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2021 (2) TMI 306 - AT - Insolvency and BankruptcyCIRP Costs or not - whether the advance paid to Corporate Debtor for the supply of goods during CIRP, on failure to supply part goods, during CIRP can be treated as CIRP costs? - HELD THAT - The Resolution Professional is duty-bound under Section 20 of the Insolvency and Bankruptcy Code to make every endeavour to protect and preserve the value of the Corporate Debtor's property manage the operations of the Corporate Debtor as a going concern. Section 20 of the Code imposes a duty on the Resolution Professional to preserve and protect the Corporate Debtor's assets, including the continued business operations of the Corporate Debtor. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons Regulations) 2016 deals with the provision regarding Insolvency Resolution Process costs. Regulation 31 provides that amount due to suppliers of essential goods and services under Regulation 32 shall be treated as Insolvency Resolution Process costs - In the instant case, it is noticed that the Corporate Debtor raised proforma invoice during CIRP for the supply of 900 metric tons of Ferro Silicon Manganese at the rate of US 1040 per metric ton. But it supplied only 162 metric tons of Ferro Silicon Manganese. It is also on record that the Corporate Debtor received an advance of US 507,314 for the supply of industrial raw material Ferro Silicon Manganese. It is also undisputed that the goods worth ₹1 US 168,480 could be supplied and US 338,834 remained left as advanced money with the Corporate Debtor. During Corporate Insolvency Resolution Process the Corporate Debtor was under Management and control of the Resolution Professional. In this case, Liquidator has filed its Reply stating that the Appellant had filed Form 'G' relating to its claim on 03rd January 2020, and that there is no document on record showing that the transaction was authorised or approved by the IRP/RP. It is further stated that he is in the process of obtaining details of the transaction from Respondent No.3. If the Appellant is aggrieved by his Order, he must file an Appeal under Section 42 of the Code before the Adjudicating Authority. That by filing the present Appeal, the Appellant has jumped one forum which should not be permitted - It is admitted fact that the Liquidator received the claim on 03rd January 2020. Section 40(2) mandates the Liquidator to communicate its decision of admission or rejection of the claim to the Creditor and the Corporate Debtor within seven days of admission or rejection of the claim. Section 42 of the Code provides that a creditor may file an Appeal before the Adjudicating Authority against the Liquidator's decision to accept or reject the claim, within 14 days from receipt of such decision. The Liquidator cannot simply sit on the claim without deciding the same one way or the other. A perusal of Section 20 of IBC makes it clear that after the CIRP is initiated, the IRP/RP is required to manage the Corporate Debtor's operations as a going concern. Section 20(2) (e) gives power to the IRP (Subsequently RP) to take all actions as are necessary to keep the Corporate Debtor as a going concern. In such a process of managing the business operations of the Corporate Debtor, if advance payments for supply of goods is received, it cannot be treated as raising an interim finance. It is an advance for payment of goods which the Corporate Debtor as a going concern may be manufacturing. The goods are either to be supplied, or the amount should be returned. If the goods are not supplied, the purchaser cannot be made to run for his money. If this approach as in the present matter is not changed, it will become difficult to keep the Corporate Debtors as a going concern. Such amount received as an advance payment for the supply of goods during the CIRP would have to be treated as CIRP costs. As in the present matter, the Liquidator failed to take a decision, one way or the other on the lame excuse that the Liquidator is in the process of obtaining details of transactions from Respondent No. 3 and now wants to claim that the Appellants have jumped forum, we feel it appropriate to give certain directions while disposing the present Appeal. Appeal disposed off.
Issues Involved:
1. Whether advance paid to the RP for purchase of goods from Corporate Debtor during CIRP to keep the Corporate Debtor as a going concern, in case of breach of contract, on account of a breakdown in the corporate debtor manufacturing ability, can be treated as CIRP cost. 2. Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP to keep the corporate debtor as a going concern ought to be treated as CIRP cost by the Liquidator for the purposes of disbursement under Section 52, read with Section 53 of I&B Code, 2016. 3. Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP ought to be refunded by the RP on account of delivery failure. Issue-Wise Detailed Analysis: 1. Whether advance paid to the RP for purchase of goods from Corporate Debtor during CIRP to keep the Corporate Debtor as a going concern, in case of breach of contract, on account of a breakdown in the corporate debtor manufacturing ability, can be treated as CIRP cost: The Tribunal examined whether the advance paid by the Appellant to the Corporate Debtor during the Corporate Insolvency Resolution Process (CIRP) for the purchase of goods can be treated as CIRP cost. The Appellant argued that the advance should be considered CIRP cost as it was paid during the CIRP to keep the Corporate Debtor as a going concern. The Appellant further contended that the Liquidator failed to communicate its decision regarding the acceptance or rejection of their claim, violating Section 40(2) of the I&B Code, 2016. The Liquidator argued that the advance paid by the purchaser does not fall under any of the clauses of Section 5(13) of the Code and cannot be treated as CIRP cost. The Tribunal, however, found that the advance payment for goods during CIRP, if not supplied, should be treated as CIRP cost to maintain the Corporate Debtor as a going concern. 2. Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP to keep the corporate debtor as a going concern ought to be treated as CIRP cost by the Liquidator for the purposes of disbursement under Section 52, read with Section 53 of I&B Code, 2016: The Tribunal discussed the statutory provisions under Section 20 and Section 5(13) of the I&B Code, which impose a duty on the Resolution Professional to preserve and protect the Corporate Debtor's assets and manage its operations as a going concern. The Tribunal noted that the advance payment for goods during CIRP should be treated as an expense incurred by the Resolution Professional to keep the Corporate Debtor as a going concern. The Tribunal found that the Liquidator's failure to decide on the Appellant's claim violated the time-bound process mandated by the Code. The Tribunal directed the Liquidator to admit or reject the claims of the Appellants within 30 days from the date of the judgment and communicate the reasons for rejection, if any, within seven days. 3. Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP ought to be refunded by the RP on account of delivery failure: The Tribunal found that the advance payment for the supply of goods during CIRP should be refunded if the goods are not supplied. The Tribunal emphasized that the purchaser cannot be made to run for their money if the goods are not supplied. The Tribunal held that such advance payments should be treated as CIRP costs, and the Liquidator must decide on the claims within the stipulated time frame. The Tribunal directed the RP to provide all necessary details and information relating to the transactions to the Liquidator within 15 days and the Liquidator to decide on the claims within 30 days from the date of the judgment. Order: The Tribunal directed the Respondent No. 3/RP to respond to the claims made in both the Appeals and supply all necessary details and information relating to the transactions to the Liquidator within 15 days. The Liquidator was directed to admit or reject the claims of the Appellants within 30 days from the date of the judgment, recording reasons in terms of Section 40 of the I&B Code. If the claims are rejected, the Liquidator must communicate the reasons to the Appellants and not act on the rejections for 14 days to enable the Appellants to move before the Adjudicating Authority. The Tribunal also directed that if the IRP/RP fails to provide the necessary information within 15 days, the Liquidator must file a report before the Adjudicating Authority and refer the matter to the IBBI for suitable actions. The Appeals were disposed of with these observations.
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