Union Bank Of India & Ors vs Shashi Kant Nemani, Appointed ...

Union Bank of India & Ors. ...Appellants

Versus

Mr. Shashi Kan Nemani, Appointed Liquidator of Vedika Nut Crafts Pvt. Ltd. (in liquidation) & Ors. ...Respondents

Present: For Appellant : Mr. Rajiv s. Roy, Mr. Avrojyoti Chatterjee, Mr. Abhijit Roy and Ms. Jayasree Saha, Advocates

For Respondent: Mr. Rajendra Beniwal, Ms. Priyanka and Mr. Manjoj Kumar Sharma, Advocates

ORDER

19.07.2019 The Appellant - 'Union Bank of India' & Ors. (Committee of

Creditors) have preferred this appeal against the impugned order dated 25th

April, 2019 passed by the Adjudicating Authority (National Company Law

Tribunal), Principal Bench, New Delhi directing the 'Committee of Creditors' to

pay the fee and cost of the 'Liquidator' a sum of Rs. 14 Lakhs and settle the rest

of the amount in the time bound manner with the following observations and

directions :

"The other issues raised by the Ld. Counsel for

the liquidator is that with regard to the expenses

incurred and fee chargeable for the liquidation

process. If was on the recommendation of the CoC

that application under Section 33 was filed and the 2

same was accepted by us by passing a detail order

on 04.04.2018 and the liquidator was appointed on

the recommendation made by the CoC. However,

the liquidator has to complete the process and, in the

process incurred expenses as per the direction

issued, as well as to comply with the provisions of

the IBC and Regulations. However, the CoC is

dragging its feet and is not paying the expenses as

well as fee of the liquidator which is wholly

unwarranted. According to the estimation given, the

fee of the liquidator as on date is about 14, 00,000/-

We direct the CoC to pay Rs. 10, 00,000/- and settle

the rest of the amount in a time bound manner

preferably within a period of one month. The

members of the CoC shall bear the expenditure/fee

in accordance with their voting share

proportionately."

Learned counsel appearing on behalf of the Appellant submits that the

'Committee of Creditors is not liable to pay the 'fee or cost' of the Liquidation as

the function of the 'Committee of Creditors' comes to an end when the order of

liquidation is passed. On the other hand, according to the counsel appearing

on behalf of the Liquidator, at the time of decision taken by the 'Committee of

Creditors' referred the matter for liquidation, they should be decided the fee and

cost payable to the liquidator.

Company Appeal (AT) (Insolvency) No. 631 of 2019 3

The provisions to pay the fee of 'Liquidator' is prescribed u/s 34 (8) and (9)

of the I&B Code, which is as follows:

"34. (1) Where the Adjudicating Authority passes an order

for liquidation of the corporate debtor under

section 33, the resolution professional appointed

for the corporate insolvency resolution process

under Chapter II shall act as the liquidator for the

purposes of liquidation unless replaced by the

Adjudicating Authority under sub-section (4).

(8) An insolvency professional proposed to be appointed as

a liquidator shall charge such fee for the conduct of the

liquidation proceedings and in such proportion to the

value of the liquidation estate assets, as may be

specified by the Board.

(9) The fees for the conduct of the liquidation proceedings

under sub-section (8) shall be paid to the liquidator

from the proceeds of the liquidation estate under

section 53.

Regulation 4 of the 'Insolvency and Bankruptcy Board of India (Liquidation

Process) Regulations, 2016 also prescribed the 'Liquidator's Fee', which reads as

follows:

"4. Liquidator's fee.

(1) The fee payable to the liquidator shall form part

of the liquidation cost.

Company Appeal (AT) (Insolvency) No. 631 of 2019 4

(2) The liquidator shall be entitled to such fee and in

such manner as has been decided by the

committee of creditors before a liquidation order is

passed under sections 33(1)(a) or 33(2).

(3) In all cases other than those covered under sub-

regulation (2), the liquidator shall be entitled to a

fee as a percentage of the amount realized net of

other liquidation costs, and of the amount

distributed, as under:

Amount of Percentage of fee on the amount Realisation/ realized/distributed Distribution (In rupees)

In the first In the In the next Thereafter next one year Six months Six months

Amount of Realisation (exclusive of liquidation costs)

On the first 1 crore 5.00 3.75 2.50 1.88

On the next 9 crore 3.75 2.80 1.88 1.41

On the next 40 2.50 1.88 1.25 0.94 crore

On the next 50 1.25 0.94 0.68 0.51 crore

On further sums 0.25 0.19 0.13 0.10 realized

Amount Distributed to Stakeholders

On the first 1 crore 2.50 1.88 1.25 0.94

On the next 9 crore 1.88 1.40 0.94 0.71

Company Appeal (AT) (Insolvency) No. 631 of 2019 5

On the next 40 1.25 0.94 0.63 0.47 crore

On the next 50 0.63 0.48 0.34 0.25 crore

On further sums 0.13 0.10 0.06 0.05 realized

(4) The liquidator shall be entitled to receive half of

the fee payable on realization under sub-

regulation (3) only after such realized amount is

distributed."

Learned counsel for the Respondent referred to Section 53 of the I&B

Code to suggest that at the time of distribution of assets if fee payable to the

liquidator is required to be deducted proportionately from the proceeds

payable to each class of recipients. However, such question does not arise,

which will be after the death of the 'corporate debtor'. In the case of "Y.

Shivram Prasad Vs. S. Dhanapal & Ors. - Company Appeal (AT)

(Insolvency) No. 224 of 2018 etc." this Appellate Tribunal at the stage of

liquidation has directed to take steps u/s 230 of the Companies Act, 2013

and on failure taken for outright sale of the 'Corporate Debtor' instead of

liquidating the 'Corporate Debtor' by sale of its assets, observed and held :

"15. Learned counsel appearing on behalf of the

Appellant (Promoter) submitted that the

provisions under Section 230 may not be

Company Appeal (AT) (Insolvency) No. 631 of 2019 6

completed within 90 days, as observed in "S.C.

Sekaran v. Amit Gupta & Ors." (Supra).

16. It is further submitted that there will be

objections by some of the creditors or members

who may not allow the Tribunal to pass

appropriate order under Section 230 of the

Companies Act, 2013.

17. Normally, the total period for liquidation is to be

completed preferably within two years.

Therefore, in "S.C. Sekaran v. Amit Gupta &

Ors." (Supra), this Appellate Tribunal allowed 90

days' time to take steps under Section 230 of the

Companies Act, 2013. In case, for any reason the

liquidation process under Section 230 takes more

time, it is open to the Adjudicating Authority

(Tribunal) to extend the period if there is a chance

of approval of arrangement of the scheme.

18. During proceeding under Section 230, if any,

objection is raised, it is open to the Adjudicating

Authority (National Company Law Tribunal)

which has power to pass order under Section 230

to overrule the objections, if the arrangement and

scheme is beneficial for revival of the 'Corporate

Debtor' (Company). While passing such order, the

Company Appeal (AT) (Insolvency) No. 631 of 2019 7

Adjudicating Authority is to play dual role, one as

the Adjudicating Authority in the matter of

liquidation and other as a Tribunal for passing

order under Section 230 of the Companies Act,

2013. As the liquidation so taken up under the

'I&B Code', the arrangement of scheme should be

in consonance with the statement and object of

the 'I&B Code'. Meaning thereby, the scheme

must ensure maximisation of the assets of the

'Corporate Debtor' and balance the stakeholders

such as, the 'Financial Creditors', 'Operational

Creditors', 'Secured Creditors' and 'Unsecured

Creditors' without any discrimination. Before

approval of an arrangement or Scheme, the

Adjudicating Authority (National Company Law

Tribunal) should follow the same principle and

should allow the 'Liquidator' to constitute a

'Committee of Creditors' for its opinion to find out

whether the arrangement of Scheme is viable,

feasible and having appropriate financial matrix.

It will be open for the Adjudicating Authority as a

Tribunal to approve the arrangement or Scheme

in spite of some irrelevant objections as may be

raised by one or other creditor or member keeping

Company Appeal (AT) (Insolvency) No. 631 of 2019 8

in mind the object of the Insolvency and

Bankruptcy Code, 2016.

19. In view of the observations aforesaid, we hold

that the liquidator is required to act in terms of

the aforesaid directions of the Appellate Tribunal

and take steps under Section 230 of the

Companies Act. If the members or the 'Corporate

Debtor' or the 'creditors' or a class of creditors

like 'Financial Creditor' or 'Operational Creditor'

approach the company through the liquidator for

compromise or arrangement by making proposal

of payment to all the creditor(s), the Liquidator on

behalf of the company will move an application

under Section 230 of the Companies Act, 2013

before the Adjudicating Authority i.e. National

Company Law Tribunal, Chennai Bench, in terms

of the observations as made in above. On failure,

as observed above, steps should be taken for

outright sale of the 'Corporate Debtor' so as to

enable the employees to continue.

In view of the same, the question of application of Section 53 at this

stage does not arise as the 'Liquidator' not took steps in terms of this Appellate

Tribunal's order as in ""Y. Shivram Prasad Vs. S. Dhanapal & Ors. (Supra).

The Adjudicating Authority has failed to notice the aforesaid provisions

Company Appeal (AT) (Insolvency) No. 631 of 2019 9

including sub-section (8) and (9) of Section 38 and Regulation 4 of the

aforesaid, we set aside the impugned order dated 25th April, 2019 passed in

(IB) 40(PB)/2017 and remit the case to the Adjudicating Authority (National

Company law Tribunal), New Delhi for passing fresh order for payment of fee

and cost of the 'Liquidator' in terms of the provisions of the 'I&B Code' and

the Regulations aforesaid.

The appeal is allowed with aforesaid observations. No cost.

[Justice S.J. Mukhopadhaya] Chairperson

[ Kanthi Narahari ] Member (Technical) /ns/gc

Company Appeal (AT) (Insolvency) No. 631 of 2019