence on each date of hearing before the Adjudicating Authority without

seeking clear guidance on CIRP modalities cannot in itself become a sufficient

ground for the IRP to proceed with the CIRP full throttle. As an officer of the

Court, it was incumbent upon the IRP to highlight before the Adjudicating

Authority the special and peculiar circumstances that he was confronted with in

Company Appeal (AT)(Insolvency) No. 896 of 2022 10 the matter. Instead of pursuing the withdrawal application with greater vigour,

he has rather chosen to mechanically proceed with CIRP by taking the plea of

adherence to CIRP Regulations. We therefore agree with the Adjudicating

Authority that the conduct of the IRP though may be technically correct, the

same cannot be countenanced given the attendant circumstances.

13. As regards the CIRP expenses claimed by the Appellant/IRP, we have

observed that the Adjudicating Authority had directed the IRP to file the details

of expenses and IRP had accordingly submitted the expense details. The

Adjudicating Authority in the impugned order has carefully examined in details

the expenses and given cogent reasons for disallowing several items of

expenditure by treating them as "non-essential". We find that the grounds cited

in the impugned order for disallowing expenses incurred on valuation exercise

and payment to advocate is justified particularly because these tasks were

contingent upon the records and assets being handed over to the IRP by the ex-

management of the Corporate Debtor which in fact had not happened. That these

records and assets were not available with the IRP is substantiated by the fact

that the Appellant/IRP on his own had filed an application before the

Adjudicating Authority for non-cooperation on the part of the former

management of the Corporate Debtor on 30.10.2021. The contention of the

Learned Counsel for the Appellant that creation of an artificial classification by

the Adjudicating Authority of essential and non-essential activities during CIRP

is ultra vires the provisions of the IBC is not a tenable argument since the

Company Appeal (AT)(Insolvency) No. 896 of 2022 11 Adjudicating Authority has used these terms more as an easy reckoner to decide

on whether to allow or disallow the item of expenditure and not acted in any

manner contrary to the form and spirit of IBC. In sum, we find no reasons to

differ with the evaluation exercise of CIRP expenses filed by the IRP as carried

out by the Adjudicating Authority in allowing some expenses and disallowing

some.

14. We now dwell on the remarks made by the Adjudicating Authority, strongly

disapproving the conduct of the IRP in unnecessarily adding to the CIRP costs

by carrying out non-essential activities. In the IBC framework, the IRP is the

fulcrum of the CIRP process and is obligated to act as the bridge between the

Adjudicating Authority, the CoC and other stakeholders including the Corporate

Debtor. As an officer of the court vested with administrative powers, the IRP as

the facilitator of the resolution process needs to conduct the process with

fairness, diligence, forthrightness and highest sense of responsibility. This

aspect squarely finds place in Section 208(2)(a) of the IBC which subjects the

insolvency professionals to abide by a code of conduct which, inter-alia, obligates

the IRP to take reasonable care and diligence while performing his duties.

Further, Regulation 7(2)(h) of the Insolvency and Bankruptcy Board of India

(Insolvency Professionals) Regulations, 2016 clearly stipulates that the

registration of an insolvency professional is subject to various conditions, one of

them being to abide by the Code of Conduct specified in the First Schedule to

these Regulations. Article 25 of the Code of Conduct under the sub-title

Company Appeal (AT)(Insolvency) No. 896 of 2022 12 "Remuneration and Costs" in the First Schedule to these Regulations reads as

follows:

"25. An Insolvency processional must provide services for

remuneration which is charged in a transparent manner, is

a reasonable reflection of the work necessarily and properly

undertaken, and is not inconsistent with the applicable

regulations."

15. From a reading of the above Article in the Code of Conduct, it is clear that

what is reasonable, is not amenable to precise definition and therefore is context

specific. Given that CIRP withdrawal application before the Adjudicating

Authority was a known factor, it would only have been fair on the part of the IRP,

if instead of pressing the accelerator on the CIRP process, he had pursued in

serious earnest with the Adjudicating Authority for its clear directions and

guidance on proceeding with the CIRP. On the contrary, the IRP acted in great

hurry to push forward the CIRP exercise on the specious plea that he was acting

as per the mandate given by the IBC and CIRP Regulations, and, in the process

carried out certain activities which have added to the CIRP costs. The

Adjudicating Authority has therefore based on cogent grounds expressed

disapproval of the unseemly conduct of the IRP in strong terms. We concur with

the impugned order and are of the considered opinion that the IRP seems to have

taken advantage of the fluid situation and unnecessarily added to the costs by

Company Appeal (AT)(Insolvency) No. 896 of 2022 13 carrying out activities which could have otherwise been put on hold and find the

conduct of the IRP deprecatory.

16. In the light of the above discussions, we do not find any substance in the

submission raised by the Learned Counsel for the Appellant to warrant any

interference in the impugned order. The impugned order passed by the

Adjudicating Authority, not suffering from any infirmities, is hereby affirmed.

The Appeal being devoid of merit is dismissed. No order as to costs.

(Justice Ashok Bhushan) Chairperson

(Barun Mitra) Member(Technical)

Place: New Delhi Date: 05.09.2022 shashi

Company Appeal (AT)(Insolvency) No. 896 of 2022 14