2021 (11) TMI 475 - Tri - Insolvency and Bankruptcy

Seeking direction to Respondent to permit the Financial Creditors of the Corporate Debtor to distribute amount from the cash balance available with the Corporate Debtor in the proportion of their respective voting share in the erstwhile CoC - permission to Financial Creditors of the Corporate Debtor to distribute the cash balances available with the Corporate Debtor, other than such cash which the is currently required for the operation of the Corporate Debtor as a going concern - HELD THAT - This Bench is the view that this application is premature at this juncture. Implementation of approved Resolution Plan failed consequently the Company has been put in the Liquidation, but the company is still working and therefore distribution of its cash balance will derogate the value of company which will meager the possibility of achieving maximization of value of assets. Hence this application is rejected. The Liquidator is directed to submit progress report along with revised list of stakeholders of the Corporate Debtor. Further, Liquidator also directed to take steps towards completion liquidation of the Corporate Debtor in time bound manner then start distribution in one go. Application disposed off.

Issues Involved:

1. Distribution of Cash Balance
2. Implementation of Approved Resolution Plan
3. Liquidation Process and Compliance with Section 53 of the Insolvency and Bankruptcy Code, 2016 (I&B Code)
4. Objections and Undertakings by Financial Creditors
5. Applicability of Previous NCLT Orders

Issue-wise Detailed Analysis:

1. Distribution of Cash Balance:
The Applicant, IDBI Bank Limited, sought the distribution of INR 223 crore from the cash balance of EPC Constructions India Limited (Corporate Debtor) among its financial creditors. The Applicant argued that the cash balance forms part of the "liquidation estate" under Section 36(3)(c) and (i) of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The Applicant submitted that the distribution should follow the order of priority set out in Section 53 of the Code, which includes insolvency resolution process costs, liquidation costs, and workmen’s dues.

2. Implementation of Approved Resolution Plan:
The approved Resolution Plan required an upfront payment of INR 420 crores by the Resolution Applicant, Royale Partners Investment Fund Limited, to the financial creditors. However, the Resolution Applicant failed to implement the plan within the prescribed period. Consequently, the Tribunal directed the liquidation of the Corporate Debtor effective from 18th May 2021. The Applicant then modified its prayers to request the distribution of available cash balances among stakeholders as per Section 53 of the Code.

3. Liquidation Process and Compliance with Section 53 of the I&B Code:
The Liquidator, in his reply, stated no objection to distributing up to INR 220 crores among stakeholders per the order of priority specified under Section 53 of the I&B Code. However, the Liquidator sought an undertaking from financial creditors to replenish any shortfall in meeting liquidation process requirements within 15 days of demand. The Liquidator estimated the liquidation process costs to not exceed INR 80 crores and noted that the Corporate Debtor generates approximately INR 6-7 crores in cash monthly.

4. Objections and Undertakings by Financial Creditors:
The Applicant, representing all financial creditors, volunteered to distribute the cash balance in the priority set out in Section 53 of the Code. The Applicant undertook to replenish any deficit amount within fifteen days from the demand by the Liquidator. The financial creditors communicated their willingness to this condition during the hearing.

5. Applicability of Previous NCLT Orders:
The Applicant argued that the NCLT Kolkata Bench's order in Varsana Employee Welfare Association vs. Anil Goel was not applicable to the present case. The Applicant distinguished the facts of the previous order, noting that workmen's dues were not accounted for, and an application for compromise and arrangement was pending in that case. The Applicant believed that the necessary requirements for distribution under Regulation 42 of the IBBI (Liquidation Process) Regulations, 2016, had been fulfilled.

Findings:
The Tribunal found the application premature, noting that the Corporate Debtor was still operational. Distributing the cash balance would derogate the company's value and hinder the maximization of asset value. The Tribunal directed the Liquidator to submit a progress report and a revised list of stakeholders and to complete the liquidation process in a time-bound manner before starting distribution.

Conclusion:
The application was rejected, and the Liquidator was directed to proceed with the liquidation process efficiently. The Tribunal emphasized the need to maximize the value of the Corporate Debtor's assets before any distribution of the cash balance. The present IA No. 977 of 2021 in C.P (IB) No. 1832/MB/C-II/2017 was disposed of accordingly.

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