Anuradha Gupta (Erstwhile Resolution ... vs M/S. Rajputana Constructions Pvt. Ltd & ...

Company Appeal (AT) (Insolvency) No. 853 of 2023 [Arising out of the Impugned Order dated 20.04.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Jaipur Bench in IA No.100/JPR/2020 in CP No. (IB)- 44/9/JPR/20194/9/JPR/2019] In the matter of: M/S RAJPUTANA CONSTRUCTIONS PVT. LTD A company incorporated under Companies Act 1956 Through its Director and Authorised Representative, Mr. Ravindra Tambi Address: 13, Parivahan Marg, Civil, Lines, Jaipur, Rajasthan- 302001 ...Appellant Versus

1. M/S RAJASTHAN LAND HOLDINGS LIMITED A company incorporated under Companies Act 1956 Through its Director Address: R/o 1st Floor, LIC Jeevan Nidhi Building, Ambedkar Circle, Bhawani Singh Marg, Jaipur, Rajasthan- 302021 ...Respondent No.1 2. ANURADHA GUPTA Erstwhile Resolution Professional of M/s Rajasthan Land Holdings Limited Address: E-194, Ambabari, Vidhyadhar Nagar, Jaipur, Rajasthan-302039 ...Respondent No.2 3. IL&FS TRANSPORTATION NETWORKS LIMITED A company incorporated under Companies Act 1956 Through its Director Address: The IL&FS Financial Centre, Plot C-22, G Block, Bandra Kurla Complex, Bandra East, Mumbai- 400051 ...Respondent No.3 4. HI-LINE BUILDCON INDIA PRIVATE LIMITED A company incorporated under Companies Act 1956 Through its Director Address: 13, Parivahan Marg, Civil, Lines, Jaipur, Rajasthan- 302001 ...Respondent No.4 5. BHANDARI & CO. Through its Authorised Representative Address: P-7, Tilak Marg, C-Scheme, Jaipur, Rajasthan-302001 ...Respondent No.5 Present:

For Appellant : Mr. Kshitij Mittal, Mr. Abhyuday Singh, Advocates.

For Respondent : Mr. Rishabh Parikh, Ms. Niyati Kohli, Advocates for R-1. Mr. Raunak Dhillon, Ms. Isha Malik, Mr. Nihaad Dewan, Mr. Anchit Jasuja, Mr. Vikash Kumar Jha, Advocates for R- 3 (ITNL).

WITH Company Appeal (AT) (Insolvency) No. 785 of 2023

[Arising out of the Impugned Order dated 20.04.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Jaipur Bench in IA No.100/JPR/2020 & CP No. (IB)- 44/9/JPR/2019] In the matter of: ANURADHA GUPTA, ERSTWHILE RP OF M/s. Rajasthan Land Holdings Limited, R/0 E-194, Amba Bari, Jaipur-302039, Rajasthan ...Appellant

Versus

1. M/S. RAJPUTANA CONSTRUCTIONS PVT. LTD., R/o 13, Parivahan Marg, Civil Lines, Jaipur, Rajasthan- 302001. ...Respondent No.1

2. M/S. HI LINE BUILDCON (INDIA) PVT. LTD., R/o 13, Parivahan Marg, Civil Lines, Jaipur, Rajasthan- 302001. ...Respondent No.2 3. M/s S. BHANDARI & CO., R/o P-7, Tilak Marg, C Scheme, Jaipur-302005 ...Respondent No.3

4. IL&FS TRANSPORTATION NETWORKS LIMITED, R/o THE IL&FS Financial Centre, Plot C-22, G Block, Bandra, Kurla Complex, Bandra East, Mumbai-400051 ...Respondent No.4

Present: Page 2 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 For Appellant : Mr. Yash Tandon, Advocate.

For Respondent : Mr. Rishabh Parikh, Ms. Niyati Kohli, Advocates.

Mr. Raunak Dhillon, Ms. Isha Malik, Mr. Nihaad Dewan, Mr. Anchit Jasuja, Mr. Vikash Kumar Jha, Advocates for R- 4 (ITNL).

JUDGMENT

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present set of two appeals filed under Section 61 of Insolvency and

Bankruptcy Code 2016 ('IBC' in short) by the Appellants arises out of a common

Order dated 20.04.2023 (hereinafter referred to as 'Impugned Order') passed by

the Adjudicating Authority (National Company Law Tribunal, Jaipur Bench) in

IA No. 100/JPR/2020 in CP No. (IB)- 44/9/JPR/2019. By the impugned order,

the Adjudicating Authority has terminated the Corporate Insolvency Resolution

Process ("CIRP" in short) of the Corporate Debtor and reduced the fees and

remuneration payable to the erstwhile Resolution Professional ("RP" in short).

Aggrieved by the impugned order, Company Appeal No. 853 of 2023 has been

preferred by the Operational Creditor and Company Appeal No. 785 of 2023 has

been filed by the RP.

2. Coming to the factual matrix of both the cases at hand, the sequence of

events and facts which are relevant for deciding the two appeals are as outlined

below:

 The Corporate Debtor-M/s Rajasthan Land Holdings Ltd. ("RLHL" in

short) was a wholly owned subsidiary of M/s Road Infrastructure

Development Company of Rajasthan ("RIDCOR" in short) which was a JV

Page 3 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 between IL&FS Transportation Networks Ltd. ("ITNL" in short) and the

Government of Rajasthan. ITNL had bought the shareholding of the

Corporate Debtor from RIDCOR in 2016 which was purportedly

transferred to a subsidiary of IL&FS Company Pario Developers Pvt. Ltd.

("Pario" in short) vide Share Purchase Agreement dated 30.06.2017.

 The Corporate Debtor was admitted into the rigours of Corporate

Insolvency Resolution Process ("CIRP" in short) on 24.09.2019 basis a

Section 9 petition filed by the Operational Creditor-M/s Rajputana

Constructions Pvt. Ltd. ("RCPL" in short).

 The RP constituted the Committee of Creditors ("CoC" in short) on

24.10.2019. The CoC comprised only of three Operational Creditors of

which the RCPL had a vote share of 89.54% with an admitted claim of Rs

23,97,086/- only. The other two Operational Creditors on the CoC were

M/s. HI Line Buildcon Pvt. Ltd. and S. Bhandari & Co. with a claim of Rs

2,20,876/- and Rs 59,000/- respectively. The aggregate admitted claim of

the three Operational Creditors was Rs 26,76,962/-.

 The first CoC meeting held on 24.10.2019 had fixed the fee of the RP at Rs

1,00,000/- per month which was later increased to Rs 2,00,000/- per

month following a decision taken in the fourth CoC meeting held on

20.03.2020. Subsequently on 11.11.2021, the Adjudicating Authority put

a cap on the fees of the RP at Rs 1,00,000/- per month.

 ITNL had preferred a claim of Rs 181 Cr. on 24.12.2019 which was treated

as "related-party" financial debt by the RP. The ITNL filed IA No. 100 of

2020 on 02.03.2020 before the Adjudicating Authority challenging the

Page 4 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 decision of the RP to classify them as a "related-party" in their quest for a

seat on CoC.

 On 05.08.2020, the Adjudicating Authority stayed the continuation of

CIRP by its interim order on IA No. 100 of 2020 which stay continued until

16.03.2021.

 On 16.03.2021, the Adjudicating Authority had directed the CIRP of the

Corporate Debtor to continue under the guidance of Justice (Retd.) D.K.

Jain as he was looking after the CIRP process of IL&FS group entity.

However as Justice (Retd.) D.K. Jain recused from the said proposal on

24.04.2021, ITNL filed IA No. 374 of 2021 seeking restoration of IA No. 100

of 2020.

 On 26.07.2021, RP filed IA No. 197 of 2021 under Section 66 and 67 of

the IBC with regard to fraudulent transaction by the ITNL.

 On 11.11.2021, the Adjudicating Authority capped the fees of RP to Rs

1,00,000/- per month and sought justification for enhanced fees of Rs

2,00,000/- per month.

 On 29.08.2022, IA 100 of 2020 of the ITNL was restored by the

Adjudicating Authority.

 On 08.12.2022, the Adjudicating Authority directed the parties to explore

the possibility of amicable settlement and on 16.01.2023 directed the RP

to convene a meeting of the CoC along with the ITNL for this purpose.

RCPL did not attend the meeting of the CoC convened for this purpose. In

compliance of the order of 16.01.2023, the RP had convened a meeting of

CoC on 23.01.2023 which had to be deferred due to absence of quorum.

The Adjudicating Authority on 24.01.2023 again directed CoC meeting to Page 5 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 be held on 25.01.2023. The meeting on 25.01.2023 also could not be

convened because Appellant had requested for rescheduling of the meeting

on the grounds of personal exigency. The seventh CoC meeting was

eventually convened on 01.02.2023. During the seventh CoC meeting held

on 01.02.2023, the RCPL objected to the proposal of the ITNL despite the

offer of the three Operational Creditors in CoC being paid 100% of their

dues. Since the RCPL with 89.54% vote share had objected, the RP

concluded that the settlement offer will not be considered by the CoC and

that the offer of ITNL stood rejected.

 On 20.04.2023, the Adjudicating Authority passed the impugned order

terminating the CIRP after noting the malafide conduct of the CoC. The

impugned order, inter-alia, reduced the fees of the RP to Rs 50,000/- per

month after noting that RP had continued with CIRP when there was no

need for conducting the CIRP.

 Aggrieved with the impugned order, the two appeals have been filed.

Company Appeal No. 853 of 2023 has been filed by the RCPL assailing the

impugned order on the grounds that CIRP of the Corporate Debtor had

been erroneously terminated. Company Appeal No. 785 of 2023 has been

filed by the erstwhile RP seeking expunction of alleged unwarranted

remarks contained in the impugned order on the conduct and performance

of RP as well as for reduction of their fees.

3. Since the facts and issues are closely intertwined, we would like to

consider dealing with both the appeals together. Further, since the contentions

of the Corporate Debtor and ITNL largely overlap, we would like to capture their

Page 6 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 submissions conjointly. Similarly, we would like to club together the

submissions made on behalf of RCPL, RP and the two other members of CoC.

4. Making their submissions, the Ld. Counsel for RCPL and RP assailing the

impugned order contended that RCPL had validly initiated Section 9 application

against the Corporate Debtor for an outstanding operational debt of Rs 23.97

lakhs which debt was never disputed by the Corporate Debtor. It is contended

by RCPL that even when a notice had been issued by them on 11.01.2019 prior

to filing of the Section 9 application seeking payment of the outstanding amount,

the Corporate Debtor did not come forward offering to make good the

outstanding payment. Post the filing of Section 9 application also, the Corporate

Debtor did not make any expression of their intent, willingness or ability to repay

the operational debt before the Adjudicating Authority. As regards the role of

ITNL, it has been submitted by RCPL that after the admission of the Section 9

application, the ITNL which was a group company of IL&FS submitted a claim of

Rs 181.34 Cr. before the RP on 20.12.2019 towards the loan given by it to the

Corporate Debtor. The RP acting fairly and transparently had admitted the claim

of ITNL as Financial Creditor but did not admit them into the CoC by holding

them to be a "related-party", which fact was also communicated to ITNL on

06.02.2020. ITNL however filed IA No. 100 of 2020 disputing their 'related-party'

status thus stalling resolution efforts of the Corporate Debtor for over three

years. It is thus asserted that though the Corporate Debtor was admitted into

CIRP on 24.09.2019, the CIRP proceedings dragged on for many long years not

on their insistence but because of ITNL which was trying to position itself on the

CoC by filing a claim of Rs 181.34 Cr. It was emphatically asserted that at the

stage when the claim of ITNL was admitted, the cash balance lying with the Page 7 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 Corporate Debtor was insufficient to meet the ITNLs claim of Rs 181.61 Cr.

coupled with the claims of the three Operational Creditors. It was contended by

RCPL that as a member of CoC it was responsible for overseeing the interest of

all creditors as well as the interest of the Corporate Debtor. Hence, it could not

have utilized the funds of the Corporate Debtor for serving its own interests of

clearing its own dues from the account of Corporate Debtor which was already

under moratorium. It was therefore misconceived on the part of the Adjudicating

Authority to hold that the RP and CoC had not taken steps to refund the claims

admitted by RP in respect of CoC. Assailing the impugned order, it was

contended that the Adjudicating Authority had not only erroneously terminated

the CIRP of the Corporate Debtor but also wrongly attributed malafide intent on

them. It was also asserted by the RP that on having unearthed certain fraudulent

transactions between ITNL, Corporate Debtor and a third party, namely,

Kaleidoscope Developers Pvt. Ltd. they filed IA No 197 of 2021 on 26.07.2021

under Sections 66 and 67 of IBC for fraudulent transaction.

5. The Ld. Counsel for the RP further submitted that that the RP cannot be

held responsible for prolongation of the CIRP. The delay was caused because

ITNL kept on litigating for having a seat in the CoC for which purpose it had filed

IA No. 100 of 2020. It was contended that ITNL was the controlling and related

party of the Corporate Debtor. It was controlling the Corporate Debtor through

Pario under a Share Purchase Agreement besides the fact that key managerial

persons of ITNL were also serving as directors of the Corporate Debtor. Since the

ITNL was a related party in terms of Section 5(24) of IBC, they were not entitled

to claim a seat in the CoC in terms of Section 21 of the IBC. Yet the ITNL had

continued to pursue their IA for securing a seat in the CoC. Countering the Page 8 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 contention that the RP did not take adequate steps to repay the admitted claims,

it was submitted that the bank account had merely 3 Cr. at the time of CIRP

initiation. Though this amount had later increased to Rs 7 Cr., this sum still fell

short of the admitted claim of Rs 181 Cr. of the Operational Creditors and ITNL.

Hence, when the CoC and RP was faced with a claim amount which far exceeded

the amount available in the account of the Corporate Debtor, it could not have

paid off only the Operational Creditors. Further, since no proposal for any

settlement or withdrawal under Section 12-A was received from the suspended

management of the Corporate Debtor, the RP was bound by moratorium and

could not have suo moto paid off the Operational Creditors while ignoring the

financial debt of more than Rs 181 Cr. claimed by ITNL. On the issue of their

fees and remuneration, it was submitted that remuneration of Rs 1,00,000/- per

month had been confirmed by the CoC in their first meeting held on 24.10.2020.

However, as the claim amount of the creditors touched a figure of more than Rs

181 Cr., the CoC in its fourth meeting held on 20.03.2020 agreed to enhance the

remuneration of the RP from Rs 1,00,000/- to Rs 2,00,000/- per month. It was

further contended that Regulation 34-B of the CIRP Regulations prescribed

minimum fees of Rs 2,00,000/- per month for RP under Schedule-II and hence

their claim for the same fees was justifiable. Though the RP was performing his

duties diligently throughout the CIRP process including keeping the Corporate

Debtor as a going concern even when CIRP was put on hold, the reduction in

fees to Rs 50,000/- per month by the Adjudicating Authority is reflective of

punitive action on the RP which has caused prejudice to the reputation of the

RP. It was vehemently contended that certain unwarranted and unsubstantiated

Page 9 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 observations have been made against the RP by the Adjudicating Authority which

deserved to be expunged.

6. Refuting the contentions of the CoC and the RP, it has been submitted by

Corporate Debtor and ITNL that the CoC and RP had colluded to continue on

with the CIRP of the Corporate Debtor for a period of four and half years at a

time when the Corporate Debtor had ample funds right from the point of

inception of CIRP to repay the meagre outstanding debt of the CoC members

amounting Rs 26.76 lakhs. It was contended that the Adjudicating Authority had

correctly noticed that RCPL and two other Operational Creditors had been offered

repayment of the entire dues in the seventh CoC meeting, however, RCPL instead

of taking its dues from the RP misused its dominant position in the CoC to insist

on continuing with the CIRP of the Corporate Debtor. There are no convincing

grounds offered by RCPL as to why they were unwilling to accept the 100% of

due payable to it. It therefore becomes clear that RCPL has been harbouring

some ulterior and oblique motive to carry on the CIRP proceedings. The refusal

on the part of the Operational Creditors to accept their entire operational debt

shows that they were not interested in the insolvency resolution of the Corporate

Debtor but wanted to subject the Corporate Debtor to CIRP proceedings clearly

with some other hidden agenda. Reliance has also been placed on the judgment

of the Hon'ble Supreme Court in Swiss Ribbons Pvt. Ltd. Vs UoI (2019) 4 SCC

17 in support of their contention that if the CoC arbitrarily rejects a just

settlement, the Adjudicating Authority as well as the Appellate Authority can

always set aside such decision. As regards the conduct of CIRP by the RP it was

pointed out that as against the debt of CoC of Rs 26 lakhs, the fees of RP was

disproportionately high as it far exceeded the total admitted debt of the CoC. Page 10 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 CIRP was continued despite CIRP costs touching Rs 73 lakhs which was thrice

the size of the total admitted debt of CoC which all goes to show that the RP had

continued the CIRP in collusion with CoC to ensure higher billings. The RP had

thus continued the CIRP for a period of four and a half years with hefty fees and

inflated CIRP costs. On the conduct of the RP, it was asserted that instead of

putting a lid on the ongoing CIRP process by paying off the three Operational

Creditors who were the only members of the CoC, the RP in collusion with the

CoC had meaninglessly lingered on with the CIRP proceedings and in the process

incurred an exorbitant expenditure of Rs 73.31 lakhs towards CIRP cost.

7. We have duly considered the arguments advanced by the Learned Counsel

for all the parties and perused the records carefully.

8. The short question which is required to be answered is whether the

decision of the CoC to decline the proposal for acceptance of their admitted dues

and close the CIRP proceedings is justified and whether the purported role of the

RP in dragging on with the CIRP proceedings and in the process incurring an

exorbitant expenditure towards CIRP cost was arbitrary and unsustainable.

9. It is the case of the CoC and RP that on the recusal of Justice (Retd) D.K.

Jain from conducting the insolvency of the Corporate Debtor, it was the ITNL

which had once again sought revival of IA 100 of 2020 which led to prolongation

of the CIRP proceedings. The IA No. 100 of 2020 was revived on 29.08.2022 and

the matter was heard on several occasions. Thus, the conduct of insolvency

resolution proceedings of the Corporate Debtor was delayed by almost three to

four years because of ITNL unabatedly litigating for their inclusion in the CoC.

Thus, when the delay was neither on account of the RP or the CoC, the finding

of Adjudicating Authority imputing malafide motives on the RP and the CoC for Page 11 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 unnecessarily stretching on with CIRP was contrary to the fact on record and

therefore unsustainable. Furthermore, once the CoC had refused to accept the

settlement proposed by ITNL, the Adjudicating Authority could not have reviewed

the business decision of the CoC and superimposed a settlement on the CoC. It

has been contended that the Adjudicating Authority had rejected the reasoning

given by the CoC in rejecting the settlement offer merely by recording a cryptic

observation that the objections were irrelevant without proper substantiation. It

was asserted that the Adjudicating Authority could not have substituted their

own wisdom for the commercial wisdom of the CoC.

10. When we look at the sequence of events, we notice that ITNL had staked a

claim of Rs 181 Cr. on 24.12.2019 which was treated as "related-party" financial

debt by the RP. The ITNL thereafter filed IA No. 100 of 2020 on 02.03.2020 before

the Adjudicating Authority challenging the decision of the RP to classify them as

a "related-party". Consequent upon filing IA No. 100 of 2020 by ITNL, the

Adjudicating Authority on 05.08.2020 had passed interim order directing the RP

not to proceed with the CIRP of the Corporate Debtor. In its subsequent order

dated 16.03.2021, the Adjudicating Authority observed that the RP had

proceeded with the resolution with the Corporate Debtor overlooking some of the

major developments that were happening with respect to group insolvency

process of IL&FS and its group companies under Section 241 and 242 of the

Companies Act. Keeping in view that the present matter also fell under the Group

Resolution Approach as had been approved by this Appellate Tribunal, the

Adjudicating Authority directed that the resolution of the present Corporate

Debtor be carried out under the supervision of Justice (Retd.) D.K. Jain. The

Adjudicating Authority had also directed the RP to forward all Page 12 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 records/documents relating to the conduct of the resolution process of the

Corporate Debtor to Justice (Retd.) D.K. Jain. Pursuant to the recusal of Justice

(Retd.) D.K. Jain vide letter dated 24.04.2021 in handling the resolution process

of the Corporate Debtor, the ITNL once again sought revival of IA No. 100/2020

which was restored on 29.08.2022.

11. When the matter was being heard by the Adjudicating Authority with

regard to IA No. 100/2020, the ITNL had submitted a proposal that if the entire

claims of the Operational Creditors was settled and the Operational Creditors

filed an application for withdrawal of CIRP, in that eventuality, ITNL would also

not claim any amount against the Corporate Debtor. While the proceedings in

respect of IA No. 100 of 2020 had commenced, it was noticed by the Adjudicating

Authority that a substantial amount of approximately Rs 7 Cr. was lying in the

account of the Corporate Debtor which was far in excess of the aggregate claim

of Rs 26.76 lakhs of the three Operational Creditors who constituted the CoC.

The Adjudicating Authority, therefore, directed the RP twice on 16.01.2023 and

24.01.2023 to convene a meeting of the CoC in which all members of CoC as well

as ITNL would remain present wherein if the claim of the three Operational

Creditors could be settled, an appropriate application for withdrawal of IA No.

100 of 2024 would be filed by ITNL. The order of the Adjudicating Authority on

16.01.2023 also recorded the submission made by ITNL that if the claim of the

Operational Creditors was settled and the application for withdrawal of the

Section 9 application was filed by the Appellant, ITNL would not claim any

amount in the CIRP.

Page 13 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023

12. In pursuance of the order of the Adjudicating Authority on 16.01.2023 and

24.01.2023 two meetings of the CoC were scheduled on 23.01.2023 and

25.01.2023 but could not be held. Eventually the CoC met on 01.02.2023.

During this seventh CoC meeting, RCPL conveyed that they would like to refrain

from accepting this offer of ITNL. The objections were primarily on the grounds

that that the unilateral settlement proposal of ITNL was without the approval

and permission from Justice (Retd.) D.K. Jain; that ITNL was not an aggrieved

party and did not have locus to offer a settlement; that by way of this unlawful

settlement ITNL was seeking closure of the CIRP; the proposal of ITNL was based

on utilization of the amount lying in the bank account of the Corporate Debtor

which was violative of Section 14 of the IBC; that the Corporate Debtor had

indulged in fraudulent and suspicious circular transactions with various related

entity of IL&FS group which was under investigation; that ITNL did not follow

the process of Section 12-A of IBC in offering the settlement proposal and that

IA No. 100 of 2020 had been filed to delay the CIRP of the Corporate Debtor

thereby burdening the Corporate Debtor with hefty CIRP expenses besides

diminishing the assets of Corporate Debtor. Since the RCPL which had a voting

share of 89.54% had specifically refrained from the settlement offer, the RP took

the view that there was no point to conduct voting on the proposal of ITNL.

13. From the deliberations of the seventh CoC meeting, it becomes clear that

RCPL has only raised doubts and questions on ITNL's locus and standing with

respect to the settlement proposal but cleverly skirted to address the more

relevant and pertinent question as to why the Operational Creditors were

unwilling to claim their dues when it was being fully repaid. When sufficient fund

was already available with the Corporate Debtor to liquidate the debt of the Page 14 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 Corporate Debtor, we see no cogent reasons offered by the Operational Creditors

in declining to accept their entire admitted claim and closing the CIRP. We find

that the Adjudicating Authority has relied on the judgment of Hon'ble Supreme

Court in the matter of E.S. Krishnamurthy Vs Bharath Hi-Tech Builders (P)

Ltd. (2022) 3 SCC 161 wherein it has been clearly held that ultimate purpose

of IBC is to facilitate insolvency resolution so as to put the Corporate Debtor

back on its feet so as to ensure revival and continuance of the Corporate Debtor.

The relevant excerpts of the impugned order are as reproduced hereunder:

"21. It has been time and again held in various judgments that the primary focus of IBC is to ensure revival and continuance of the Corporate Debtor. The Code is a beneficial legislation which aims to put the Corporate Debtor back on its feet and not a mere recovery legislation. The Hon'ble Supreme Court in the matter of E.S. Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd., (2022) 3 SCC 161 has held the following:

"35. Undoubtedly, settlements have to be encouraged because the ultimate purpose of IBC is to facilitate the continuance and rehabilitation of a corporate debtor, as distinct from allowing it to go into liquidation. As the Statement of Objects and Reasons accompanying the introduction of the Bill indicates, the objective of IBC is to facilitate insolvency resolution "in a time-bound manner"

for maximisation of the value of assets, promotion of entrepreneurship, ensuring the availability of credit and balancing the interest of all stakeholders. ... ... ..."

14. The Adjudicating Authority after having noticed that the Corporate Debtor

had sufficient capital/liquidity to meet its debt, went ahead and observed that

the CoC and RP should not have gone forward with the CIRP of the Corporate

Debtor. The Corporate Debtor had cash balance of Rs 3,68,22,145.11/- on the

CIRP admission date which was sufficient to settle the operational debt raised

by the Operational Creditor. Further significant resolution proceeds had also

been received by the Corporate Debtor in the CIRP of a sister entity of the

Corporate Debtor namely Flamingo Landbase Pvt Ltd which was also initiated Page 15 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 and controlled by the RCPL. At a time when there was Rs 7 Cr. in the bank

account of the Corporate Debtor while the total claim of the Operational

Creditors was merely Rs. 26 lakhs, there was no reason for continuing on with

the CIRP proceeding. When 100% of the admitted debt of the CoC was being

satisfied and yet not being accepted by CoC members, we find that the

Adjudicating Authority had not committed any mistake in inferring that there

was some other hidden motive on the part of the Operational Creditors to

continue with the CIRP.

15. The Adjudicating Authority has also rightly adverted attention to inherent

powers of the Adjudicating Authority as conferred under Rule 11 of NCLT Rules,

2016 whereby inherent powers can be exercised by the Adjudicating Authority

to make orders for meeting the ends of justice to prevent abuse of the process of

the tribunal. At this stage it may be useful to notice that the Adjudicating

Authority has passed a well-reasoned, comprehensive and detailed impugned

order which is as reproduced below:

"25. We find no reason why the Operational Creditors have not claimed their dues. It is a clear case of some hidden motives and misuse of IBC and apparently gives rise to the suspicion of understanding among certain parties to continue the CIRP for some oblique purpose and till the amount lying in the account of the CD is exhausted as the CoC is not bearing the CIRP expenses.

26. It is apposite to refer to Rule 11 of NCLT Rules, 2016 in the present matter.

"11. Inherent Powers.- Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal."

28. Section 60(5) gives power to this forum to exercise residuary jurisdiction in matters pertaining to the CIRP of the Corporate Debtor. Moreover, the Hon'ble Supreme Court in the matter of Vallal RCK v. Siva Industries & Page 16 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 Holdings Ltd., (2022) 9 SCC 803 has while relying on the judgment of Swiss Ribbons (P) Ltd. Vs. Union of India; (2019) 4 SCC 17 observed the following:

"20. It could thus be seen that this Court has found that if the CoC arbitrarily rejects a just settlement and/or withdrawal claim, the learned NCLT and thereafter the learned NCLAT can always set aside such decision under the provisions of IBC.

24. When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and dehors the provisions of the statute or the Rules."

29. The CoC members and the Operational Creditor namely, M/s Rajputana Constructions Pvt Ltd. holding 90% of voting share, present in court were asked to clarify the reason for not accepting their dues to be paid immediately. No satisfactory reply was received on their behalf and procedural issues with regard to the filing of the application for withdrawal of CIRP were raised. The reasons given by the Operational Creditor for not accepting the claim does not hold any practical logical ground. In the circumstances as outlined, the question of fine analysis of any question of related parties becomes redundant.

30. It is pertinent to mention that an Application was filed under Section 9 of the Code by the same Operational Creditor namely, M/s Rajputana Constructions Pvt Ltd. against M/s Flamingo Landbase Pvt Ltd., which is a related party to this Corporate Debtor. A credit of Rs 3.29 crore was received by the Corporate Debtor herein namely, M/s Rajasthan Land Holdings Ltd., from the leftover amount of the Resolution Plan of M/s Flamingo Landbase Pvt Ltd., on the same day, in petition numbered as CP No.(IB)-45/9/JPR/2019 i.e. the next number of this petition and the present Operational Creditor was holding almost 100% of voting right in the CoC of M/s Flamingo Landbase Pvt. Ltd. with a claim amount of appx Rs 1.07 crore. In that case also the land was available and this OC has got its full amount. This fact was only revealed when the clarification during hearing was sought regarding the increase of the cash available in the CD's account during CIRP proceedings by around Rs 3.3 Crores. Now this OC here is not taking its dues here from the RP perhaps with intention to orchestrate and go for resolution, or sell the property, as per its decision

Page 17 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 since it is holding approx. 90% of voting in CoC. This intent of the OC appears to be malicious."

16. It is well settled that IBC is a beneficial legislation intending to bring back

the Corporate Debtor on its feet without letting the value of the assets of the

Corporate Debtor suffer a beating. Hence CIRP proceedings against the

Corporate Debtor, when pursued coercively or mindlessly, it becomes violative of

the quintessential spirit of the insolvency resolution framework. In the present

facts of the case, when the Corporate Debtor had sufficient finances in its kitty

and was indubitably in a position to wipe off and repay the operational debt qua

the three Operational Creditors who are the only members of the CoC and full

liability was proposed to be discharged, there seems to have been no rational

basis for the Operational Creditors to decline from accepting their outstanding

dues. What comes to notice is stubborn reluctance on the part of CoC members

to accept the repayment of the operational debt, making it clear that the three

Operational Creditors who constituted the CoC were trying to scuttle the

resolution of the Corporate Debtor and more interested in pushing the Corporate

Debtor into insolvency rather than salvaging the Corporate Debtor from the

perils of corporate death. The RCPL with majority stake in the CoC has been

trying to take undue advantage of the situation and was being actuated by some

other ulterior and dubious motives which had nothing to do with insolvency

resolution. This amounts to misuse and abuse of the provisions of IBC. Based

on the totality of circumstances, we are convinced that the intent behind

continuing of the CIRP proceedings by the Operational Creditor was clearly for

reasons other than insolvency resolution.

Page 18 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023

17. This now brings us to the second related question whether the RP was

working in collusion with RCPL and CoC in dragging on with the CIRP

proceedings and in the process charging hefty fees and ballooning the CIRP

costs.

18. It is the case of the RP that it had no role to play in the delay with regard

to the CIRP proceedings of the Corporate Debtor. It was submitted that ITNL had

been litigating for a seat on the COC for more than three years without ever

making a proposal to withdraw its claim. Only when ITNL realised that it would

not be able to manage a place in the CoC that it floated a proposal relating to

withdrawal of its claim and termination of CIRP by paying off the Operational

Creditors. In any case the RP could not have proposed for any settlement

between the parties as that was not the mandate of the RP under IBC. Moreover,

when a Section 66 application was pending against ITNL wherein serious

allegations had been raised against ITNL to be a conspirator in the fraudulent

and circular transactions duly backed by a report from Independent Transaction

Auditors, the settlement offer of ITNL could not have been accepted. It was

further emphasised that as RP, she performed all statutory duties, obligations

and compliance towards the proper management of the Corporate Debtor.

Summarising the various efforts undertaken by the RP in person and through

other professionals appointed during the CIRP period, it was pointed out that

they had secured income tax refund of Rs 91.92 lakhs for AY 2018-19 and Rs

6.34 lakhs for AY 2015-16 which helped in increasing the bank balance of the

Corporate Debtor from Rs 3 cr to Rs 7 cr approximately. The RP took several

other steps including contesting the tax assessment of the Corporate Debtor,

pursuing the recovery of Rs 48 Cr in fraudulent transactions, work towards Page 19 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 reviving struck-off subsidiaries under Section 248 of the Companies Act besides

protecting the assets of the Corporate Debtor from legal proceedings. All these

tasks were carried out inspite of non-cooperation from the Corporate Debtor

which compelled the RP to file IA Nos. 38 of 2020 and 359 of 2020 under Section

19 of the IBC. The RP has been filing all minutes of meetings and timely progress

reports of CIRP to the Adjudicating Authority.

19. Per contra, ITNL has contended that the RP had conducted CIRP in a

malafide manner in collusion with CoC members. It is contended that the

Adjudicating Authority had correctly arrived at their categorical finding on the

malicious conduct of the RP and failure on her part to have performed the duties

in a diligent manner. The RP did not inform the Adjudicating Authority that

Corporate Debtor has sufficient funds to discharge the admitted claims of the

CoC. There was no reason for continuation of CIRP of the Corporate Debtor by

the RP when there was sufficient cash balance. It was contended that during the

entire three and half years of CIRP proceedings from 24.09.2019 till 20.04.2023,

only seven CoC meetings were held. Further listing out the non-compliance and

failure to discharge duties by the RP, it was stated that the RP had failed to file

annual returns of the Corporate Debtor with RoC for FY 2018-19 to FY 2022-23.

It had also failed to prepare and approve the financial statements of the

Corporate Debtor for FY 2018-23 which all amounted to violation of Sections 92,

134 and 137 of the Companies Act, 2013. The RP had also failed to hold AGM of

the Corporate Debtor during the CIRP; failed to file income tax returns since

2018-19 and to undertake routine compliances such as filing Form DPT-3 and

MSME Forms. The RP had also failed to comply with GST compliances in due

time.

Page 20 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023

20. We do not feel it necessary to delve into the rival submissions made with

regard to the nitty-gritty of obligations discharged by the RP in the CIRP

proceedings. What needs to be seen is whether the RP who is supposed to run

the Corporate Debtor as a prudent business person by preserving the all-round

interests of all stakeholders lived up to that role appropriately without any

arbitrary personal gain. It is an undisputed fact that for an admitted debt of Rs

26 lakhs, the CIRP was allowed to drag on for a four and half years. In contrast

to a paltry sum of Rs 26 lakhs of admitted debt, the CIRP cost had inflated to Rs

73 lakhs which was three times the admitted debt of the CoC which on the face

of it shows that the Corporate Debtor was burdened with unnecessary and

exorbitant expenditure. The CIRP cost had clearly mounted on account of the

fees of the RP which was increased from Rs 1,00,000/- to Rs 2,00,000/- per

month in the fourth CoC meeting held on 20.03.2020. We also find that the RP

had continued to charge fees even when the CIRP had remained stayed from

05.08.2020 to 16.03.2021. The Adjudicating Authority had also relied on the

judgment of this Tribunal in Indus Ind Bank Ltd. Vs Rajendra K Bhuta in

CA(AT)(Ins.) No. 177 of 2022 wherein it was held that the fee of RP cannot be

charged for the duration of a stay on CIRP. We are also inclined to agree with the

Adjudicating Authority that the RP had unlawfully charged fees of Rs 7,09,090/-

for CIRP stay period from 05.08.2020 to 16.03.2021 which was a period of 7

months and 11 days. This misconduct of the RP is also validated by the fact that

the RP had himself filed IA No. 129 of 2021 before the Adjudicating Authority

seeking exclusion of the stay period of 7 month and 11 days for the purpose of

computation of the duration of CIRP. That being the case, submission of bill for

fees by the RP could not have been raised for this period when CIRP stood stayed. Page 21 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 It is also been contended by ITNL that Schedule-II which was added to CIRP

Regulation 34(B) was applicable to fee of RP for CIRP which was initiated after

01.10.2022 while in the present case the CIRP was initiated on 24.09.2019,

hence no reliance could have been placed on Schedule-II of the CIRP Regulations.

Seen together it lends force to the contention that the RP has continued the CIRP

of the Corporate Debtor just to ensure higher billing inspite of sufficient

capital/liquidity being available with the Corporate Debtor to meet its debts.

While reducing the remuneration payable to the RP to Rs 50,000/- per month

from 24.01.2019 to 19.04.2023, the Adjudicating Authority had done so after

noting that there was no need for CIRP of the Corporate Debtor to continue since

the Corporate Debtor had sufficient funds to discharge the admitted claim of the

CoC. We are of the considered view that the impugned order had not committed

any infirmity in directing that RP was to receive only remuneration of Rs

50,000/- per month totalling Rs 21.45 lakhs besides directing the refund of the

excess amount of remuneration paid to the RP.

21. Besides the fact that CIRP cost have far exceeded the admitted debt of

CoC, in the present case, the entire CIRP expenses was being met by utilising

the funds of Corporate Debtor without reimbursement by the CoC which was not

in conformity with the terms of Regulation 33 and 34 of IBBI (Insolvency

Resolution Process of Corporate Persons) Regulations, 2016. It is anomalous and

paradoxical that while the CoC was paying the CIRP cost from the resources of

the Corporate Debtor, it was reluctant to accept the payment from the Corporate

Debtor towards the admitted dues. Hence the order of the Adjudicating Authority

is a well-reasoned order directing the CoC members to pay the CIRP cost

proportionately. This does lend credence to the contention of the Respondents Page 22 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023 that there was a calculated strategy on the part of the RCPL as the dominant

member of the CoC to retain control over the Corporate Debtor. The Adjudicating

Authority has rightly noted that the CIRP was being misused to benefit private

interest at the cost of the Corporate Debtor. As the admitted dues of the

Operational Creditors when squared off against the liability of proportionate

CIRP costs to be borne by the CoC, a balance amount had become recoverable

from the CoC and no dues in respect of the admitted claim of the CoC members

survived, we are also of the view that the Adjudicating Authority has rightly

terminated the CIRP of the Corporate Debtor.

22. In view of the reasons stated above, we find no good grounds to interfere

with the impugned order. We find both the Appeals to be devoid of merit. The

Appeals are dismissed with no costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 16.05.2025

Abdul/ Harleen

Page 23 of 23 Company Appeal (AT) (Insolvency) Nos. 853 & 785 of 2023