Excise And Taxation Department vs Ashok Kumar Resolution Professional

Income Tax Department, Assistant Commissioner of Income tax Central Circle-12 (1), C.R. Building, Delhi-110002. ... Appellant

Versus

M/s. Indianroots Shopping Limited, 207, Okhla Industrial Estate, Phase-III, New Delhi-110020. ... Respondent No. 1

Mr. Ashok Kumar Indianroots Shopping Limited Resolution Professional, A-263/1, First Floor, Derawal Nagar, Delhi-110009. ... Respondent No. 2

Deputy E.T.O., Gurugram, O/o D.E.T.C. (GST), Gurugram (South), Plot No. C-1, Infocity, Sector-34, Gurugram. ... Respondent No. 3

Present

For Appellant: Mr. Vipul Agarwal, Mr. Parth S. Jr. Standing Counsel

For Respondent: Ms. Prachi Johri, Vatsalya Kumar, Advocates.

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 1 of 19 With

Company Appeal (AT) (Insolvency) No.1123 of 2022

In the matter of:

Excise and Taxation Department, Government of Haryana, (Through Excise & Taxation Officer, Gurugram (South) Haryana. ... Appellant

Versus

Ashok Kumar, Resolution Professional, Address: RP of Indianroots Shopping Limited, A-263/1, First Floor, Derawal Nagar, Delhi-110009. ... Respondent

Present

For Appellant: Mr. Hemant Gupta, Mr. Varun Goel, Advocates

For Respondent: Ms. Prachi Johri, Advocate

JUDGMENT

(Date: 17.11.2022)

[Per.: Dr. Alok Srivastava, Member (Technical)]

The two appeals being disposed of through this common

judgment are filed under sub section 61(1) of the Insolvency and

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 2 of 19 Bankruptcy Code, 2016 (in short 'IBC') assailing the order of the

Adjudicating Authority (National Company Law Tribunal, New

Delhi) dated 23.8.2021 (hereinafter called 'Impugned Order') in IA

No. 182/2020 in CP (IB) No. 1411/ND/2018 [which is assailed in

CA (AT) (Ins.) No. 32/2022] and in IA No. 182/2020 in CP (IB) No.

1411/ND/2018 [which is assailed in CA (AT) (Ins.) No.

1132/2022].

2. The Applicant (Ashok Kumar, Resolution Professional of the

corporate debtor Indianroots Shopping Limited) had filed IA No.

182/2020 before the Adjudicating Authority seeking directions to

the Income Tax Department and the Excise and Taxation

Department, Government of Haryana to pay the Corporate

Insolvency Resolution Process (in short 'CIRP') dues and expenses

by the Resolution Professional (in short 'RP') in proportion to its

voting share in the Committee of Creditors (in short 'CoC').

Company Appeal (AT) (Ins) No. 32 of 2022 (Appeal I)

3. Bereft of the unnecessary details, the case of the Appellant

Income tax Department in CA (AT) (Ins) No. 32 of 2022 is that the

7th meeting of the CoC was held, after adjournment, on 6.12.2019

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 3 of 19 when the Appellant could not be present in the meeting. The

Appellant holds 85.226% voting rights in the CoC and many

decisions were taken in this meeting are relating to payment of

CIRP dues. The Appellant has further stated that the decision

taken in the 7th CoC meeting in the absence of the Appellant is not

legally correct in view of sub-section 8 of section 21 of the IBC.

4. The Appellant Income Tax Department has further stated

that the expenses claimed by the RP amounting to Rs. 31,10,796

are disproportionately large in relation to the assets of the

corporate debtor, which are presently valued at Rs.1,50,00,000/-

and these expenses are not reasonable in terms of Regulation 15 of

the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 and

Circular no. IBBI/IP/013/2018 issued by the Insolvency and

Bankruptcy Board of India on 12.6.2018 on the subject 'Fee and

Other Expenses incurred for CIRP'. He has lastly stated that the

Income Tax Department will be gravely prejudiced if such a high

CIRP cost was recovered from the Department and moreover, the

power to approve such payments with the Assessing Officer is only

upto Rs. 2,00,000/-.

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 4 of 19 Company Appeal (AT) (Ins) No. 1123 of 2022 (Appeal II)

5. The Appellant Excise and Taxation Department, Government

of Haryana in Company Appeal (AT) (Insolvency) No.1123 of 2022

has stated in the appeal that it filed its claim for an amount

Rs.2,67,96,740 and the Respondent Resolution Professional has

raised a big amount Rs.12,14,855 as the proportionate share of

the Excise and Taxation Department in the total CIRP cost. He

has claimed that Regulation 34 of Insolvency and Bankruptcy

Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 merely authorizes the CoC to fix the

expenses, but does not authorize the RP/Respondent to actually

recover the same from the creditors, whereas by the Impugned

Order II passed in IA No. 182/2020, the Adjudicating Authority

has directed the Appellant Excise and Taxation Department,

Government of Haryana to deposit this amount immediately with

the liquidator.

6. The Company Appeal (AT) (Insolvency) No.32 of 2022 and

Company Appeal (AT) (Insolvency) No.1123 of 2022 are both filed

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 5 of 19 against the same Impugned Order dated 23.8.2021 passed by the

Adjudicating Authority. The Appellants in both the appeals are

operational creditors of the corporate debtor M/s. Indianroots

Shopping Limited. Both the Appellants are aggrieved by the fact

that the 7th CoC meeting held in the CIRP of the corporate debtor,

the respective shares of the Appellants in the CIRP cost were fixed

and the Appellants were directed through the Impugned Order to

pay them immediately. Thus, the Appellants in both the appeals

have similar grievance against the Impugned Order, and therefore,

both the appeals captioned above are being disposed of through

this common judgment.

7, We heard the arguments advanced by the Learned Counsels

for Appellants and Respondents in both the appeals and perused

the respective records.

8. The Learned Counsel for Appellant Income Tax Department

has submitted that a departmental representative could not attend

the 7th meeting of the CoC held on 6.12.2019 and the CoC

comprises only of operational creditors, as there is no financial

creditor in the CIRP. He has further submitted that the Income

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 6 of 19 Tax Department has voting share of 85.226% in the CoC and

another operational creditor, the Excise and Taxation Department,

Government of Haryana have a voting share of 11.53% in the CoC,

and thus these two operational creditors possess a total voting

share of 96.750% in the CoC. The relevant CoC meeting in which

the decision regarding fixing of CIRP cost as well as its

proportionate allocation for payment by the two Appellants was

taken in the 7th meeting of the CoC held on 6.12.2019. He has

submitted that, in view of section 21(8) of the IBC, all decisions of

the CoC shall be taken by a vote of 51% or more of the voting

share, and in the present case, the said decision fixing share in

CIRP cost was taken by a small percentage with around 4% vote

share only.

9. The Learned Counsel for Appellant Income Tax Department

has further argued that Regulations 31, 33 and 34 of the

Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016 (in short 'CIRP

Regulations') stipulate various components of insolvency resolution

process cost and the fees of Interim Resolution Professional/RP.

In particular, Regulation 34 provides that the CoC shall fix the

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 7 of 19 expenses to be incurred in the CIRP including the fees of RP and

such expenses which shall constitute insolvency resolution

process cost. He has argued that, in view of the fact that the

decisions taken in the 7th meeting of CoC were not in accordance

with the requirement of the minimum threshold voting percentage

in favour of the resolution as required by section 21(8), such a

resolution is null and void and the Appellants cannot be called

upon to pay very high CIRP cost on the basis of such a non-est

decision, which is not taken in accordance with law.

10. The Learned Counsel for Respondent Resolution Professional

has argued in Appeal I that Regulation 25(3) of CIRP Regulations

stipulates that the RP shall take vote of the members of CoC

present in the meeting and in such a situation, there is no

threshold voting percentage necessary in deciding general issues

relating to CIRP. She has further argued that notice for the 7th

CoC meeting was issued to the Appellant on 1.12.2019 and since

the Appellant was not present in the CoC meeting on 5.12.2019, it

was adjourned and the adjourned meeting took place on

6.12.2019, when again the Appellant neither attended the meeting

nor informed the RP regarding his absence or the reason thereof.

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 8 of 19 She has stated that in such a situation, when the CIRP was going

on and timely payment of RP's fees and CIRP cost was necessary, a

decision was taken in the 7th CoC meeting regarding the

proportional share of various operational creditors and the

amounts due from each operational creditor, which are included in

the minutes of the meeting was communicated to the operational

creditors including the Income Tax Department and the Excise &

Taxation Department, Government of Haryana.

11. The Learned Counsel for Resolution Professional has further

submitted that all the other operational creditors except the

Income Tax Department and the Excise and Taxation Department,

Government of Haryana have deposited their due shares in the

CIRP costs and RP's fees with the RP, and after passing of the

liquidation order, the Liquidator, who was the erstwhile RP, is

unable to make any progress in liquidation process for want of

funds to cater to necessary expenses. She has also submitted that

the Income Tax Department did not challenge the decision taken in

the CoC meeting on 6.12.2019, and it is only when the Impugned

Order was passed on an application bearing No. IA No. 182/2020

that was filed by the RP, that the Income Tax Department has

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 9 of 19 raised the issue of illegality of the decision taken regarding fixing of

payment of CIRP cost in the 7th CoC meeting.

12. The Learned Counsel for Respondent Resolution Professional

has also argued that when IA 182/2020 was pending before the

Adjudicating Authority, an opportunity was given to the Income

Tax Department to discuss the issue of CIRP costs vide order dated

30.9.2020. When the meeting to discuss these issues took place,

it was attended by the RP, Assistant Commissioner (IT) and Deputy

Commissioner (IT) and the Standing Counsel of the Income Tax

Department. She has pointed out that the issue of CIRP costs was

discussed in the meeting wherein the Income Tax Department was

explained the components and details of various items in the CIRP

costs and RP's fees. Since no clear decision could be taken in this

meeting, the RP was left with no option but to pursue his

application IA No. 182/2020, wherein the Adjudicating Authority

has given clear directions to the Income Tax Department and the

Excise and Taxation Department to immediately pay in proportion

to the voting share in the CoC the expenses incurred by the RP,

which has been ratified by the 7th meeting of the CoC.

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 10 of 19

13. The Learned Counsel for Respondent RP has cited the

judgment dated 10.1.2020 of NCLAT in the matter of Committee

of Creditors, M/s. Smartec Build Systems Pvt. Ltd. vs. B.

Santosh Babu & Ors. [CA (AT) (Insolvency) No. 48 of 2020) to

point out that the CoC is bound to pay the fees and cost incurred

by the IRP/RP. She has also rebutted the claim made of the

Learned Counsel for Appellant on the requirement of taking

decisions with votes of more than 50% mandatorily by citing

judgment in K. Sashidhar v. Indian Overseas Bank (2019 12

SCC 150) case, by stating that the judgment relates to voting to

approve resolution plan, where the threshold voting percentage is

stipulated in section 30(4) of the IBC, whereas in the matters of

approval of CIRP cost and RP's fees, no such threshold in voting

share is explicitly stipulated in the IBC.

14. The Learned Counsel for Appellant Excise and Taxation

Department (in Appeal II) has brought to our attention the

provision in sub-section (13) of section 5 of the IBC, wherein

various elements of CIRP cost have been defined. He has also

adverted to regulation 31 (d) to point out that the expenses

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Page 11 of 19 incurred by the RP, which are fixed under regulation 34, are also

part of CIRP cost. He has argued that the duty of CoC is to fix the

expenses related to CIRP and the fees of RP as provided in

Regulation 34, but the payment of CIRP cost has to be made in

accordance with the 'water fall mechanism' given in section 53 of

IBC, where the CIRP cost and the liquidation cost get the first

priority in payment and such payment has to be made once the

liquidation process is completed. He has claimed that payment

against the claims of Excise and Taxation Department have not

accrued to the department and hence for the department to pay a

substantial amount as its share of CIRP cost is not only unfair and

but also prejudicial to the interest of the department. He has

lastly argued that once the liquidation process is completed, the

CIRP cost and liquidation process cost shall get first priority in

payment from the sale of the liquidation estate.

15. The relevant sub-section 8 of section 21, including the

proviso thereto, and relevant clauses of Regulations 31, 33 and 34

of CIRP Regulations are reproduced hereunder for easy reference: -

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 12 of 19 I. "Section 21 (8) of IBC

21. Committee of Creditors -

xx xx xx xx

(8) Save as otherwise provided in this Code, all decisions

of the committee of creditors shall be taken by a vote of not less than fifty-one per cent of voting share of the financial creditors:

Provided that where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified."

II. "Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations)

31. Insolvency resolution process costs. "Insolvency resolution process costs" under Section 5(13)(e) shall mean-

Xx xx xx xx

(c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33;

(d) expenses incurred on or by the resolution professional fixed under Regulation 34; and

(e) other costs directly relating to the corporate insolvency resolution process and approved by the committee.

33. Costs of the interim resolution professional.-

xx xx xx xx

(4) The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs. Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 13 of 19 Explanation. - For the purposes of this regulation, "expenses" include the fee to be paid to the interim resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional.]

34. Resolution professional costs.-

The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs.

Explanation. - For the purposes of this regulation, "expenses" include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the resolution professional."

16. We now examine the contention of the Learned Counsels for

Income Tax Department and Excise and Taxation Department

respectively wherein they have claimed that the decision taken in

the 7th CoC meeting held on 6.12.2019 were taken in their absence

and such decisions are not legal in view of the requirement

stipulated in section 21(8) of IBC and also prejudicial to their

interest. Section 21(8) of the IBC stipulates that all decisions of

the CoC shall be taken by not less than 51% of voting share in the

CoC. We note that the notice for 7th CoC meeting was sent and

delivered to both the Appellants viz. Income Tax Department and Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 14 of 19 Excise and Taxation Department and they chose not to be present

in the said meeting, whereupon the RP adjourned the meeting to

hold it with their participation. It is noted that both the Appellants

again chose to be absent in the re-assembled 7th CoC meeting,

which was taking place after being adjourned once, and wherein

decision regarding the CIRP cost, RP's fees, etc. were taken. We

also note that in compliance of the decision taken, the other

operational creditors have deposited their respective share of the

CIRP cost, without raising any demur as has been claimed by the

Learned Counsel for Respondent and also that both the Appellants

have not challenged the decision taken in the 7th meeting of CoC in

the stipulated time period.

17. The 7th CoC meeting took place on 6.12.2019 and the

minutes of the meeting, which record the proportional shares of all

the operational creditors towards CIRP cost and RP fees, were duly

communicated to operational creditors, including the Appellants.

It is also a fact that both the Appellants did not challenge the

decision of the CoC and thus accepted it without any objection or

demur. When the Appellants did not pay their share of CIRP cost,

the erstwhile RP (later appointed as Liquidator) was forced to

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 15 of 19 prefer IA No. 182/2020 seeking directions to the Appellants to pay

their respective shares of the CIRP cost. It is at this stage that

both the Appellants raised the issue of illegality of the decision

taken in the 7th meeting of CoC, which is after a lapse of

substantial period of time.

18. We are thus. of the view that the erstwhile RP took necessary

care to ensure the presence of two most important members of the

CoC viz. the Income Tax Department and Excise and Taxation

Department, Government of Haryana, who jointly controlled a vote

share of 96.756% in the CoC. We are also aware of the fact that if

both these Appellants had chosen not to participate in the CoC

meeting, any decision taken in this meeting would not have been

taken with more than 51% voting share. Thus, the compliance of

section 21(8) of IBC would have an impossibility. We are of the

view that in the given circumstance, necessary care and caution

was exercised by the RP in holding of the CoC meeting.

19. Regulation 22(2) and 22(3) of CIRP Regulations provide that

when a meeting could not be held for want of quorum, the meeting

automatically stand adjourned at the same time and place on the

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 16 of 19 next day and regulation 22(3) provide that when the adjourned

meeting takes place with the members attending the meeting, it

shall be quorate, Thus, we find no illegality in either holding of the

7th meeting of CoC dated 6.12.2019 and in the decisions taken in

the meeting regarding the payment of CIRP cost and RP fees. It is

also reasonable and prudent to expect that if the two Appellants

had refused to participate in the CoC meeting thereby causing a

stalemate, the RP was correct in approaching the Adjudicating

Authority for necessary directions to the Appellants to pay the

CIRP costs and RP's fees as decided by the CoC.

20. We have also taken note of the statement of the Learned

Counsel for Respondent Resolution Professional that the

Liquidator is unable to move ahead in the liquidation process for

want of funds and the liquidator, who is erstwhile RP, has been

working with meagre funds ever since the CIRP was initiated

against the corporate debtor. We have also taken note of the fact

that both the Appellants duly filed their claims with the Liquidator

and shall get their due payments in accordance with section 53 of

IBC, once the sale proceeds of liquidation estate become available

with the liquidation. It is, therefore, absolutely necessary that the

Company Appeal (AT) (Insolvency) No.32 of 2022 With Company Appeal (AT) (Insolvency) No.1123 of 2022

Page 17 of 19 liquidation process is completed at the earliest, so that all the

creditors and stakeholders can receive their due payments in

accordance with section 53 of the IBC. This means that the two

major operational creditors viz. Income Tax Department and Excise

and Taxation Department of Government of Haryana should

deposit their dues with the RP for completion of liquidation process

at an early date.

21. In view of the detailed discussion in aforementioned

paragraphs, we are of the view that RP and the CoC have acted in

the true spirit of the law for fixing of the shares of the operational

creditors in the CIRP cost and RP's fees (since there are no

financial creditors) which are required to be deposited with the

liquidator immediately. The Impugned Order does not suffer from

any error and, therefore, needs no interference. There is no merit

in the two appeals, namely, Company Appeal (AT) (Insolvency)

No.32 of 2022 and Company Appeal (AT) (Insolvency) No.1123 of

2022 and both the appeals are accordingly dismissed.

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Page 18 of 19

22. There is no order as to costs.

(Justice Rakesh Kumar Jain) Member (Judicial)

(Dr. Alok Srivastava) Member (Technical)

New Delhi 17th November, 2022

/aks/

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