2022 (9) TMI 21 - AT - Insolvency and Bankruptcy

Distribution of liquidation proceedings - distribution of amount less any applicable withholding tax out of accumulated cash profit lying with the Bank in the account of corporate debtor to the stakeholders - waterfall mechanism as specified under Section 53 of the IBC - HELD THAT - Once the order impugned had already taken its finality there was no reason to advance further arguments. Even though learned counsel for the appellants were conveyed regarding the present situation, learned counsel for the appellants insisted to pursue the Court. It is noticed that without any plausible reason during arguments false allegations were made against Respondent No.1/liquidator on the point of facts relating to pendency of two appeals before this Appellate Tribunal. The fact regarding pendency of the appeal before this Appellate Tribunal was brought on record by the liquidator by way of filing rejoinder/reply affidavit before the Adjudicating Authority as it is apparent from Volume I and Volume II. The reply filed by the Respondent No.1 was already served on the appellants even then learned counsel for the appellants have ventured to make allegations against Respondent No.1 regarding suppression of fact of pendency of appeal before this Appellate Tribunal. Section 61 of IBC in a specific term contemplates filing of appeal by an aggrieved person. It was not a stage of corporate insolvency proceeding. After CIRP since it failed, liquidation order was passed by the Adjudicating Authority on an application filed by the Liquidator under Section 33(1) of the IBC. Once corporate debtor went into liquidation and the petition for distribution of accumulated profit was filed wherein representatives of employees as well as representatives of shareholders were arrayed as party there was no reason for third person to file the present appeal. Distribution of sale proceeds as contemplated under Section 53 IBC as well as Regulation 32 and 42 of Regulation 2016 - HELD THAT - In the present case there was accumulation of profit in the account of corporate debtor regarding which account as per Regulation 41 in the account of corporate debtor the word liquidation is to be added being custodian of the said account. Being custodian of the said account it was duty on the part of the Liquidator to immediately distribute accumulated profit lying in the said account. Had it been not done by the liquidator after noticing accumulation of huge accumulated profit amounting to the tune of Rs.96 crores, question would have raised as to why the said amount was lying in the bank account. In such situation in all fairness it would be the duty on the part of the liquidator to take immediate steps to distribute the accumulated profit in terms of Section 53 of the Act under the waterfall mechanism - there are no error or default in liquidator for approaching the Adjudicating Authority regarding distribution of accumulated profit. The appeals are devoid of merits and require to be rejected with imposition of heavy cost - Appeal dismissed.

Summary

Issues Involved:
1. Validity of the order dated 26.07.2021 by the Adjudicating Authority allowing the distribution of accumulated cash profits.
2. Compliance with the Insolvency and Bankruptcy Code (IBC) and the IBBI (Liquidation Process) Regulations, 2016.
3. Allegations of suppression of facts by the liquidator.
4. Locus standi of the appellants.
5. Whether the corporate debtor was a going concern.
6. Imposition of costs for abuse of the process of the court.

Detailed Analysis:

1. Validity of the Order Dated 26.07.2021:
The appeals challenged the order dated 26.07.2021 by the Adjudicating Authority, which allowed the liquidator to distribute Rs.61 crore from the accumulated cash profits of the corporate debtor to the stakeholders as per the waterfall mechanism under Section 53 of the IBC. The Adjudicating Authority found that the amount to be distributed exceeded the estimated liquidation cost and permitted its distribution.

2. Compliance with IBC and Liquidation Regulations:
The appellants argued that the order was in conflict with Regulations 32 and 42 of the IBBI (Liquidation Process) Regulations, 2016, and Section 53 of the IBC. They contended that the liquidator should not have distributed the accumulated profits without following the prescribed procedures in Chapter VI and VII of the Regulations. The liquidator defended the distribution, stating that the accumulated profits were not proceeds from the sale of liquidation assets and thus could be distributed.

3. Allegations of Suppression of Facts:
The appellants accused the liquidator of not disclosing the pendency of appeals against the liquidation order. The liquidator refuted these allegations, pointing to the records showing that the pendency of appeals was disclosed in the rejoinder filed before the Adjudicating Authority. The Tribunal found the allegations against the liquidator to be baseless and unsupported by evidence.

4. Locus Standi of the Appellants:
The Tribunal questioned the locus standi of the appellants, noting that the appellant in Company Appeal (AT)(Ins) No.594/2021 was an ex-director, and the appellant in Company Appeal (AT)(Ins) No.565/2021 was an employee of the corporate debtor. It was observed that representatives of employees and shareholders were already party to the proceedings before the Adjudicating Authority, and thus, the appellants had no standing to file the appeals.

5. Corporate Debtor as a Going Concern:
The appellants argued that the corporate debtor was a going concern, citing an order dated 20.11.2020 by the Tribunal. However, the Tribunal clarified that the corporate debtor was not a going concern, as stated in the impugned order. The Tribunal's earlier order only directed the liquidator to ensure the corporate debtor continued as a going concern if it was one.

6. Imposition of Costs for Abuse of Process:
The Tribunal found that the appeals were devoid of merit and amounted to an abuse of the court's process. It noted that the impugned order had already been carried out, and there was no reason for the appellants to press the appeals. The Tribunal imposed exemplary costs on the appellants: Rs.2 lakhs on the appellant in Company Appeal (AT)(Ins) No.565/2021 and Rs.5 lakhs on the appellant in Company Appeal (AT)(Ins) No.594/2021, to be deposited in the Prime Minister's National Relief Fund.

Conclusion:
The Tribunal dismissed both appeals, upholding the Adjudicating Authority's order allowing the distribution of accumulated cash profits. It found no procedural violations by the liquidator and dismissed allegations of suppression of facts. The Tribunal also imposed costs on the appellants for abusing the process of the court.