Ram Ratan Kanoongo vs Veda Kumar Nimbagal & Ors

[Arising out of Impugned Order dated 04 August 2020 passed by the Adjudicating Authority/National Company Law Tribunal, Hyderabad Bench, Hyderabad in IA Nos.47 & 48 of 2019 in Company Petition (IB) No. 52/9/HDB/2017]

IN THE MATTER OF: Mr Ram Ratan Kanoongo Resolution Professional of Sirpur Paper Mills Ltd 1006, 10th Floor, Raheja Towers Nariman Point, Mumbai - 400021 ...Appellant

Versus

1. Mr Veda Kumar Nimbagal S/o Veerabhadraih Nimbagal 202, Maruthi Mansion Dharma Reddy Colony, Kukatpally Hyderabad - 500085, Telangana ...Respondent No.1

2. M/s J K Paper Limited Nehru House, 3rd Floor 4 Bahadur Shah Zafar Marg New Delhi - 110002 ...Respondent No.2

Present:

For Appellant : Mr Rajendra Beniwal, Mr Kumar Sumit and Mr Chirag Gupta, Advocates.

For Respondent : Mr CH. Kameswara Rao, Advocate for R-1. Mr Vaijayant Paliwal, Mr Charu Bansal, Ms Misha and Ms Jasveen Kaur, Advocates for R-2.

[Per; V. P. Singh, Member (T)]

1. This Appeal emanates from the impugned Order dated 04 August 2020

passed by the Adjudicating Authority/National Company Law Tribunal,

Hyderabad Bench, Hyderabad in Company Petition (IB) No. 52/9/HDB/2017,

issuing a direction to the RP to make payment of the salary to the Respondent Company Appeal (AT) (Insolvency) No. 906 of 2020 1 of 16 No.1/Applicant as per amount acknowledged by the RP, in accordance with

the provision of I&B Code, 2016 and Regulations thereof. The parties' original

status in the Company Petition represents the parties in this Appeal for the

sake of convenience.

2. The Adjudicating Authority passed the following Order;

"The applicant in the instant applications is, inter-alia seeking for directions against the RP for release of salaries and amount due and payable to him by the corporate debtor.

On perusal of the counter affidavit along with the material papers, it is seen that the RP has acknowledged that certain amounts due and payable to the applicant herein. It is further observed that the RP has agreed for releasing salaries as per a statement enclosed to the reply.

Considering the submissions, this Adjudicating Authority is of the view that any payment to be made to the Appellant herein shall be made in accordance with the provisions of the IB code 2016 and Regulation thereunder. Accordingly, this adjudicating Authority hereby directs the RP to make payment of the salary to the Appellant as per amount acknowledged by him and as per provisions of the IB code 2016 and Regulations thereunder."

(verbatim copy)

3. Brief facts of the case are as under;

The Respondent No.1 Ex-Director of the Corporate Debtor, Sirpur Paper

Mills Ltd, had filed IA No 208 of 2019 seeking the release of his claim towards

payment of salary to the tune of ₹ 13,50,000/-, against the Resolution

Professional (Appellant herein), feeling aggrieved by his Order of partial

Company Appeal (AT) (Insolvency) No. 906 of 2020 2 of 16 admittance of his claim about salary dues to the tune of ₹ 5,40,000/-. Upon

submission of the claim by Respondent No1, the Resolution Professional

evaluated the claim and partially admitted the claim to the tune of

₹5,40,000/-, based on the calculation of the salary dues up to the date of

commencement of the Corporate Insolvency Resolution Process (in short

CIRP), i.e. 18 September 2017.

4. By Order dated 19 July 2018, the Adjudicating Authority, in addition

to approving the Resolution Plan for the Corporate Debtor, i.e. Sirpur Paper

Mills Ltd, dismissed the Application, IA No. 208 of 2018 as filed by the

Respondent No.1 and upheld the rejection of the claim by the Resolution

Professional. While disposing of the Application, the Adjudicating Authority

observed that;

"83. In the absence of such documents it cannot be said that applicant is entitled for salary during his leave period even if there is a leave with the permission of the IRP.

84. Therefore, the applicant was on duty from 23 January 2017 to 20 October 2017. The applicant is paid salary up to 18 September 2017. That means the applicant has not been paid salary from 19 September 2017 to 20 October 2017.

85. In view of the fact that the applicant worked as CEO during the period from 19 September 2017 to 20 October 2017 is entitled for a salary but not by way of a claim filed during the CIRP period.

86. The claim has to filed by the employee only as on the date of commencement of CIRP period.

Company Appeal (AT) (Insolvency) No. 906 of 2020 3 of 16

87. the adjudication of the claim that arose after the commencement of CIRP process period is not covered by form- B, C &D.

88. therefore, it is open for the applicant to claim his salary at an appropriate time, in an appropriate forum ,for a period from 19 September 2017 to 20 October 2017.

In view of the above discussion the rejection of the claim of the applicant to the extent of ₹8.10 lakhs is sustainable.

90. Hence, the applicant is not entitled for any relief in this Application."

5. The Appellant contends that Respondent No1, Ex-Director of the

Corporate Debtor, had initiated a frivolous set of litigations vide Application

filed on 31 January 2019 to modify Order dated 19 December 2018 to release

the salary dues by filing IA Nos. 47 and 48 of 2019. Being completely aware

that his claim was squarely settled by the Adjudicating Authority vide Order

dated 19 July 2018 and the said Order was never challenged and has attained

finality.

6. It is further contended that the Adjudicating Authority committed a

grave error in entertaining the Application IA Nos. 47 and 48 of 2019, which

settles the claims of Respondent No 1 and approved the Resolution Plan as

submitted by the Resolution Applicant, i.e. Respondent No 2. Thereby, the

Adjudicating Authority has failed to follow the statutory provision of Section

31 (1) of the I&B Code 2016.

Company Appeal (AT) (Insolvency) No. 906 of 2020 4 of 16

7. It is further contended that the Corporate Debtor's Insolvency

Resolution Process completed on 15 June 2018, and the Resolution Plan was

approved vide Order dated 19 July 2020. The impugned order results from

the concealment of material facts of the previous round of litigation by

Respondent No 1.

8. Respondent No. 1, in pursuance to the commencement of CIRP of the

Corporate Debtor, submitted its claim with the Appellant by email dated 28

February 2018, i.e. after almost 143 days beyond the deadline for submission

of the claim as per the public announcement that too without any supporting

documents. Upon evaluating the claim as on the date of commencement of

CIRP of the Corporate Debtor, i.e. 18 September 2017, the Appellant RP

partially admitted the claim of Respondent No 1 to the extent of ₹5,60,000/-,

i.e. salary dues from June 2017 to 18 September 2017.

9. After that, Respondent, No 1 filed IA No. 208 of 2018 before the

Adjudicating Authority and sought relief to admit and consider the entire

claim of ₹ 13,50,000/- as salary dues up to February 2018. The Adjudicating

Authority vide Order dated 19 July 2018 dismissed the Application, IA No.

208 of 2018, filed by Respondent No 1 and upholding the rejection of the

Appellant's claim to the extent of ₹ 8,10,000.

10. Appellant Resolution Professional further contends that after the

approval of the Resolution Plan, working as a member of the Monitoring

Agency, filed MA No's 315, 534 and 662 of 2018 in CP (IB) 52/9/HDB/2017

against the Directors of the Corporate Debtor, including the Respondent No.1

Company Appeal (AT) (Insolvency) No. 906 of 2020 5 of 16 on being aggrieved by non-cooperation in smooth implementation of the

Resolution Plan by the Ex-Directors in approving and signing the financial

statements about the F/Y 2014-15 to 2017-18 to handover the updated

financial statement to the successful Resolution Applicant, i.e. Respondent

No.2.

11. The Adjudicating Authority vide Order dated 19 December 2018, while

disposing of the Applications, directed Respondent No. 1 and other Ex-

Directors to cooperate with the Appellant and further sign and approve the

Corporate Debtor's financial statements about financial years 2014 -15 to

2017-18.

12. After that, Respondent No.1 filed an Application dated 24 December

2018 for modification of the Order dated 19 December 2018 whereby direction

was given to the Directors to cooperate with the Appellant and approve and

sign the financial statements and other related documents of the Corporate

Debtor for the said financial years from 2014-2015 to 2017-18. Respondent

No 1 sought relief to release the payment of his salary dues to the tune of

₹20,38,000/- despite completely aware of the Order dated 19 July 2018 that

his total claim about outstanding salary dues is finally settled.

13. By filing IA No. 208 of 2018, the Respondent No.1 had sought relief for

the highly belated and enhanced claim amount, i.e. ₹ 20,38,300/-, from the

Adjudicating Authority that too without any supporting documents to

substantiate its claim.

14. Following issues arise for our determination;

Company Appeal (AT) (Insolvency) No. 906 of 2020 6 of 16 Whether the Adjudicating Authority can issue the directions to

erstwhile Resolution Professional once the Resolution Plan under

Section 31 of the I&B Code 2016 has been approved, and the Resolution

Professional has been discharged of his duties?

15. We have heard the arguments of the learned counsel for the parties and

perused the record.

16. Learned counsel for the Appellant submits that Respondent No .1 has

approached the Adjudicating Authority by concealing material facts by which

the impugned Order dated 4 August 2020 emanates. The payment of

remuneration payable to Respondent No 1 was put to rest by the Adjudicating

Authority by Order dated 19 July 2018 passed in IA No 208 of 2018.

17. The Adjudicating Authority by Order dated 19 July 2018 has decided

the Application on merits wherein it is expressly held that

Applicant/Respondent No. 1 "is entitled from 19 September 2017 to 20 October

2017 for a salary but not by way of a claim filed during the CIRP period and

further upheld that the rejection of the claim of the Applicant to the extent of

₹8.10 lakhs is sustainable.

18. Respondent No. 1, despite awareness of the aforesaid Order dated 19

July 2018, which squarely settled the claim, for which Respondent No. 1 was

entitled, in utter disregard to the settled principle of Res-Judicata, had

approached the Adjudicating Authority for release of alleged outstanding

salary dues of ₹ 20,38,300/-. Respondent No. 1 had never challenged the

Order dated 19 July 2018 before any authority attained finality.

Company Appeal (AT) (Insolvency) No. 906 of 2020 7 of 16

19. The Learned Counsel for the Appellant further placed reliance on the

Hon'ble Supreme Court's judgment in Essar Steel India Ltd. Committee of

Creditors v. Satish Kumar Gupta (2020) 8 SCC 531: 2019 SCC OnLine

SC 1478 at page 616. In this case, the Hon'ble Supreme Court has held;

"107. For the same reason, the impugned NCLAT judgment [Standard Chartered Bank v. Satish Kumar Gupta, 2019 SCC OnLine NCLAT 388] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in Order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, NCLAT judgment must also be set aside on this count."

20. It is further contended that this Tribunal in case of Standard

Chartered Bank v Satish Kumar Gupta, RP of Essar Steel Ltd CA (AT)

242 of 2019 has held;

Company Appeal (AT) (Insolvency) No. 906 of 2020 8 of 16

221. " In this background, the cases in which the Adjudicating Authority or this Appellate Tribunal could not decide the claim on merit, we have allowed such Appellants to raise the issue before an appropriate forum in terms of Section 60(6) of the 'I&B Code'. The 'Financial Creditors' and the 'Operational Creditors' whose claims have been decided by the Adjudicating Authority or this Appellate Tribunal, such decision being final and is binding on all such 'Financial Creditors' and the 'Operational Creditors' in terms of Section 31 of the 'I&B Code'. Their total claims stand satisfied and, therefore, they cannot avail any remedy under Section 60(6) of the 'I&B Code'. The 'Financial Creditors' in whose favour guarantee were executed as their total claim stands satisfied to the extent of the guarantee, they cannot re-agitate such claim from the Principal Borrower."

21. The Application filed under Section 9 of the I&B Code, 2016 was

admitted by the Adjudicating Authority vide Order dated 18 September 2017.

The Resolution Plan approved by the Committee of Creditors with a vote share

of 80.66%, further approved by the Adjudicating Authority by Order dated 19

July 2018. Any claim that Respondent No. 1 is raising towards the provision

of its services during the CIRP ought to form part of the CIRP costs, treatment

of which has also been provided under the Resolution Plan. Therefore, all

claims against the Corporate Debtor by any creditor for the past dues of CIRP

have been duly considered and settled by the Resolution Plan.

22. Section 31 (1) of the Code in unequivocal terms provides that; the

Resolution Plan shall be binding on the Corporate Debtor and its Employees,

Members, Creditors, including the Central Government, any State

Government or any Local Authority to whom a debt in respect of the payment Company Appeal (AT) (Insolvency) No. 906 of 2020 9 of 16 of dues arising under any law for the time being in force, such as authorities

to whom statutory dues are owned, guarantors and other stakeholders

involved in the Resolution Plan.

23. Respondent No.1 herein was admittedly an employee of the Corporate

Debtor, and thus the Resolution Plan is binding on him also. Therefore, the

claim of Respondent No. 1 having been dealt with as part of the Resolution

Plan and the Resolution Plan, in turn, being binding on all stakeholders

including Respondent No. 1, there arises no occasion, whatsoever, for any

further payments to made in favour of the Respondent No. 1.

24. Clause 7.6 of the Approved Resolution Plan provides that all claims or

the amounts of any liabilities or obligations owed or payable to any actual or

potential Operational Creditors of the Corporate Debtor or in connection with

any Operational Debt of the Corporate Debtor, whether admitted or not, due

or contingent, asserted or unasserted, crystallised or uncrystallised, known

or unknown, secured or unsecured, disputed, undisputed, present or future,

in relation to any period prior to the completion date or arising on account of

the acquisition of the control by the Resolution Applicant over the Corporate

Debtor pursuant to the Resolution Plan will be written off full and shall extend

permanently extinguished. The Corporate Debtor or the Resolution Applicant

shall at no point of time be, directly or indirectly, held responsible and liable

in relation thereto.

25. Clause 7.6 (b) further provides that any claims and debts and other

dues from the Corporate Debtor in relation to any person for the period prior

Company Appeal (AT) (Insolvency) No. 906 of 2020 10 of 16 to the Completion Date, that is not expressly provided for in this Resolution

Plan, including any claim from 3rd parties relating to any contract entered into

by the Corporate Debtor shall be deemed to have been extinguished upon

approval of this Resolution Plan, without any liability whatsoever on the

Corporate Debtor.

26. In case, Respondent No. 1 is treated as an Operational Creditor, then

under section 30 (2) (b) of the Code payment to Operational Creditors under

the Plan shall not be less than the amount payable to them in the event of

liquidation of the company under Section 53 of the Code.

27. In the present case, as per Clause 7.4 (b) of the Resolution Plan, the

liquidation value is payable to the employees other than workmen in the event

of liquidation of the Corporate Debtor, according to section 53 of the Code is

nil. However, to make the Resolution Plan equitable for employees, a total

sum of ₹ 67 lakhs has proposed further for payment to the employees other

than workmen, after 3 months from the commencement of the production. It

is further specified that all past dues of the employees other than workers

stand paid and discharged, and the Resolution Applicant shall have no

liability in respect of the same.

28. Given the law laid down by the Hon'ble Supreme Court in the case of

Essar steel (supra), it is clear that an approved Resolution Plan is binding on

all the stakeholders. The Successful Resolution Applicant acquired the

Corporate Debtor on a clean slate and cannot be burdened with undecided

claims from a period prior to the CIR process's commencement.

Company Appeal (AT) (Insolvency) No. 906 of 2020 11 of 16

29. It is pertinent to mention that Respondent No. 1's Application IA No 208

of 2018 seeking identical relief was earlier dismissed by Order dated 19 July

2018, which is not considered by the Adjudicating Authority while passing

the impugned Order. In the above-said Application, Respondent No. 1 had

inter alia sought for release of salary to the tune of ₹ 13,50,000/- against the

partial admittance of claim for an amount of ₹ 5,40,000/-. While dismissing

the said Application, the Adjudicating Authority upheld the rejection of

Respondent No.1's partial claim by the Resolution Professional. Despite such

clear adjudication on the issue, Respondent No. 1 once again filed IA No's 47

and 48 of 2019, seeking payment of outstanding salaries and other dues.

Respondent No. 1 did not even disclose to the Adjudicating Authority that the

1st Application has already been decided seeking similar reliefs.

30. The common Order dated 19 July 2018 contains a rejection of the

Appellants claim of salary dues and the Resolution Plan's approval.

Respondent No. 1 did not prefer any appeal against the said Order. As a result,

the Order attains finality. No other cause of action remains for Respondent

No. 1 to raise the same issue again by filing a fresh Application and without

any averment about the earlier Application and its Order dated 19.7.2018.

This shows the objectionable conduct on the part of Respondent No. 1.

31. The question of remuneration payment to Respondent of 1 was put to

rest by the learned Adjudicating Authority whilst common Order dated 19

July 2018 disposing of IA 208 of 2000 wherein it is specifically held that in

view of the fact that "the Appellant worked as CEO from 19.9.2017 to

20.10.2017, he is entitled for salary , but not by way of claim filed during the

Company Appeal (AT) (Insolvency) No. 906 of 2020 12 of 16 CIR process period.---- The rejection of the claim of the Appellant to the

extent of ₹ 8.10 lakh is sustainable."

32. It is essential to mention that the claim of Respondent No. 1 is highly

belated. The ultimate result of the impugned Order is effectively considering

the claim filed by Respondent No. 1 during the CIR process period. Although

CIRP process period claims have been considered and decided upon by the

Resolution Professional, further such determination has been upheld by the

Adjudicating Authority. It has been over two years since the Corporate

Debtor's CIR process concluded by approving the Resolution Plan of

Respondent No.2, which has subsequently been given full effect by

Respondent No. 2.

33. The timelines prescribed under the Code aim at speedy and time-bound

resolution. Thus, the impugned Order of the present nature, which allows a

highly belated claim, mainly when the Claimant displays an overtly callous

attitude, should be nibbed in the bud. Adjudicating such delayed claims could

defeat the Code's purpose and cause unnecessary hurdle in the effective

implementation of any Resolution Plan.

34. It is pertinent to mention that this Appellate Tribunal in case of the

state of Haryana v Uttam Strips & others Company Appeal (AP) (Ins) No.319

of 2020 while dealing with the similar issue where the State of Haryana did

not properly file its claim before the Resolution Professional up to the

prescribed time limit has held that since the Appellant failed to submit its

claim before the Resolution Professional and the Resolution Plan submitted

Company Appeal (AT) (Insolvency) No. 906 of 2020 13 of 16 by Uttam Strips Private Limited was implemented. Therefore, given the law

laid down by the Hon'ble Supreme Court in Essar steel (supra), the successful

Resolution Applicant cannot be burdened with past dues after the Resolution

Plan's approval and implementation.

35. The Order of the Adjudicating Authority dated 19 July 2018 regarding

confirming rejection of the Appellant's claim to the tune of ₹ 8.10 lakhs was

passed on merit and has attained finality. Regarding the dues of salary claim

of Respondent No. 1 to the tune of ₹ 5.40 lakhs, which was admitted, the same

is settled by the terms of the approved Resolution Plan.

36. It is necessary is to point out that Application IA Nos. 47 & 48 of 2019

was filed on 7 January 2019 seeking direction or modification of the Order

dated 19 July 2018. Respondent No. 1 has stated that the Resolution

Professional and member of the Monitoring Committee of the Sirpur Paper

Mills Limited, filed an Application IA No. 662 of 2018 stating that the

Respondents are not cooperating in signing the financial statements for the

years 2014-15 to 2017-18 (up to 19 July 2018).

37. In reply to the above Application, Respondent No. 1 contended that

erstwhile Directors are willing to cooperate with the Petitioner to sign the

annual accounts if the Petitioner is ready to pay the legitimate claims of

Respondent No. 1, such as salary dues to be paid to him and also to be other

incidental expenses such as transport charges etc., as per law. Respondent

No. 1 is not in Corporate Debtor's management. Only the Resolution

Professional is competent to take any steps per law and cannot blame the

Company Appeal (AT) (Insolvency) No. 906 of 2020 14 of 16 erstwhile Directors for not signing the annual accounts. The erstwhile

Directors, including Respondent No. 1, are not in the Corporate Debtor

company's management since the financial statements are in the Resolution

Professional's custody. The Respondent claims erstwhile directors cannot be

blamed for not signing the annual accounts.

38. It is further stated that" Respondent No. 1 is not the company's executive

director as on date and not legally fit to sign the annual accounts as an

Executive Director under the Companies Act 2013. If the Hon'ble Tribunal

found that the Respondent No.1 is legally fit to sign the annual

accounts the Respondent No.1 is ready to sign the financial statements

provided his outstanding salary with full and final account and

necessary incidental expenses to be paid to him to attend the meeting

to sign the annual accounts and related reports."

39. It is also pertinent to mention that when Respondent No. 1 was asked

to sign the financial statements from the Financial Year 2014-15 to 2017-18,

he did not co-operate clearing of salary dues. The Respondent had earlier

raised a claim of salary dues, which was finally settled by the Order dated 19

July 2018. Admitted amount of salary dues has been dealt with Adjudicating

Authority in terms of the approved Resolution Plan. Any claim for the CIRP

period could have been raised before approval of a Resolution Plan. After the

Resolution Plan's approval and implementation, no direction can be issued to

the erstwhile Resolution Professional on account of any belated and settled

claim. Successful Resolution Applicant cannot be burdened with the

claim/dues of the Corporate Debtor.

Company Appeal (AT) (Insolvency) No. 906 of 2020 15 of 16

40. Based on the above discussion, we find that the Adjudicating Authority

has erred in issuing directions to the erstwhile Resolution Professional to

make payment of the salary to the Appellant.

ORDER

Based on the above discussion, we are of the concerned opinion that

the Appeal deserves to be allowed, and the impugned Order deserves to be set

aside.

The Appeal is allowed. Impugned Order is quashed and set aside. No

costs.

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

[V. P. Singh] Member (Technical) NEW DELHI 17th MARCH, 2021

pks

Company Appeal (AT) (Insolvency) No. 906 of 2020 16 of 16