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2023 (12) TMI 959 - AT - Insolvency and BankruptcyValidity of Resolution Plan - classification as made in Resolution Plan between payment to employees, is discriminatory and violative of provisions of Section 30, sub- section (2) of the Code or not - issuance of directions for redetermination of the CIRP cost by the CoC - withholding payment of CIRP cost to the Appellant, which payment was directed subject to appropriation towards amount found recoverable from such promoters/ KMPs in avoidance application, violative of Section 30, sub-section (2) of the Code or not - issuance of direction to CoC to pursue the avoidance application pending for adjudication before the Adjudicating Authority. Whether there is any discrimination in Resolution Plan in making payments to employees of the Corporate Debtor differently from those whose dues are upto Rs.10 lakhs and those whose dues are more than Rs.10 lakhs? - HELD THAT - It is not the case of the Appellant that amount proposed to the Operational Creditor in the category of employees is less than the amount, which they would have received in event of liquidation of the Corporate Debtor. Hence, there are no error in the distinction of payment as contained in paragraph 3.3.2 of the Resolution Plan. The distribution to the employees, whose liquidation value was NIL falls within the commercial wisdom of the CoC and the said clause of Resolution Plan cannot be impugned on the said ground, nor the said proposal for payment is violative of Section 30, sub-section (2) (b) of the Code. Whether the Adjudicating Authority erred in issuing directions for redetermination of the CIRP cost by the CoC? - HELD THAT - In the present case, it has not been shown that CIRP cost, which has been determined by the Resolution Professional for running the business of the Corporate Debtor was required approval of CoC under Section 28 of the Code. The Adjudicating Authority by the impugned order in paragraph 6.2 has held that CoC shall be competent to determine the quantum of CIRP cost payable under the Plan. When the Plan has been approved by the CoC, which included payment of the CIRP cost and it is not shown that CIRP cost determined by the Resolution Professional required any approval under Section 28, there are no reason for redetermination of the CIRP cost by the CoC. The direction to CoC to redetermine the CIRP cost after approval of the Resolution Plan by the CoC is unsustainable - The audited Report was obtained by Resolution Professional to satisfy himself and to obtain a confirmation of his determination of the CIRP cost by an Auditor, which having been done, no further approval of the CoC was required for payment of CIRP Cost - the directions issued by the Adjudicating Authority empowering the CoC to redetermine CIRP cost deserves to be set aside and is hereby set aside. Whether the direction of Adjudicating Authority to withhold the payment of CIRP cost to the Appellant, which payment was directed subject to appropriation towards amount found recoverable from such promoters/ KMPs in avoidance application, is violative of Section 30, sub-section (2) of the Code and unsustainable? - HELD THAT - The determination of CIRP cost and payment of CIRP cost to those who found entitled to receive the payments is an independent process from any recovery from Promoters/ KMPs, consequent to avoidance application filed by Resolution Professional under the provisions of the Code, including Section 66 of the Code. The directions, which were issued by the Adjudicating Authority in paragraph 6.5 was to withhold the claim of Promoters/ KMPs, falling for adjudication and before releasing the amount payable to such Promoters/ KMPs amount was directed to be detained and was made subject to appropriation towards amount found recoverable from such Promoters/ KMPs towards CIRP cost - The avoidance applications, which are pending before the Adjudicating Authority may also be expeditiously considered and decided, so as to not withhold the receipt of the payment by such Promoters/ KMPs for a long period. Whether the Adjudicating Authority erred in issuing direction to CoC to pursue the avoidance application pending for adjudication before the Adjudicating Authority? - HELD THAT - After approval of the Resolution Plan, the Adjudicating Authority is fully empowered to issue any direction, as to how the avoidance applications has to be pursued and direction to pursue the avoidance applications by the CoC as issued therein is fully justifiable and does not warrant any interference at the instance of the Appellant. Appeal allowed in part.
Issues Involved:
1. Discriminatory Classification in Resolution Plan 2. Directions for Redetermination of CIRP Cost 3. Withholding of CIRP Cost Payment to Promoters/KMPs 4. Direction to CoC to Pursue Avoidance Applications Summary: Issue I: Discriminatory Classification in Resolution Plan The first issue was whether the classification in paragraph 3.3.2 of the Resolution Plan between employees with dues up to Rs.10 lakhs and those with dues above Rs.10 lakhs is discriminatory and violates Section 30(2) of the Insolvency and Bankruptcy Code (the "Code"). The Tribunal found that the classification was not discriminatory. The Hon'ble Supreme Court's judgment in M.K. Rajagopalan vs. Dr. Periasamy Palani Gounder and Anr supported the view that differential treatment of related parties is permissible. The Resolution Plan met the requirements of Section 30(2)(b) of the Code, and the liquidation value for employees was 'NIL'. Thus, the classification was upheld as falling within the commercial wisdom of the Committee of Creditors (CoC). Issue II: Directions for Redetermination of CIRP Cost The second issue was whether the Adjudicating Authority erred in directing the CoC to redetermine the Corporate Insolvency Resolution Process (CIRP) cost. The Tribunal noted that the CIRP cost, as defined under Section 5(13) of the Code, includes costs incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern and does not require CoC approval under Section 28. The Tribunal found the direction for redetermination of CIRP cost by the CoC unsustainable and set it aside. The Tribunal acknowledged that the Resolution Professional had obtained an audit report confirming the CIRP cost of INR 92.41 crores, which was approved by the CoC. Issue III: Withholding of CIRP Cost Payment to Promoters/KMPs The third issue concerned the Adjudicating Authority's direction to withhold CIRP cost payments to Promoters/Key Managerial Personnel (KMPs) pending the adjudication of avoidance applications. The Tribunal modified this direction, stating that the amount payable to Promoters/KMPs should be kept in a Fixed Deposit Receipt (FDR) and released only after the adjudication of their liability in avoidance applications. This ensures the interest of all parties and balances the need for expeditious resolution. Issue IV: Direction to CoC to Pursue Avoidance Applications The final issue was whether the Adjudicating Authority erred in directing the CoC to pursue avoidance applications under Sections 43, 45, 49, and 66 of the Code. The Tribunal upheld this direction, stating that the Adjudicating Authority is empowered to issue such directions post-approval of the Resolution Plan. Conclusion: The Tribunal partly allowed the appeal, setting aside the direction in paragraph 6.2 and modifying the direction in paragraph 6.5 regarding the withholding of payments to Promoters/KMPs. The Adjudicating Authority was directed to expeditiously decide the pending avoidance applications. Each party was ordered to bear its own costs.
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