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2025 (4) TMI 378 - AT - IBCLiquidation Estate of the Corporate Debtor or not - Amount deposited with Punjab National Bank (PNB) by the guarantors - waterfall mechanism - HELD THAT - From the perusal of the balance sheet of the Corporate Debtor and other materials on record we find that certain payments have been received by the company in liquidation and the same has been paid by Respondent No. 2 and 3 to Respondent No. 1. It is also found that the Respondent No. 1 filed its claim for an amount of Rs. 18, 17, 55, 581/- which has been admitted by the Liquidator. Also in terms of Section 52(1) of Code vide letter dated 17.12.2018 Respondent No.1 PNB has already relinquished its security interest to the liquidation estate. The amount has been realized from the assets under Liquidation estate of the CD in Liquidation and distributed in preference to one of the creditors Respondent No.1 PNB without intimation to the Liquidator which should have been distributed by the Liquidator as per Section 53 of the IBC, 2016 i.e waterfall mechanism. Further Respondent No.1 PNB has not placed any evidence or document to demonstrate that the amount which has been reduced in the Balance sheet of the Corporate Debtor is not an asset of the Corporate Debtor and without considering that no document was filed by the Respondent No. 1. Section 36 (1) of the Code provides that for the purposes of liquidation the liquidator shall form an estate of the assets mentioned in sub-section (3) which will be called the liquidation estate in relation to the Corporate Debtor. Further Section 36 (2) provides that the Liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors. Any amount reflected in the balance sheet of the Corporate Debtor is admittedly an asset of the Corporate Debtor and therefore the Adjudicating Authority ought to have considered the balance sheet of the Corporate Debtor which reflects a reduction of short-term borrowing during the Liquidation process - Respondent No. 1 has no right to recover any amount being an asset of the Company in liquidation during the liquidation process as Respondent No.1 PNB will receive the proceeds from Liquidation Estate in the manner provided under Section 53 of the Code. Respondent No.1 PNB had already filed its claim for an amount of Rs. 18, 17, 55, 581/- which has been admitted by the Liquidator and in terms of Section 52 (1) (a) of the Code has vide its letter dated 17.12.2018 already relinquished its security interest to the Liquidation Estate and have agreed to receive the proceeds from the sale of assets by the Liquidator in the manner specified and therefore the Respondent No.1 PNB cannot recover any amount being part of the Liquidation Estate. Respondent No. 1-PNB has not been able to justify that the dues to the tune of INR 4, 50, 44, 500/- so satisfied are not made out of assets of the Corporate Debtor. It can be safely concluded that it is none other than Trade Receivables and Trade Payments of the Corporate Debtor which has been used to pay Rs.4, 50, 44, 500/-. Conclusion - The amount deposited by the guarantors is part of the Liquidation Estate and should be refunded to the Liquidation account of the Corporate Debtor. Apeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment were: 1. Whether the amount of Rs. 4,50,44,500/- deposited with Punjab National Bank (PNB) by the guarantors forms part of the Liquidation Estate of the Corporate Debtor (CD), M/s Vegan Colloids Limited, under the Insolvency and Bankruptcy Code, 2016 (IBC). 2. Whether the Adjudicating Authority (AA) erred in dismissing the application for refund of the said amount to the Liquidation Estate, considering it as an asset of the guarantors rather than the Corporate Debtor. ISSUE-WISE DETAILED ANALYSIS 1. Inclusion of Rs. 4,50,44,500/- in the Liquidation Estate Relevant legal framework and precedents: The relevant legal framework involves Section 36 of the IBC, which outlines the composition of the Liquidation Estate, including assets over which the Corporate Debtor has ownership rights. Section 52 and 53 of the IBC govern the realization and distribution of assets during liquidation, mandating adherence to the waterfall mechanism for creditor payments. Court's interpretation and reasoning: The Tribunal found that the amount in question was realized from assets under the Liquidation Estate of the Corporate Debtor and distributed preferentially to one creditor, PNB, without the Liquidator's involvement. This distribution contravened the prescribed waterfall mechanism under Section 53 of the IBC. Key evidence and findings: Evidence included discrepancies in the Corporate Debtor's balance sheet, which showed a reduction in short-term borrowings and trade receivables. The Tribunal noted that the amount was reflected in the balance sheet of the Corporate Debtor, indicating it as an asset of the Corporate Debtor. Application of law to facts: The Tribunal applied Section 36 of the IBC, determining that any asset reflected in the Corporate Debtor's balance sheet should be part of the Liquidation Estate. The Tribunal concluded that the amount deposited by the guarantors should have been distributed according to the waterfall mechanism under Section 53. Treatment of competing arguments: The Appellant argued that the amount was part of the Liquidation Estate, as it was reflected in the Corporate Debtor's balance sheet. The Respondent contended that the amount was paid by the guarantors under a One-Time Settlement (OTS) and thus did not belong to the Corporate Debtor. The Tribunal found the Appellant's argument more compelling, given the balance sheet evidence and the lack of documentation from the Respondent to prove otherwise. Conclusions: The Tribunal concluded that the amount of Rs. 4,50,44,500/- was indeed part of the Liquidation Estate and should be refunded to the Liquidation account of the Corporate Debtor. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: The Tribunal held: "Any amount reflected in the balance sheet of the Corporate Debtor is admittedly an asset of the Corporate Debtor and, therefore, the Adjudicating Authority ought to have considered the balance sheet of the Corporate Debtor which reflects a reduction of short-term borrowing during the Liquidation process." Core principles established: The Tribunal reinforced the principle that all assets listed in the Corporate Debtor's balance sheet are included in the Liquidation Estate under Section 36 of the IBC. It emphasized the necessity of adhering to the waterfall mechanism in Section 53 for distributing liquidation proceeds. Final determinations on each issue: The Tribunal set aside the Adjudicating Authority's order, determining that the amount deposited by the guarantors was part of the Liquidation Estate and should be refunded to the Liquidation account of the Corporate Debtor. The appeal was allowed, and no costs were ordered.
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