Sanjay Kumar Ruia vs Catholic Syrian Bank Ltd. & Anr

Sanjay Kumar Ruia ...Appellant

Vs

Catholic Syrian Bank Ltd. & Anr. ....Respondents

Present: For Appellant: Mr. Pankaj Jain, Mr. Sagar Bansal, Ms. Dhriti Sarin and Ms. Nitika Mangal, Advocates. For Respondent: Mr. Vishal Jain, CA, AR of CoC, Mr. Ilam Paridi, Advocate for Respondent No. 1 Ms. Amisha Agarwal, Advocate for Respondent No. 2.

ORDER

03.01.2019─ This appeal has been preferred by Sanjay Kumar Ruia,

erstwhile 'Resolution Professional' of 'S.N. Plumbing Private Limited' against the

order dated 25th July, 2018 passed by the Adjudicating Authority (National

Company Law Tribunal) Mumbai Bench, Mumbai, in MA No. 580 of 2018 (in

CP(IB) No. 1268/MB/MAH/2017), whereby and whereunder, the Adjudicating

Authority while extending the period of resolution process in exercise of power

conferred under Section 55 of Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as "I&B Code") treating the matter as 'Fast Track

Corporate Insolvency Resolution Process' also determining the 'Corporate

Insolvency Resolution Process fee' and the 'cost' incurred and payable to

Appellant (Sanjay Kumar Ruia) to the tune of Rs. 23,69,064/- plus G.S.T. 2

2. Learned Counsel appearing on behalf of Sanjay Kumar Ruia, erstwhile

'Resolution Professional' of 'S.N. Plumbing Private Limited', submits that the

'Resolution Professional' has incurred expenditure against different heads and

submitted professional bill totaling Rs. 1,45,92,064/- which was also approved

by the 'Committee of Creditors'. Thereafter, the Adjudicating Authority while

passing order under Section 55, without any basis, reduced the amount to the

tune of Rs. 23,69,064/- plus G.S.T., which is not permissible in law.

3. It is further submitted that after completion of 270 days of the 'Resolution

Process', the 'Committee of Creditors' had no power to replace the 'Resolution

Professional' and the Adjudicating Authority had no power to extend the period

beyond 270 days.

4. Mr. Ilam Paribi, appearing on behalf 1st Respondent- 'Financial Creditor'

and Ms. Amisha Agarwal, learned Counsel appearing on behalf of 2nd

Respondent another 'Financial Creditor', submit that the 'Committee of

Creditors' never approved the claim of Rs. 1,45,92,064/-. However, this has been

disputed by the learned Counsel appearing on behalf of Appellant- erstwhile

'Resolution Professional' of 'S.N. Plumbing Private Limited'.

5. Pursuant to application under Section 9, the 'Corporate Insolvency

Resolution Process' was initiated against 'S.N. Plumbing Private Limited'-

('Corporate Debtor') which was admitted on 16th August, 2017. Thereafter, more

than 270 days had passed. The 'Committee of Creditors', thereafter, wanted to

charge the 'Resolution Professional', so the matter was placed before the

Company Appeal (AT) (Insolvency) No. 560 of 2018 3

Adjudicating Authority, wherein the impugned order dated 25th July, 2018 was

passed.

6. The questions arise for consideration in this appeal are:

i. Whether in a 'Corporate Insolvency Resolution Process' triggered

under Sections 7 or 9 or 10 of the 'I&B Code', the Adjudicating

Authority has power to convert the 'Corporate Insolvency Resolution

Process' as a 'Fast Track Corporate Insolvency Resolution Process'

under Section 55 of the 'I&B Code'?

ii. Whether 'Committee of Creditors' had jurisdiction to replace the

'Resolution Professional' after completion of 270 days? and;

iii. Whether Adjudicating Authority is empowered to decide the

resolution cost, including the resolution fee payable to the

'Resolution Professional'?

Issue No.1

7. Chapter IV of the 'I&B Code' deals with 'Fast Track Corporate Insolvency

Resolution Process'. Section 55 of the 'I&B Code' reads as follows:

"55. Fast track corporation insolvency

resolution process -

(1) A corporate insolvency resolution process

carried out in accordance with this

Company Appeal (AT) (Insolvency) No. 560 of 2018 4

Chapter shall be called as fast track

corporate insolvency resolution process.

(2) An application for fast tract corporate

insolvency resolution process may be made

in respect of the following corporate

debtors, namely:-

(a) a corporate debtor with assets and

income below a level as may be

notified by the Central Government;

or

(b) a corporate debtor with such

class of creditors or such amount

of debt as may be notified by the

Central Government; or

(c) such other category of corporate

persons as may be notified by the

Central Government."

8. Sub-section (2) of Section 55 makes it clear that an application for 'Fast

Track Corporate Resolution Process' can be made only against the following

'Corporate Debtors', namely: -

(a) a corporate debtor with assets and income below a level as may

be notified by the Central Government; or

(b) a corporate debtor with such class of creditors or such amount

of debt as may be notified by the Central Government; or

Company Appeal (AT) (Insolvency) No. 560 of 2018 5

(c) such other category of corporate persons as may be notified by

the Central Government.""

9. Section 55 provides that application for 'Fast Track Corporate Insolvency

Resolution Process' should be completed within a period of 90 days.

10. In the present case, the application was not filed under Section 55 but

under Section 9 of the 'I&B Code'. In terms of Section 12 'Corporate Insolvency

Resolution Process' was required to be completed within 180 days from the date

of admission. Sub-section (3) of Section 12 empowers the Adjudicating Authority

to extend the period beyond 180 days but it cannot exceed 90 days. The provision

(Section 12) reads as follows:

"12. Time-limit for completion of insolvency

resolution process. - (1) Subject to sub-section (2), the

corporate insolvency resolution process shall be

completed within a period of one hundred and eighty

days from the date of admission of the application to

initiate such process.

(2) The resolution professional shall file an application

to the Adjudicating Authority to extend the period of the

corporate insolvency resolution process beyond one

hundred and eighty days, if instructed to do so by a

resolution passed at a meeting of the committee of

creditors by a vote of seventy-five per cent. of the voting

shares.

Company Appeal (AT) (Insolvency) No. 560 of 2018 6

(3) On receipt of an application under sub-section (2), if

the Adjudicating Authority is satisfied that the subject

matter of the case is such that corporate insolvency

resolution process cannot be completed within one

hundred and eighty days, it may by order extend the

duration of such process beyond one hundred and

eighty days by such further period as it thinks fit, but

not exceeding ninety days:

Provided that any extension of the period of

corporate insolvency resolution process under this

section shall not be granted more than once."

11. We, therefore, hold that the Adjudicating Authority has no jurisdiction to

proceed with the 'Corporate Insolvency Resolution Process' beyond the period of

270 days having not empowered under the provisions of the 'I&B Code'.

12. Sub-section (2) of Section 55 of the 'I&B Code' stipulates that an

application for 'Fast Track Corporate Insolvency Resolution Process' can be made

against (i) the 'Corporate Debtor' whose assets and income is below a level, as

may be notified by the Central Government or (ii) the 'Corporate Debtor' with

such class of creditors or (iii) such other category of corporate persons as may

be notified by the Central Government.

13. Therefore, it is clear that the 'Fast Track Corporate Insolvency Resolution

Process' is different from 'Corporate Insolvency Resolution Process' against such

Company Appeal (AT) (Insolvency) No. 560 of 2018 7

'Corporate Debtor(s)' as may be notified by the Central Government in terms of

clauses (a), (b) & (c) of sub-section (2) of Section 55.

14. Admittedly, the 'Corporate Debtor'- 'S.N. Plumbing Private Limited' does

not come within the category of 'Corporate Debtor' in terms of clauses (a) or (b)

or (c) of sub-section (2) of Section 55, its assets and income being not below a

level, notified by the Central Government nor having class of creditors or amount

of debt as notified by the Central Government. Therefore, Section 55 cannot be

invoked against the 'Corporate Debtor'- 'S.N. Plumbing Private Limited'.

15. We, therefore, hold that the Adjudicating Authority exceeded its

jurisdiction by extending the period of 90 days after completion of 270 days of

the 'Corporate Insolvency Resolution Process' wrongly exercising its power under

sub-section (2) of Section 55 which is not applicable. Accordingly, the Issue No.1

is answered in negative.

Issue No.2

16. After completion of 270 days of 'Corporate Insolvency Resolution Process',

the Adjudicating Authority can pass order under Section 31 of the 'I&B Code', if

a 'Resolution Plan' has been approved by the 'Committee of Creditors'. In absence

of any 'Resolution Plan', the Adjudicating Authority is bound to pass order under

Section 33 by initiating liquidation proceeding against the 'Corporate Debtor'.

17. In the background of law as discussed above, we hold that after completion

of 270 days, the 'Committee of Creditors' ceased to exist and thereby they have

no jurisdiction to replace a 'Resolution Professional' under Section 22 of the 'I&B

Company Appeal (AT) (Insolvency) No. 560 of 2018 8

Code'. Even if the decision to replace the 'Resolution Professional' is taken prior

to 270 days, in absence of any order passed by the Adjudicating Authority, such

decision cannot be entertained on completion of 270 days. However, the ground

taken by the 'Committee of Creditors' can be looked into by the Adjudicating

Authority to decide whether the same 'Resolution Professional' should be allowed

to continue as 'liquidator' of the 'Corporate Debtor'. The Issue No.2 is also

answered in negative.

Issue No.3

18. Section 30(2)(a) of 'I&B Code' deals with resolution cost which includes the

fee of the 'Resolution Professional' and actual expenses incurred by him. The

'Resolution Professional' is required to examine such 'Resolution Plan' which

provides for payment of 'Insolvency Resolution Process Cost' in the manner

specified by the Board in priority to the repayment of other debts of the

'Corporate Debtor', relevant of which reads as follows:

"30. Submission of resolution plan.

(1) A resolution applicant may submit a resolution plan to the

resolution professional prepared on the basis of the

information memorandum.

(2) The resolution professional shall examine each resolution

plan received by him to confirm that each resolution plan -

(a) provides for the payment of insolvency resolution process

costs in a manner specified by the Board in priority to the

repayment of other debts of the corporate debtor;

Company Appeal (AT) (Insolvency) No. 560 of 2018 9

(b) provides for the repayment of the debts of operation

creditors in such manner as may be specified by the Board

which shall not be less than the amount to be paid to the

operational creditors in the event of a liquidation of the

corporate debtor under section 53;

(c) provides for the management of the affairs of the Corporate

debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the

time in force;

(f) conforms to such other requirements as may be specified

by the Board.

3. The resolution professional shall present to the committee

of creditors for its approval such resolution plans which confirm

the conditions referred to in sub-section (2).

4. The committee of creditors may approve a resolution plan

by a vote of not less than seventy five per cent of voting share of

the financial creditors.

5. The resolution applicant may attend the meeting of the

committee of creditors in which the resolution plan of the

applicant is considered.

Provided that the resolution applicant shall not have a

right to vote at the meeting of the committee of creditors unless

such resolution applicant is also a financial creditor.

Company Appeal (AT) (Insolvency) No. 560 of 2018 10

(6) The resolution professional shall submit the resolution

plan as approved by the committee of creditors to the

Adjudicating Authority.

19. Chapter IX of the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 deals with

'Insolvency Resolution Process'. Regulation 31 relates to 'Insolvency Resolution

Process Cost'; Regulation 33 relates to 'Costs of the Interim Resolution

Professional' and Regulation 34 deals with 'Resolution Professional Costs', as

under:

"31. Insolvency resolution process costs -

Insolvency resolution process costs under section 5(13)(e) shall mean-

(a) amounts due to suppliers of essential goods and services under

Regulation 32;

(b) amounts due to a person whose rights re prejudicially affected on

account of the moratorium imposed under section 14(1)(d);

(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."

xxx xxx xxx

"33. Costs of the interim resolution professional -

Company Appeal (AT) (Insolvency) No. 560 of 2018 11

(1) The applicant shall fix the expenses to be incurred on or by the

interim resolution professional.

(2) The Adjudicating Authority shall fix expenses where the

applicant has not fixed expenses under sub-regulation (1)

(3) The applicant shall bear the expenses which shall be

reimbursed by the committee to the extent it ratifies.

(4) The amount expenses ratified by the committee shall be treated

as insolvency resolution process costs.

"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" mean the

fee to be paid to the resolution professional and other expenses,

including the cost of engaging professional advisors, to be incurred

by the resolution professional."

20. The Regulation 34 aforesaid makes it clear that the 'Committee of

Creditors' is required to determine the expenses incurred on or by the 'Resolution

Professional', which shall also constitute 'Insolvency Resolution Process Costs'.

Explanation below Regulation 34 indicates that "expenses" which includes the

fee to be paid to the resolution professional and the other expenses, including

the cost of professional advisors, to be incurred by the resolution professional.

21. Regulation 38 deals with mandatory contents of the 'Resolution Plan' and

class of regulation. All 'Resolution Plans' are required to identify specific sources

Company Appeal (AT) (Insolvency) No. 560 of 2018 12

of funds that will be used to pay 'Insolvency Resolution Process Costs' to be paid

in priority and reads as under:

"38. Mandatory contents of the resolution plan -

(1) A resolution plan shall identify specific sources of funds

that will be used to pay the -

(a) insolvency resolution process costs and provide that

the insolvency resolution process costs will be paid

in priority to any other creditor;

(b) liquidation value due to operational creditors and

provide for such payment in priority to any financial

creditor which shall in any event be made before the

expiry of thirty days after the approval of a

resolution plan by the Adjudicating Authority; and

(c) liquidation value due to dissenting financial

creditors and provide that such payment is made

before any recoveries are made by the financial

creditors who voted in favour of the resolution plan.

(2) A resolution plan shall provide:

(a) the term of the plan and its implementation

schedule;

(b) the management and control of the business of the

corporate debtor during its term; and

(c) adequate means for supervising its

implementation."

Company Appeal (AT) (Insolvency) No. 560 of 2018 13

22. On combined reading of Section 30 of the 'I&B Code' with Regulations 31,

34 & 38, it is clear that the 'Committee of Creditors' is required to determine the

resolution cost to be incurred by 'Resolution Professional' including the fee which

is to be incurred in the 'Resolution Plan' in terms of sub-section 2(a) of Section

30, which includes 'Insolvency Resolution Process' including i.e. the expenses

to be incurred on failure of the 'Resolution Plan'. It is only thereafter when the

Adjudicating Authority either approve(s) the 'Resolution Plan' under Section 31

of the 'I&B Code', the 'Resolution Professional' is entitled to know the actual

expenses allowed, as approved by the 'Committee of Creditors' and the

Adjudicating Authority. Once the 'Resolution Plan' is determined by the

'Committee of Creditors', the Adjudicating Authority cannot differ with the same

nor can sit in appeal, except in cases where there is an arithmetical error.

23. In case 'Corporate Insolvency Resolution Process' fails and order of

liquidation is passed under Section 33 in such case, the 'Resolution Professional'

can be removed if it is found that he has violated Section 30(2) or otherwise he

is to be allowed to function as 'liquidator'.

24. In the present case, as no order has been passed under Section 31, nor

any order has been passed by the Adjudicating Authority under Section 33, we

hold that the Adjudicating Authority had no jurisdiction to decide the resolution

cost including the fee of the 'Resolution Professional'. Issue No.3 is answered

accordingly.

25. We have already held that the Adjudicating Authority has no jurisdiction

to convert 'Corporate Insolvency Resolution Process' under Sections 7, 9 or 10

Company Appeal (AT) (Insolvency) No. 560 of 2018 14

of the 'I&B Code' as 'Fast Track Corporate Insolvency Resolution Process'

proceeding under Section 55 of 'I&B Code' and therefore, we are of the view that

the Adjudicating Authority was duty bound to pass order under Section 31 in

absence of the 'Resolution Plan'.

26. For the reasons aforesaid, the impugned order dated 25th July, 2018 is set

aside. The Adjudicating Authority is directed to pass order under Section 31 but

if no 'Resolution Plan' has been approved, the Adjudicating Authority will pass

order under Section 33 of the 'I&B Code', more than 270 days having expired.

27. Pursuant to the interim order of this Appellate Tribunal dated 24th

September, 2018, a sum of Rs. 20 lacs, including GST has already been paid to

the Appellant. In view of such payment, we direct that while 'Resolution Cost'

will be determined by the Adjudicating Authority, the amount already paid

should be adjusted. If further amount is payable, it should be paid to the

Appellant. On the other hand, it is determined that less amount is payable, the

Appellant will refund the excess amount immediately. The Appeal is allowed

with aforesaid observation. No order towards cost.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial) AR/Akc/Sk

Company Appeal (AT) (Insolvency) No. 560 of 2018