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2021 (9) TMI 33 - AT - Insolvency and BankruptcyAlienation of accruals from the account of the Corporate Debtor upon imposition of moratorium after the initiation of the Corporate Insolvency Resolution Process - power of COC to take a decision regarding payments to a particular financial creditor during the CIRP - adjustment of amounts belonging to Corporate Debtor towards the claim of any particular financial creditor during the moratorium period - moratorium imposed u/s 14 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - Section 14 of the IBC, particularly sub-section (b) of section 14(1) prohibits transferring, encumbering, alienating or disposing of by the Corporate Debtor, any of its assets or any legal right or beneficial interest therein . It is quite clear about how accruals to the corporate debtor are to be treated during the currency of CIRP. This provision prohibits the corporate debtor, and the resolution professional who is managing the affairs of the corporate debtor during CIRP, from transferring any of the corporate debtor s assets to creditors. The amounts received by the corporate debtor during the currency of the CIRP are assets of the corporate debtor whose transfer to chosen creditor in priority without the process of Resolution Plan would be prohibited. Such a condition as was prescribed in the first COC meeting regarding apportioning of the accruals in the separate bank account of corporate debtor to the Bank of India would not be legal and against the provision in sub-section 3 of section 14, which allows only such transactions which may be notified by the central government, in consultation with any financial regulator, to be exempted from the rigour of moratorium. The accruals in the separate bank account in the Bank of India during the CIRP are not notified by the Central Government and hence they are the assets of the corporate debtor. In the present case, the Resolution Plan, which was approved by the Adjudicating Authority, included Bank of India s share as ₹ 9 crores only as full and final settlement with no conditions attached. Therefore ,the condition stipulated by the COC in its first meeting regarding the receipts by the corporate debtor during the CIRP period and apportioning of 25% of the accruals due to the operations of corporate debtor are not part of the final resolution plan and this has no legs to stand on vis a vis the approved resolution plan and the share of Bank of India contained therein. It is considered necessary that the erstwhile Resolution Professional be made responsible for proper monitoring of the implementation of the successful resolution plan to ensure its complete and proper implementation and to ensure that issues such as the one raised in this appeal do not cause unnecessary delays and obstructions in the implementation of the resolution plan - the amounts received towards interim finance during pendency of CIRP for which account was opened in the branch of Respondent No.4- Bank have to be held as amounts received by the Corporate Debtor during CIRP and are to be utilised as per the provisions of IBC, Rules and Regulations and the Resolution Professional is responsible for due utilisation of the same, strictly as per the provisions of IBC, Rules and Regulations and the Resolution Plan which was approved by the Adjudicating Authority. Appeal allowed.
Issues Involved:
1. Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC) during the Corporate Insolvency Resolution Process (CIRP). 2. Legality of the Committee of Creditors (COC) decision to earmark 25% of receipts for repayment to the Bank of India. 3. Validity of the revised resolution plan and the amounts retained by the Bank of India. 4. Implementation and monitoring of the approved resolution plan. Detailed Analysis: Issue 1: Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC) during CIRP The appellant argued that the impugned order disregards Section 14 of the IBC, which mandates a moratorium period during which no accruals can be alienated from the Corporate Debtor's account. The CIRP was initiated and a moratorium was imposed on the Corporate Debtor's assets on 26.10.2017. The appellant contended that the decision to earmark 25% of receipts for repayment to the Bank of India during the moratorium period is against the law, as per Section 14 of the IBC. This section prohibits transferring, encumbering, alienating, or disposing of any assets of the Corporate Debtor during the moratorium period. Issue 2: Legality of the COC decision to earmark 25% of receipts for repayment to the Bank of India The appellant highlighted that the decision taken in the first COC meeting to earmark 25% of receipts for repayment to the Bank of India was influenced by the Bank, which holds 90% voting rights in the COC. The appellant argued that no creditor can divert receipts of the Corporate Debtor during the moratorium period, as per Section 14 of the IBC. The appellant also pointed out that the Resolution Professional raised concerns about this decision in his written synopsis, stating that the money belongs to the Corporate Debtor and should not be appropriated by the Bank of India. Issue 3: Validity of the revised resolution plan and the amounts retained by the Bank of India The appellant submitted a resolution plan offering ?6.22 crores to the Bank of India, which was deemed inadequate by the Bank. Consequently, a revised resolution plan was submitted, allowing the Bank to retain amounts received prior to 1.4.2018. However, the Bank sought a larger amount of ?9 crores, which was accepted in the final resolution plan approved by the COC and the Adjudicating Authority. The appellant claimed that the Bank received ?1,68,23,462, including ?88,16,071 during the moratorium period, and is refusing to part with ?88,16,071, which is over and above the approved resolution amount of ?9 crores. Issue 4: Implementation and monitoring of the approved resolution plan The respondents argued that the appeal is not maintainable as it was filed by the Successful Resolution Applicant and not the Corporate Debtor or the erstwhile Resolution Professional. They contended that the decision in the first COC meeting cannot be challenged now and that the Successful Resolution Applicant had accepted the condition earlier. The respondents cited the Supreme Court's decision in Kalparaj Dharamshi vs. Kotak Advisories Limited, emphasizing the court's respect for the commercial wisdom of the COC. The Adjudicating Authority directed the Resolution Applicant and the Resolution Professional to ensure the implementation of the successful resolution plan. Conclusion: The Tribunal concluded that the amounts received during the CIRP are assets of the Corporate Debtor and cannot be appropriated by the Bank of India. The Tribunal emphasized that the COC's decision to earmark 25% of receipts for the Bank of India during the moratorium period is against Section 14 of the IBC. The final resolution plan approved by the COC and the Adjudicating Authority included ?9 crores as the full and final settlement for the Bank of India, with no conditions attached regarding the receipts during the CIRP. The Tribunal directed the Resolution Professional to ensure proper utilization of the amounts received during the CIRP as per the IBC provisions and the approved resolution plan. The impugned order was quashed and set aside, and the Resolution Professional was tasked with overseeing the implementation of the resolution plan within one month.
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