R. Balarami Reddy vs Sutanu Sinha

[Arising out of Order dated 07.03.2019 passed by National Company Law Tribunal, Hyderabad Bench, Hyderabad in IA No.673/2018 in CP (IB) No.294/7/HDB/2017]

IN THE MATTER OF: Before NCLT Before NCLAT

Mr. R. Balarami Reddy Applicant Respondent S/o Sri R. Audisesha Reddy, R/o Plot No.D-116, Road No.8, Hill Ridge Villas, Gachibowli, Hyderabad - 500032

Versus

Mr. Sutanu Sinha, Appellant Respondent Resolution Professional of IVRCL Limited Floor No.4, Duck Back House, 41, Shakespeare Sarani, Kolkata - 700017

For Appellant: Shri Sumesh Dhawan and Ms. Vatsala Kak, Advocates

For Respondent: Shri Niraj Kumar and Shri Shashank Agarwal, Advocates

JUDGEMENT

(27th January, 2020) A.I.S. Cheema, J. :

1. The Appellant filed Application under Section 60(5) of the Insolvency

and Bankruptcy Code, 2016 (IBC - in short) before the Adjudicating 2

Authority (National Company Law Tribunal, Hyderabad Bench,

Hyderabad) numbered as IA No.673/2018 in CP (IB)

No.294/7/HDB/2017. The matter related to insolvency proceedings with

regard to Corporate Debtor - IVRCL Ltd. of Hyderabad. The Appellant has

given particulars as to how the Appellant came to be appointed as General

Manager Finance of the Corporate Debtor in 1994 and was subsequently

appointed as Director in the Board and designated as Director - Finance.

According to him, he had additional charge as Company Secretary in 1999

and was re-designated Director - Finance and Group Chief Financial

Officer in 2005 and promoted as Executive Director Finance and Group

CFO in 2008. He claimed that he was reappointed Executive Director

Finance in 2013. The Appellant claimed that the amount paid as salary to

the effect of Rs.33,84,835/- for period 26.09.2013 to 30th June, 2014 had

been recovered by the Corporate Debtor from him in November, 2017. He

had been promoted as Joint Managing Director with 10% increase in salary

which had been approved by lead lender State Bank of India. According to

the Appellant, salary recommended by Nomination and Remuneration

Committee of the Board was approved by AGM in September, 2016 but the

same was not paid for period of June, 2016 to June, 2017. Salary paid

from July, 2017 was recovered back by the Corporate Debtor to the extent

of Rs.21,69,702/-.

2. The Appellant claims that when CIRP process started, he submitted

Form - D (Annexure 2 - Page 52) to the Resolution Professional claiming

Company Appeal (AT) (Ins) No.545 of 2019 3

amount of Rs.1,06,28,584/-. According to him, in February, 2018 while

others were paid, he was not paid. Appellant claims that he repeatedly

moved Respondent - Resolution Professional to release his salary but was

told that the matter was before COC and later sent e-mail dated

21.05.2018 that managerial remuneration in excess of approved

prescribed limit under the Companies Act, cannot be paid in the absence

of approval of Central Government.

3. The Appellant claims that his Application was considered by the

Adjudicating Authority but the Adjudicating Authority wrongly rejected the

same.

4. The Respondent - Resolution Professional has filed Reply and stated

that with the Form - D, the Appellant claimed dues payable prior to the

commencement of CIRP. The same was placed before COC and after

deliberating the payment of the salary arrears in the COC meeting, the

Respondent had sent e-mail dated 21st May, 2018 informing that

considering the provisions of the Companies Act, 2013, in the absence of

approval from Central Government or a 'No Objection Certificate' from the

lenders, the remuneration paid in excess to the amount prescribed under

the Companies Act, cannot be released in favour of the Appellant. The

Respondent has referred to provisions of Section 197(1) of the Companies

Act, 2013 to state that remuneration higher than the amount prescribed

under the said Section required approval of the Central Government.

According to the Respondent, the Corporate Debtor had earlier proceeded

Company Appeal (AT) (Ins) No.545 of 2019 4

on the basis that Central Government would give the requisite approval

under Section 197 of the Companies Act, paid the Appellant remuneration

in excess of what was permissible under the said Act with effect from June,

2017. The same was shown in the books of accounts of Corporate Debtor

as advance/recoverable from the Appellant. The Respondent has stated

that on earlier occasion, the remuneration paid in excess to the Appellant,

in anticipation of the approval of the Central Government/NOC from the

lender, was actually recovered to the extent of Rs.33,84,835/- in

November, 2017. Yet, again remuneration in excess was paid from July,

2017 which was recovered by the Corporate Debtor amounting to

Rs.21,69,702/-. The Respondent claims in Reply and it has been argued

that the Appellant was aware that excess remuneration was being paid and

had even agreed to repay the excess in absence of approval from Central

Government/NOC from lender. According to the Resolution Professional,

Corporate Debtor being non-performing asset, the Central Government

directed the Corporate Debtor to obtain approval from the lenders of the

Corporate Debtor under Schedule V of the Companies Act. According to

the Respondent - Resolution Professional, the lenders did not approve the

payment of such remuneration to the Appellant. The RP has referred to the

resolution of COC dated 26th April, 2018 (Annexure A - Diary No.13436) to

show that COC did not approve the excess payment. Resolution

Professional has stated that to file Application for approval of managerial

remuneration, he had informed COC in the 6th meeting held on 07.08.2018

to make requisite application for approval to the Central Government but

Company Appeal (AT) (Ins) No.545 of 2019 5

the said resolution was rejected. For the period of CIRP process, the

remuneration as approved for CFO was, however, paid.

5. We have heard Counsel for both sides. They have made submissions

on above lines referring to the contents in the Appeal and as appearing in

the Reply filed by Resolution Professional. The Adjudicating Authority in

Paragraphs - 25 and 26 of the Impugned Order observed as under:-

"25. With regard to the admission of claim of the Applicant for the period prior to CIRP, this Adjudicating Authority has found that the said excess remuneration to the Applicant was only on anticipation by the Applicant that the Lenders and Government would approve the same, but the Lenders have not approved the same. This Adjudicating Authority is not empowered to interfere the sanity of the decision of the Lead Banker with regard to the approval by the Lenders for managerial remuneration in excess of the prescribed limits for further approval by the Central Government for all remuneration payments in excess of the prescribed limits under provisions of Companies Act, 2013, prior to the initiation of the CIRP.

26. In view of the above observations, this Adjudicating Authority directs the RP to make payment of salary to the Applicant for the services provided during the CIRP period and further admit the claim of the Applicant to the tune of amount not admitted in relation to transaction with Indravati Investments Private Limited of which the Applicant was Director but not to the tune of amount which was paid by CD in excess on anticipation that Lender and Central Government would accord its permission and which is also shown as receivable in the books of Accounts of the Corporate Debtor."

Company Appeal (AT) (Ins) No.545 of 2019 6

6. We have gone through the matter and considered the submissions

of the Resolution Professional while informing rejection to the Appellant.

In the e-mail dated 21st May, 2018, the Resolution Professional mentioned

to the Appellant as under:-

"Dear Sir,

I refer to the From D submitted by you under which an amount of INR 1,06,28,584 (Rupees One Crore Six Lakh Twenty-Eight Thousand Five Hundred and Eighty-Four only) (Claim Amount) has been claimed by you from IVRCL Limited (Company).

Based on the current legal position under the Companies Act, 2013, managerial remuneration in excess of the prescribed limits thereunder, cannot be paid by the Company, unless Central Government approval has been received for all remuneration payments in excess of the prescribed limits. Further, if any excess payments have been made by the Company to any managerial person, then such person is required to refund such payments to the Company. In the present case, no Central Government approval is available in connection with the abovementioned points.

Accordingly, the Claim Amount (whether it relates to excess remuneration refunded by you or amounts withheld by the Company) is hereby rejected."

7. It is matter of record that COC dealt with the claim of the Appellant

in meeting dated 26.04.2018 as well as 07.08.2018 but did not support

the Appellant with regard to his claim for salary in excess of what is

permissible under Section 197 of the Companies Act. The Appellant

appears to have been aware that he was drawing excess salary which was

being picked up on the basis that approval of Central Government was

Company Appeal (AT) (Ins) No.545 of 2019 7

awaited and on two occasions, admittedly the excess drawn was returned.

Being in managerial position, this may have happened in the Company

(which is now stated to have gone in liquidation) because of being related

party. The Appellant was related party as reflected from the minutes of

COC meeting dated 26.04.2018 (Annexure - A of Reply) in Item No.9. The

COC which includes the lead and other lenders did not approve and there

is nothing to show that Central Government permitted payment of excess

remuneration and when this is so, there appears to be no reason to find

fault with the Impugned Order and we do not find any reason to interfere.

We do not find any substance in the argument that it was responsibility of

this Resolution Professional to move the Government for necessary

permission. When the claim is submitted in Form - D, the amount claimed

must have support from record to spell out dues payable and the Applicant

cannot expect the Resolution Professional and COC to go and get the

necessary permissions. There is no substance in the Appeal.

The Appeal is dismissed. No orders as to costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Kanthi Narahari] Member (Technical)

[V.P. Singh] Member (Technical) /rs/md

Company Appeal (AT) (Ins) No.545 of 2019