Cuttack Municipal Corporation vs Mr. Suresh Chandra Pattanayak

[Arising out of order dated 08.10.2021 passed by the National Company Law Tribunal, Cuttack Bench, Cuttack in CA No. 37/CB/20221 in CP No. 109/CTB/2020]

IN THE MATTER OF: Cuttack Municipal Corporation, A body corporate constituted under the Orissa Municipal Corporation Act, 2003, having its office at Biju Bhawan, Choudhury Bazar, PO: Telengabazar, PS: Purighat, Town/Dist.: Cuttack-753001. ...... Appellant. Versus

Mr. Suresh Chandra Pattanayak, The Liquidator appointed in respect of Cuttack Urban Transport Service Limited (in liquidation) having IP Registration Number: IBBI/IPA-002/IP-N00759/2018- 19/12384 having office at GKV-38, Gatikrushna Villa, Tankapani Road, Bhubaneswar, Odisha 751018. ....... Respondent.

Present: For Appellant: Mr. Hasan Murtaza, Advocate. For Respondent:- Mr. Neeraj Kr. Gupta, Advocate. 2

JUDGMENT

(15th November, 2022)

Justice Anant Bijay Singh;

The present Appeal preferred under Section 421 of the Companies Act,

2013 preferred by the Appellant being aggrieved and dissatisfied by the order

dated 08.10.2021 passed by the National Company Law Tribunal, Cuttack

Bench, Cuttack in CA No. 37/CB/20221 in CP No. 109/CTB/2020 whereby and

whereunder the Tribunal allowed the application filed by the

Respondent/Liquidator being CA No. 37/CB/2021 and directed that fees should

be paid to the Liquidator/Respondent herein as specified under Regulation 4(2)

of the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations,

2016 as amended on July 25, 2019. The order passed by the Tribunal is as

follows:

"6. In view of the same the fee as specified under Regulation 4(2) of the

aforesaid Regulations is fixed in the instant matter, which is as under:-

Amount of realisation percentage of fee on the amount realised/distributed /Distribution In the first six In the next In the next Thereafter (in rupees) months six months one year Amount of Realisation (exclusive of liquidation costs) On the first 1 crore 5.00 3.75 2.50 1.88 On the next 9 crore 3.75 2.80 1.88 1.41 On the next 40 crore 2.50 1.88 1.25 0.94 On the next 50 crore 1.25 0.94 0.68 0.51

On further sums 0.25 0.19 0.13 0.10 realised Amount distributed to Stakeholders On the first 1 crore 2.50 1.88 1.25 0.94 On the next 9 crore 1.88 1.40 0.94 0.71 Company Appeal (AT) No. 34 of 2022 3

On the next 40 crore 1.25 0.94 0.63 0.47 On the next 50 crore 0.63 0.48 0.34 0.25 On further sums 0.13 0.10 0.06 0.05 realised

7. Accordingly, CA No. 37/CB/2021 in CP No. 109/CTB/2020 is disposed of."

2. The facts giving rise to this Appeal are as follows:

i) The Appellant herein is the principal majority shareholders of the company

which is now in liquidation namely Cuttack Urban Transport Service Ltd. On

16.03.2020, Cuttack Urban Transport Service Ltd. (which is now in liquidation)

had filed a company petition before the NCLT, Cuttack Bench Cuttack under

Section 271(a) and 272(1)(a) of the Companies Act, 2013 seeking winding up of

Cuttack Urban Transport Service Ltd. (for short "the Company") on the reasons

and grounds more fully mentioned in the said company petition which was filed

being CP No. 109/CTB/2020.

ii) By the order dated 07.08.2020, the company petition was admitted and

directions were given for publication of notice. Further, Mr. Suresh Chandra

Pattanayak, the insolvency professional was appointed as the provisional

liquidator under the provisions of Section 273 of the Act. And the provisional

liquidator was directed to be paid lump sum fees of Rs. 1 lakh as his

remuneration for his services. Further, order dated 20.01.2021 passed by the

Tribunal, the appointment of the Respondent was confirmed as the Liquidator.

iii) Further case of the Appellant is that the company in liquidation was

formed as a SPV of the Government of Odisha under the notification dated

Company Appeal (AT) No. 34 of 2022 4

22.07.2013 issued by Housing & Urban Development Department, Government

of Odisha. The SPV was promoted as joint venture of Cuttack Municipal

Corporation (CMC), Cuttack Development Authority (CDA), Odisha State

Transport Corporation (OSRTC) and Choudwar Municipality with shareholding

of 50%, 40%, 5%, and 5% respectively with an object to pay and operate city bus

services in and around the Cuttack District.

iv) Subsequently, the Housing & urban Development Department of

Government of Odisha vide Notification No. HUD-UT-SCH-

009/2016/1919/HUD dated 19.01.2018 had decided to merge the city bus

services for Bhubaneswar, Cuttack and Puri Development areas under the

banner of one SPV namely Capital Region Urban Transport (CRUT) (erstwhile

known as Bhubaneswar-Puri Transport Services Limited). In the said notification

it was directed by the H&UD Department, Government of Odisha to take

immediate steps in transfer of all assets and liabilities of the company in

liquidation to Capital Region Urban Transport (CRUT).

v) Further case is that the company petition was filed under Section 271 of

the Companies Act, 2013 by the Company which is now in liquidation because

the existence of the company was not required in view of the aforesaid

notification since the city bus operations in Cuttack Development areas which

are to be carried on by CRUT another SPV of Government of Odisha. All the

shareholders of the company had decided that the company should be wound

up. On such basis, the company petition was filed before the NCLT, Cuttack

Company Appeal (AT) No. 34 of 2022 5

Bench, Cuttack after the special resolution was passed by the company itself

under the provisions of Section 272(1)(a) of the Companies Act, 2013.

vi) By the order dated 07.08.2020, the company petition was admitted and

the Respondent was finally appointed as Liquidator. In terms of the order dated

07.08.2020, the Liquidator/Respondent has been paid entire remuneration

which was directed. Thus, Rs. 75,000/- was aid to the Respondent on

09.07.2021 and the balance Rs. 25,000/- was paid to the Respondent on

31.07.2021 as his lump sum remuneration. However, on 16.08.2021, the

Respondent filed an application being CA No. 37/CB/2021 seeking the following

reliefs:

a) An order be passed regarding fixing the remuneration of the Applicant for his role as the Liquidator of the Petitioner.

b) Such further orders in term of prayers above.

c) Such further orders and/or directions be passed as this Hon'ble Tribunal may deem fit and proper.

After hearing the parties, the Tribunal passed the impugned order. Hence

this Appeal.

3. The Ld. Counsel for the Appellant during the course of argument and in

his memo of Appeal along with written submissions submitted that the Tribunal

passed the impugned order erroneously, wrongly and without hearing the

Appellant relied on the provisions of IBBI (Liquidation Process Regulation, 2016

as amended in 2019 because in the instant case the liquidator was appointed

under the provisions of the Companies Act, 2013 pursuant to Chapter-XX of the

said Act, 2013. In the instant case does not involve the applicability of the

provisions of IBC, 2016 or any of the Rules and Regulations under the Code,

Company Appeal (AT) No. 34 of 2022 6

2016. However, the Tribunal erroneously proceeded to fix the remuneration of

the Respondent/Liquidator by relying upon the provisions of Regulation 39D of

the IBBI (Regulation Process for Corporate Persons) Regulations, 2016 read with

Regulation 4(2) of the IBBI (Regulation Process Regulation, 2016 which has not

application.

4. It is further submitted that the IBBI (Liquidation Process) Regulations,

2016 does not apply at all in the facts of the present case and accordingly there

was no need or reference or necessity at all to rely upon IBBI (Regulation Process

for Corporate Persons) Regulations, 2016 or IBBI (Liquidation Process)

Regulations, 2016 as amended in 2019.

5. It is further submitted that the Tribunal passed the impugned order

without taken into consideration that the entire lump sum remuneration was

already paid to the Respondent pursuant to the order dated 07.08.2020. The

impugned order is contrary to public interest because the Respondent is trying

to make unjust enrichment by charging remuneration on percentage basis at the

rate of 3.75% which would put financial burden upon the public exchequer.

Further, no fees can be paid to the liquidator who was appointed under the

provisions of Chapter XX, Sections 271 to 275 of the Companies Act, 2013 by

wrongfully and erroneously applying the provisions of the Regulation 39D of the

IBBI (Regulation Process for Corporate Persons) Regulations, 2016 and IBBI

(Liquidation Process) Regulations, 2016. The impugned order is also erroneous

and perverse because once the Respondent has agreed to accept the terms and

conditions of his appointment as noticed in the order dated 07.08.2020 the

Company Appeal (AT) No. 34 of 2022 7

Respondent could not have made the application seeking payment of further

remuneration before the Tribunal. The requirements framed under IBC Code will

not govern the liquidator who has been appointed under the provisions of the

Companies Act, 2013 read with Companies (winding up) Rules, 2020. Based on

these submissions the impugned order is fit to be set aside and the Appeal be

allowed.

6. On the other hand, the Ld. Counsel for the Respondent during the course

of argument and in his reply along with written submissions submitted that the

Appellant is based on the misconception about the status, functions and duties

of "Provisional Liquidator" as compared to "Company Liquidator", in this regard,

the role and responsibilities of Provisional Liquidator and Liquidator are not

same. Under Section 275(3) of the Act, the NCLT is empowered to limit or restrict

the powers of Provisional Liquidator and Section 275(5) of the Act, the fee shall

be decided by NCLT based on task, experience, qualification of Liquidator and

size of the company.

7. It is further submitted that the Liquidator herein is a Cost & Management

Accountant (CMA previously known as Cost and /works Accountant) with over

24 years of experience, with additional qualification of Insolvency Professional,

Registered valuer, therefore the competence and qualification deserve to be given

its dues. The fee fixed by the Tribunal, is also in two parts, first part is in relation

to realization and second part is in relation to distribution. Therefore, the

argument raised by the Appellant that some of the assets do not require any

effort for realization, would automatically not fetch any remuneration for

Company Appeal (AT) No. 34 of 2022 8

Liquidator as there will not be any realization and no corresponding fee and as

such the argument of the Appellant is that of creating a prejudice against the

Respondent and not on correct facts or law.

8. It is further submitted that the procedure of liquidation, priority of

payments/distribution, method of realization and distribution are all the way

same under Companies Act as well as IBC, therefore, except for nomenclature,

the similar task has to be performed by the Liquidator and therefore the fee has

also to be same for same task and it cannot be said that the fee under IBC cannot

apply to matters under Companies Act. The Tribunal has fixed the fee by

borrowing the rule of remuneration from IBC after considering the role, duties

and responsibilities of Liquidator and thus the same is in order for these reasons.

The schedule of fee from IBC because, the IBC and Companies Act are both

having certain interface, administered/adjudicated by same forum and many

provisions of Companies Act, apply to IBC also, for example:

i) Cadre of Insolvency Professionals is created under IBC but also appointed

under Companies Act, 2013, Section 275(2) of the Act;

ii) Procedures and powers of NCLT as stated under Section 424 apply to IBC as

well as Companies Act, 2013;

iii) Terms and expressions not defined in IBC but defined under Companies Act,

2013 shall have same meaning as defined under Companies Act, 2013;

iv) The entire Scheme of CIRP under IBC was a substitution of winding up of

companies for default in repayment of dues, the history of amendment of Section

271 by virtue of Schedule 11 (read with Section 255) of the IBC makes it clear;

Company Appeal (AT) No. 34 of 2022 9

v) Duties of liquidator include those under 328 to 335 which are nearly the same

as duties of liquidator under 43, 45, 49 50 and 66 of the IBC and Section 333 is

same as Regulation 10 of IBBI (Liquidation Process) Regulations. Therefore, there

is hardly any difference between the duties and functions of Liquidator under

the Companies Act, and IBC and thus borrowing of schedule of remuneration

from IBC is absolutely reasonable, fair and lawful.

vi) The Judicial Pronouncement by Hon'ble Supreme Court in the case of

Kaledonia Jute Vs. Axis Nirman, Forech India Judgment and also in Navin

Chandra Steel Case, points towards this position.

In view of the above, the Tribunal has taken right step to decide the

remuneration of the Liquidator by borrowing the same from IBBI (Liquidation

Process) Regulations and hence for the aforesaid reason the Appeal is liable to

be dismissed.

9. After hearing the parties, we observe that the Ld. Counsel for the Appellant

filed Notification issued by the Ministry of Corporate Affairs dated 24.01.2020 in

exercise of the powers conferred by sub-sections (1) and (2) of section 468 and

sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013)

and these Rules are known as Companies (winding up) Rules, 2020 wherein Rule

14 provides the appointment of Provisional Liquidator or Company Liquidator

and also Part IV deals with cost, etc. in which Rule 188 giving Tribunal's power

to fix a fee. The Tribunal mainly considered the provisions of IBBI (Liquidation

Process) Regulations, 2016 as amended in 2019 which have quoted in para 5

and 6 of the impugned order and passed the order regarding the fees but the

Company Appeal (AT) No. 34 of 2022 10

Tribunal has not considered the provisions of Ministry of Corporate Affairs dated

24.01.2020 regarding Companies (winding up) Rules, 2020. As the application

was filed winding up provisions of Sections 271(a) and 271(1)(a) of the

Companies Act, 2013 seeking winding up of the Company.

10. Taking all the facts aforenoted, the impugned order dated 08.10.2021

passed by the National Company Law Tribunal, Cuttack Bench, Cuttack in CA

No. 37/CB/20221 in CP No. 109/CTB/2020 is hereby set aside and the matter

is remitted back to the National Company Law Tribunal, Cuttack Bench, Cuttack

with a request to hear the parties herein and pass reasoned orders after

considering the provisions of Companies (winding up) Rules, 2020 issued by the

Ministry of Corporate Affairs vide Notification dated 24.01.2020 within eight

weeks from the date of receipt of this judgment.

With these observations, the instant Appeal is disposed of.

11. Registry to upload the Judgment on the website of this Appellate Tribunal

and send the copy of this Judgment to the National Company Law Tribunal,

Cuttack Bench, Cuttack, forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

New Delhi 15th November, 2022 R. Nath.

Company Appeal (AT) No. 34 of 2022