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TMI Blog2021 (1) TMI 978X X X X Extracts X X X X X X X X Extracts X X X X ..... oint to remember is, it is for supplementation, not for supplantation. The purpose and object of the Regulations issued by IBBI is to carry out the provisions of the Code, not for carrying out the purpose of the Code. It is in a way carrying out the provisions of Code will tantamount to carrying out the purpose of maximization of value as well. Here IBBI cannot jump the gun and say it has changed the procedure for maximization of value. As we all know, once the CIRP period is over, CoC will not remain in existence. Exercising commercial wisdom by the CoC has its own limitations. They can decide how much they get from the Resolution plan. The financial creditors converting into stakeholders during liquidation can express their wish in the meetings, but the liquidator is not bound by such decisions - It is explicitly mentioned in sub-section -1 of section 240, Regulations are to sub-serve sections of the Code in implementation. The delegated legislation shall not overreach Sections - When the dissolution is made explicit, IBBI ought not to have ignored the mandate u/s 54 of the Code. When something is said in preamble, it shall be assumed that a whole gamut of provisions of tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor without any support of any of the sections of IBC. In section 240 (2), regulating power is given to bring in supplementary procedure with regard to the sections mentioned therein, but not to the sections not mentioned in sub-section 2 of section 240. Section 54 is not included in section 240 (2) of the Code In section 54 also, it has not been mentioned as specified by the Board or in such manner as may be specified or prescribed . When no discretion is given to IBBI to help out in implementation of section 54 of the Code, it should not have given an unsolicited go-by to the dissolution in the case of a business sold as a going concern - This Regulation has been newly inserted on 25-7-2019, simultaneously along with this Regulation, CIRP Regulation 39C was inserted creating a right to CoC for approving a resolution to explore sale of the Corporate Debtor as a going concern under clause (e) of Regulation 32 of Liquidation Regulations in the event the corporate debtor goes into liquidation, on this premise the liquidator shall identify and group the assets and liabilities and ought to be sold as going concern, this RP shall place it before this Adjudicating Authority. Insol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as unsecured loan. That the redrawn share capital, reserves and share premium, if any, to form balance sheet, shall be in compliance with other provisions of the Companies Act and other applicable laws to properly represent the purchase consideration after nullifying the debit balance of profit and Loss account from the present capital and reserves. 2. For us, this whole process has become mind boggling. We don't know where this arrangement has come from; one thing is for sure it is not compatible with the structural arrangement given under the Companies Act. This liquidator has not stated how this arrangement is in sync with the Companies Act. Moreover, there is no pleading in the application that CoC, while proposing for liquidation, recommended as per CIRP Regulation 39C that the liquidator may first explore sale of the corporate debtor as a going concern, then pool up the assets and liabilities by the liquidator and the company ought to be sold as going concern and that recommendation ought to be approved by this Bench at the time of ordering for liquidation. Assuming what this liquidator says is correct, then also, unless sale of the corporate debtor as a going concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that to maximize the value of the Corporate Debtor the liquidator may sell the corporate debtor as a going concern or business of the corporate debtor as a going concern and close the liquidation process with the approval of this Adjudicating Authority bypassing dissolution mandate u/s 54? If it is selling business of the corporate debtor, we may not call for scrutiny of the Regulations because business will remain tied up with undertaking. But selling of a company is not envisaged either under IBC or in corporate jurisprudence. It is unknown to law and beyond the discretion given to IBBI under section 240 (2) (y) of the Code. 5. Regulating power in section 240 (2) (y) is limited to manner of sale, but not to sell the company itself. In a company, assets come and go, but a company being a juridical person with perpetual succession, it cannot be sold. It can only be dissolved. This wisdom of parliament or jurisprudence developed over centuries cannot be wiped out by a Regulation. It may look good for eyes to sell the company to the purchaser along with the assets when it is shown as a going concern on the ground of maximization of value, but this is not in the hands of eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o whether this Adjudicating Authority/Tribunal has competency to deal with this conflict, when IBBI conferred with Regulating Power under the same enactment has regulated liquidation process in a clear mandate (Regulation 45(3)(a)) that the liquidator shall submit an application before this Authority along with final report for closure of liquidation where the corporate debtor is sold as a going concern. But aforesaid regulation is repugnant to the mandate u/s 54, because after liquidation of the assets of the corporate debtor, an application shall be filed for dissolution of the corporate debtor and same shall be allowed. 10. With regard to the competency of this Tribunal to deal with subordinate/delegated legislation, we must visit the ratio decided by Hon'ble Supreme Court in L. Chandra Kumar v. Union of India 1997 taxmann.com 1023 (para 93) to say that Tribunals cannot test the vires of the Parent Legislation, because the Tribunal itself is the creature of the said Statute, but they are competent to test the vires of subordinate/delegated legislation. We are aware that the source for establishment of Administrative Tribunals has come from Administrative Tribunals Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the working and practices of, insolvency professionals, insolvency professional agencies and information utilities and other institutions, in furtherance of the purposes of this Code; (b) specify the minimum eligibility requirements for registration of insolvency professional agencies, insolvency professionals and information utilities; (c) levy fee or other charges for carrying out the purposes of this Code, including fee for registration and renewal of insolvency professional agencies, insolvency professionals and information utilities; (d) specify by regulations standards for the functioning of insolvency professional agencies, insolvency professionals and information utilities; (e) lay down by regulations the minimum curriculum for the examination of the insolvency professionals for their enrolment as members of the insolvency professional agencies; (f) carry out inspections and investigations on insolvency professional agencies, insolvency professionals and required for compliance of the provisions of this Code and the regulations issued hereunder; (g) monitor the performance of insolvency professional agencies, insolvency professionals and information util ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l conduct of the members of insolvency professional agencies; (c) requirements for enrolment of persons as members of insolvency professional agencies which shall be non-discriminatory; Explanation.-For the purposes of this clause, the term non-discriminatory means lack of discrimination on the grounds of religion, caste, gender or place of birth and such other grounds as may be specified; (d) the manner of granting membership; (e) setting up of a governing board for internal governance and management of insolvency professional agency in accordance with the regulations specified by the Board; (f) the information required to be submitted by members including the form and the time for submitting such information; (g) the specific classes of persons to whom services shall be provided at concessional rates or for no remuneration by members; (h) the grounds on which penalties may be levied upon the members of insolvency professional agencies and the manner thereof; (i) a fair and transparent mechanism for redressal of grievances against the members of insolvency professional agencies; (j) the grounds under which the insolvency professionals may be expelled f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clause (a), and any other information under clause (c), of sub-section (3) of section 7; [(g) * * * ] (h) the period under clause (a) of sub-section (3) of section 10; (i) the supply of essential goods or services to the corporate debtor under sub-section (2) of section 14; [(ia) circumstances in which supply of critical goods or services may be terminated, suspended or interrupted during the period of moratorium under sub-section (2A) of section 14;] (j) the manner of making public announcement under sub-section (2) of section 15; 3 [(ja) the last date for submission of claims under clause (c) of sub-section (1) of section 15;] (k) the manner of taking action and the restrictions thereof under clause (b) of sub-section (2) of section 17; (l) the other persons under clause (d) of sub-section (2) of section 17; (m) the other matters under clause (d) of sub-section (2) of section 17; (n) the other matters under sub-clause (iv) of clause (a), and the other duties to be performed by the interim resolution professional under clause (g), of section 18; [(na) the number of creditors within a class of creditors under clause (b) of sub-section (6A) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (e) of sub-section (4) of section 36; (zc) the other source under clause (g) of sub-section (1) of section 37; (zd) the manner of providing financial information relating to the corporate debtor under sub-section (2) of section 37; (ze) the form, the manner and the supporting documents to be submitted by operational creditor to prove the claim under sub-section (3) of section 38; (zf) the time within which the liquidator shall verify the claims under sub-section (1) of section 39; (zg) the manner of determining the value of claims under section 41; (zh) the manner of relinquishing security interest to the liquidation estate and receiving proceeds from the sale of assets by the liquidator under clause (a) and the manner of realizing security interest under clause (b) of sub-section (1) of section 52; (zi) the other means under clause (b) of sub-section (3) of section 52; (zj) the manner in which secured creditor shall be paid by the liquidator under sub-section (9) of section 52; (zk) the period and the manner of distribution of proceeds of sale under sub-section (1) of section 53; (zl) the other means under clause (a) and the other information un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e setting up of a governing board for its internal governance and management under clause (e), the curriculum under clause (l), the manner of conducting examination under clause (m), of section 196; (zzh) the time within which, the manner in which, and the fee for registration of 148 insolvency professional under sub-section (1) of section 207; (zzi) the categories of professionals or persons, the qualifications and experience and the fields under sub-section (2) of section 207; (zzj) the manner and the conditions subject to which the insolvency professional shall perform his function under clause (f) of sub-section (2) of section 208; (zzk) the farm and manner in which, and the fee for registration of information utility under sub-section (1) of section 210; (zzl) the form and manner for issuing certificate of registration and the terms and conditions thereof under sub-section (3) of section 210; (zzm) the manner of renewal of the certificate of registration and the fee therefor, under sub-section (4) of section 210; (zzn) the other ground under clause (d) of sub-section (5) of section 210; (zzo) the form, the period and the manner of filing appeal to the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 240 (1) of the Code stating that regulating power over particular sections will not cause prejudice to the general regulating power of sub-section 1, which is as follows: (1). The Board may, by notification, make regulations consistent with this Code and the rules made there under, to carry out the provisions of this Code 17. By reading this sub section, it is understandable that IBBI is given discretion to notify regulations. But those regulations are qualified by later-part of the sub-section above. 18. Those regulations shall be not only consistent with the Code but shall also be consistent with Rules issued u/s 239. So these Regulations shall be subordinate and supplemental to the Code as well as Rules. 19. The purpose and object of the Regulations issued by IBBI is to carry out the provisions of the Code, not for carrying out the purpose of the Code. It is in a way carrying out the provisions of Code will tantamount to carrying out the purpose of maximization of value as well. Here IBBI cannot jump the gun and say it has changed the procedure for maximization of value. As we all know, once the CIRP period is over, CoC will not remain in existence. Exercising com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Act, the court must see to it that the rule framed therefore is in conformity with the provisions thereof. ** ** ** 46. In Hotel Balaji and Others v. State of A.P. and Others [1993 Supp (4) SCC 536], whereupon Mr. Iyer placed reliance, it is stated: The necessity and significance of the delegated legislation is well accepted and needs no elaboration at our hands. Even so, it is well to remind ourselves that rules represent subordinate legislation. They cannot travel beyond the purview of the Act. Where the Act says that rules on being made shall be deemed as if enacted in this Act , the position may be different (It is not necessary to express any definite opinion on this aspect for the purpose of this case.) But where the Act does not say so, the rules do not become part of the Act. 21. The same ratio is held in LT.C Bhadrachalam Paper Boards v. Mandal Revenue Officer, AP [1996] 6 SCC 634, Gupta Modern Breweries v. State of J K [2007] 6 SCC 317, and Cellular Operators Association of India v. Telecom Regulatory Authority of India [2016] 7 SCC 703. 22. In view thereof, delegated legislation shall not overreach Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to IBBI is limited as to how to assess the assets and the manner of selling the assets. What is to be sold here is assets, selling as a going concern means the assets on 'as is where is basis', may be the unit in functioning condition. The discretion to the liquidator and IBBI Regulating power is confined to sell the assets, not the Corporate Debtor. 27. In section 240 (2) (y) also, IBBI is limited to regulate the manner of evaluating the assets and property of the corporate debtor under clause (c), the manner of selling property in parcels under clause (f), the manner of reporting progress of the liquidation process under clause (n), and the other functions to be performed under clause (o), of sub-section (1) of section 35. Therefore by reading all these, it is nowhere found in the Code that the corporate debtor could be alienated to the purchaser by dispensing with dissolution. If concessions are started providing, there won't be certainty, predictability, uniformity; nobody knows what decision will come tomorrow. This will lead to facelessness and discordancy. 28. Even in Section 240(2)(zk), the regulating power is limited to the period and the manner of dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximize the value of the corporate debtor, he shall endeavor to first sell under the said clauses. (2) For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern. (3) Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee. (4) If the liquidator is unable to sett the corporate debtor or its business under clause (e) or (f) of regulation 32 within ninety days from the liquidation commencement date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IRP process is separate and the liquidation process is separate. Separate yardsticks have been set up by the Code. 3. How CoC, which would not remain in existence after liquidation order, will issue its dictum to be followed without any other recourse to the liquidator despite liquidator is to act independently during liquidation process. 4. CoC has not been endowed with powers to give mandate over the progress of liquidation foreclosing the functions of the liquidator as stated under section 35 of the Code. 5. Indeed actions of the liquidator under section 35 are subject to the directions of this Adjudicating Authority. 6. Liquidator is not bound by the directions of the stakeholders, who are mostly none other than Financial creditors i.e., CoC members. 7. Moreover, the Regulating Authority is implicitly goading this Adjudicating Authority to approve actions not contemplated under the Code. 8. The right given to CoC is to make an effort to keep the assets intact and pass a resolution taking compromises against the right of recovery against the Corporate Debtor. 9. We don't want to get into the anxiety to ensure the company remains a going concern and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e form of liquidation value, this value in most cases will be far less than real market value or entrepreneur value. 13. Today what is the yardstick to categorize which corporate debtor is a going concern and which one is not a going concern? 14. Let us assume purchaser come forward to take the corporate debtor as going concern for a value less than liquidation value, as per this Regulation unless the liquidator has failed to get a purchaser under (e) and (f) of Regulation 32, cant he opt for another mode? In such a conundrum, how could the liquidator sell the assets in a method other than the method mentioned in (e) and (f)? This will again protract the litigation. 33. After examining these two Regulations, one from CIRP Regulations and another from Liquidation Regulations, we have not found any merit in either of these regulations, which are set up as foundation to say that by virtue of liquidation Regulation 45 (3), dissolution shall be dispensed with for closure of liquidation. 45. Final report prior to dissolution. (1) When the corporate debtor is liquidated, the liquidator shall make an account of the liquidation, showing how it has been conducted and how the corp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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