Karun Sharma vs Gulshan Kumar Gupta

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Ins) No.876 of 2021

IN THE MATTER OF:

Karun Sharma & Ors. ...Appellant

Vs.

Gulshan Kumar Gupta ...Respondent

Present: For Appellant : Mr. Jitender Chaudhary and Ms. Shilpa Chohan, Advocates For Respondents : Mr. Gulshan Kumar Gutpa, Liquidator in-person for R-1. Mr. Harshit Goel, Amicus Curiae for R-2 & 3.

( 1st December, 2022)

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The Appellant has filed the appeal under Section 61 of the 'Insolvency and

Bankruptcy Code 2016' (the Code) against the impugned order dated

22.03.2021 passed by the 'National Company Law Tribunal, New Delhi

Court-III (the Adjudicating Authority) in IA -1129/2021 in IB -

1330(ND)/2019.

Company Appeal (AT) (Ins) No. 876 of 2021 Page 1 of 13

2. The Appellants are aggrieved by the impugned order, particularly, to the

extent whereby the Appellants were directed by the Adjudicating Authority

to contribute proportionately in accordance with their voting share

towards CIRP /Liquidation costs. In sum and substance, the Appellants

have prayed for following reliefs:

"i. To set aside the order dated 22.03.2021 in IA - 1129/2021 In IB - 1330(ND)/2019 In the Matter Of M/S Elan Professional Appliances Private Limited Vs. M/S Customized Kitchen India Private Limited passed by the Ld. Adjudicating Authority. ii. to set aside the directions in order dated 22.03.2021 in IA-1129/2021 directing the appellants to contribute proportionately in accordance with their voting share towards CIPR/Liquidation cost;

iii. To set aside the appointment of R-l as the liquidator;

iv. To pass any such further or other order(s) as this Hon'ble Appellate Tribunal may deem fit and proper in the facts and circumstances of the case to grant justice to the appellants and the company."

3. Learned Counsel for the Appellants submitted that one Operational

Creditor M/s. Elan Of the Corporate Debtor filed a petition under Section

9 of the Code for initiating CIRP alleging a default of Rs. 12,78,783/-

(Rupees Twelve Lakh Seventy-eight Thousand Seven Hundred Eighty-

Company Appeal (AT) (Ins) No. 876 of 2021 Page 2 of 13 three) and the same was admitted on 18.02.2020 by the Adjudicating

Authority. Since IRP was not proposed by Operational Creditors, so the

Adjudicating Authority appointed the IRP as par the prevalent system.

4. Public announcement was made on 05.03.2020 and five operational

creditors filed their claims. Total claim was for Rs. 1,93,14,065/- and IRP

accepted the claim of Rs. 1,22,07,343/-. The Operational Creditor on

whose behest CIRP commenced didn't file their claim and on 09.03.2020

filed Form- RA for withdrawal of CIRP.

5. The Operational Creditor's claim was settled for Rs. 8 Lakh. Form-FA dated

09.03.2020 didn't accompany any bank guarantee or other thing for

paying the cost of IRP.

6. The Appellants have alleged that the so called operational creditor to settle

the claim agreed to reimburse the fees and expenses of RP and RP has

raised an invoices of Rs. 1.43 lakh which includes professional fees of Rs.

1 Lakh.

7. The first meeting of CoC was held on 19.03.2020 and RP informed that

M/s. Elan has agreed to pay him Rs. 1.42 Lakh. However, the first CoC

meeting rejected withdrawal from CIRP. The Appellant No.2 averred that

he was willing to join CoC meeting through electronic means but no link

was sent to him and minutes has wrongly recorded the same. He has

alleged wrongdoing by the CD. They have also alleged that the Director of

Company Appeal (AT) (Ins) No. 876 of 2021 Page 3 of 13 the CD has diverted the funds of the CD and has purchased property in

his name. 2nd CoC onwards meeting continued till 7th CoC meeting. The

bill of IRP went on increasing from Rs.1.53 lakh to Rs.7,56,930/- till 2nd

CoC Meeting and then until 6th Meeting held on 01.02.2021 it went upto

Rs.14,67,570/- and finally the company has gone into Liquidation vide the

Adjudicating Authority order dated 22.03.2021 and the same is

reproduced below:

Company Appeal (AT) (Ins) No. 876 of 2021 Page 4 of 13 Company Appeal (AT) (Ins) No. 876 of 2021 Page 5 of 13 Company Appeal (AT) (Ins) No. 876 of 2021 Page 6 of 13 Company Appeal (AT) (Ins) No. 876 of 2021 Page 7 of 13 Company Appeal (AT) (Ins) No. 876 of 2021 Page 8 of 13

8. The Ld. Counsel for the Appellant has submitted that this is a case of total

manipulation by the RP who has taken advantage of lack of knowledge of

operational creditors and has landed into this problem.

9. The Ld. Counsel for the Respondent on enquiry was asked by the Bench

why he went on continuing with the CIRP when the assets are very few

and even CIRP costs cannot be recovered by selling all the assets of the

CD whereas the IRP/RP claim is for Rs.18,59,183/-. There was no

Financial Creditor in this case to be a part of CoC and only operational

creditors who are members of the CoC.

10. The Liquidator in person submitted that he has not received any

amount from Operational creditor or from the appellant and since the CoC

has not voted for settlement so he has continued with CIRP and CoC

members are duty bound to bear the CIRP expenses proportionately.

11. Mr. Harshit Goel Ld. Amicus Curiae submitted that the suspended

directors R2 & R3 have not given him any relevant paper to move forward

with the case but based on available documents it looks like that

IRP/RP/Liquidator should have closed the process at the initial stage itself

when he could perceived that CD has only few assets like furniture etc.

Now even if the CD is put to sale all the assets, they will not be in a

position to realize even the bare fees of the IRP/RP.

Company Appeal (AT) (Ins) No. 876 of 2021 Page 9 of 13

12. We have carefully gone through the submissions made by ld.

Counsel for the Appellant and the Liquidation in person including Amicus

Curiae for the other Respondents and we are having the following

observations:

a. This is a clear case of misusing the provisions of the Code both by the

Operational Creditor who has initiated the CIRP and the RP also.

b. The Appellants are small suppliers and they don't want to be burdened

with additional liability as their business is in a very bad shape and

they have lost already a crore plus.

c. The only recourse available to come out of the situation is the

provisions of Section 53 of the Code which provides to meet first the

IRP cost and Liquidation cost to be paid in full and, thereafter, for

distribution in accordance with the provisions with the Code. For

brevity & clarity, the same is reproduced herein below:

"Section 53: Distribution of assets.

53. (1) Notwithstanding anything to the contrary

contained in any law enacted by the Parliament or any

State Legislature for the time being in force, the proceeds

from the sale of the liquidation assets shall be distributed

in the following order of priority and within such period

and in such manner as may be specified, namely :--

Company Appeal (AT) (Ins) No. 876 of 2021 Page 10 of 13

(a) the insolvency resolution process costs and the

liquidation costs paid in full;

(b) the following debts which shall rank equally between

and among the following :--

(i) workmen's dues for the period of twenty-four months

preceding the liquidation commencement date; and

(ii) debts owed to a secured creditor in the event such

secured creditor has relinquished security in the manner

set out in section 52;

(c) wages and any unpaid dues owed to employees other

than workmen for the period of twelve months preceding

the liquidation commencement date;

(d) financial debts owed to unsecured creditors;

(e) the following dues shall rank equally between and

among the following:--

(i) any amount due to the Central Government and the

State Government including the amount to be received on

account of the Consolidated Fund of India and the

Consolidated Fund of a State, if any, in respect of the

whole or any part of the period of two years preceding

the liquidation commencement date;

Company Appeal (AT) (Ins) No. 876 of 2021 Page 11 of 13

(ii) debts owed to a secured creditor for any amount

unpaid following the enforcement of security interest;

(f) any remaining debts and dues; (g) preference

shareholders, if any; and

(h) equity shareholders or partners, as the case may be.

(2) Any contractual arrangements between recipients

under sub-section (1) with equal ranking, if disrupting the

order of priority under that sub-section shall be

disregarded by the liquidator.

(3) The fees payable to the liquidator shall be deducted

proportionately from the proceeds payable to each class

of recipients under sub-section (1), and the proceeds to

the relevant recipient shall be distributed after such

deduction.

Explanation.--For the purpose of this section--

(i) it is hereby clarified that at each stage of the

distribution of proceeds in respect of a class of recipients

that rank equally, each of the debts will either be paid in

full, or will be paid in equal proportion within the same

class of recipients, if the proceeds are insufficient to meet

the debts in full; and

Company Appeal (AT) (Ins) No. 876 of 2021 Page 12 of 13

(ii) the term "workmen's dues" shall have the same

meaning as assigned to it in section 326 of the

Companies Act, 2013."

d. In view of aforesaid facts and circumstances, we are unable to agree

with the Adjudicating Authority that the Operational Creditors are to

bear the cost of CIRP/Liquidation and hence, we set aside the

impugned order to the extent para 9.IX as appearing supra and rest

part of the impugned order we uphold. Let Liquidation be continued

and let amount be realized during Liquidation and be distributed in

accordance with section 53 of the Code. We, accordingly, dispose of

the appeal. No order as to costs.

Interim order, if any, stands vacated.

[Justice Rakesh Kumar] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

Raushan

Company Appeal (AT) (Ins) No. 876 of 2021 Page 13 of 13