2022 (12) TMI 97 - AT - Insolvency and Bankruptcy

Cost of CIRP / Liquidation - Liability of operational creditors - Distribution of proceeds from the sale of the liquidation assets - Direction to contribute proportionately in accordance with the voting share towards CIRP /Liquidation costs - section 53 of IBC - HELD THAT - This is a clear case of misusing the provisions of the Code both by the Operational Creditor who has initiated the CIRP and the RP also - the Appellants are small suppliers and they don t want to be burdened with additional liability as their business is in a very bad shape and they have lost already a crore plus. We are unable to agree with the Adjudicating Authority that the Operational Creditors are to bear the cost of CIRP/Liquidation and hence, we set aside the impugned order to the extent para 9.IX as appearing supra and rest part of the impugned order we uphold. Let Liquidation be continued and let amount be realized during Liquidation and be distributed in accordance with section 53 of the Code. Appeal disposed off.

Summary

Issues:
1. Appeal under Section 61 of the Insolvency and Bankruptcy Code 2016 against an order passed by the National Company Law Tribunal.
2. Appellants aggrieved by the order directing them to contribute proportionately towards CIRP/Liquidation costs.
3. Allegations of manipulation by the Resolution Professional and misuse of the Code provisions.
4. Dispute regarding the settlement of Operational Creditor's claim and payment of IRP expenses.
5. Concerns raised about the lack of financial creditors in the CoC and the burden of CIRP expenses on operational creditors.
6. Interpretation of Section 53 of the Code regarding the distribution of assets during liquidation.

Analysis:
1. The appeal was filed against an order passed by the National Company Law Tribunal directing the appellants to contribute proportionately towards CIRP/Liquidation costs. The appellants sought various reliefs, including setting aside the order and the appointment of the liquidator.
2. The Operational Creditor initiated the CIRP alleging a default, but later withdrew the claim. The Resolution Professional (RP) allegedly increased fees, leading to financial burden on the appellants.
3. The Tribunal observed manipulation of the Code provisions by the Operational Creditor and RP. The appellants, being small suppliers, faced financial strain and opposed additional liabilities.
4. The absence of financial creditors in the CoC raised concerns about the disproportionate burden of CIRP expenses on operational creditors. The Liquidator defended the continuation of CIRP due to CoC's failure to vote for settlement.
5. The Amicus Curiae highlighted the lack of cooperation from suspended directors and suggested early closure of the process due to the limited assets of the Corporate Debtor.
6. The Tribunal analyzed Section 53 of the Code, emphasizing the priority of meeting IRP and Liquidation costs. It set aside the order directing operational creditors to bear CIRP/Liquidation costs, directing distribution of assets in accordance with the Code provisions.

This detailed analysis of the judgment highlights the issues raised, arguments presented, and the Tribunal's decision, providing a comprehensive understanding of the legal proceedings and outcomes.