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TMI Blog2021 (2) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2020 Company Appeal (AT) (Insolvency) No. 191 of 2020 - - - Dated:- 3-2-2021 - [Justice A.I.S. Cheema] Member (Judicial) And [V. P. Singh] Member (Technical) For the Appellant : Mr Vaibhav Mahajan, Advocate For the Respondent : Mr Abhay Anand Jena, Mr Omnarayan Rai Mr Rahul Auddy, For R-1 R-2 JUDGMENT [ Per ; V. P. Singh , Member (T) ] These two Appeals emanate from the common Order dated 09th December 2019 passed by the Adjudicating Authority/National Company Law Tribunal, Kolkata Bench, Kolkata in Company Appeal (IB) No. 625/KB/2019 and 615/KB/2019 in Company Petition (IB) No.176/KB/2018, whereby the Adjudicating Authority has summarily disposed of the Applications filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I B Code') by issuing a common one-line order Liquidator to consider its claim as per Rules . Being aggrieved by the said Order, the Appellants have filed the two separate Appeals mentioned above. Their original status in the company petition represents the Parties in this Appeal for the sake of convenience. 2. These brief facts of the case are as follows: The Appellant in CA (AT) (Ins.) N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de Purchase Contract No. MLC20180824 dated 24 August 2018. iii) The Million Link paid full consideration for 100 MT against the Order of 1000 MT of Ferro Silicon Manganese, amounting to the US $104,000/- in advance, to Youthstar Vanijya Private Limited. In and around the month of December 2018/January 2019, Youthstar Vanijya (P) Limited supplied and shipped 100 MT of Ferro Silicon Manganese to Million Link. iv) In September 2018, Authorised Representative of the Corporate Debtor and the Resolution Professional approach to Million Link insisted on keeping the business relations intact and purchasing the goods manufactured by the corporate debtors manufacturing plant. Corporate debtor further represented that its business is being run as a going concern and as such there are effective attempts and steps being made to revive the business and as such corporate debtor will be able to undertake and complete all the business transactions that it agrees to undertake with million Link within the timeline agreed. v) Based on the aforesaid representations and considering the fact that the corporate debtor might benefit from the business so received, million Link agreed to purchase th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its acceptance or rejection of such claim within 7 days of such decision. However, the Liquidator has failed to adjudicate upon the claims of the Appellant despite several requests by the Appellant. x) The RP has furnished Form-III (a cost sheet submitted by RP after demitting his office) as prescribed under Circular No. IBBI/IP/013/2018 dated 12th June 2018, without disclosing the costs incurred by him to run the Corporate Debtor as a going concern, especially the dues above of the Appellant is in itself against the mandate of the said Circular. After that, the Appellant filed the aforesaid Application in CA (IB) No.625/KB/2019 seeking direction against the Liquidator to refund the advance payments made for the purchase of goods by Appellant during CIRP or in the alternative to classify and admit the claims submitted by Appellants as Corporate Insolvency Resolution Process Cost (in short CIRP cost). But the Liquidator refuses to treat the aforesaid claim as CIRP cost and clarify its position to treat the same as a pre-CIRP claim for disbursement. 6. In Company Appeal (AT) (Ins.) No. 190 of 2020 has been filed by Tuf Metallurgical Private Limited against the Liquidator of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication by issuing a direction to the Liquidator to consider the claims of the Appellant as per law. The Appellant filed the instant Appeal against the impugned order dated 09th December 2019 seeking adjudication of the dispute with respect to the treatment of Appellant's claim as CIRP costs as the same has a significant bearing for the Appellant, even more so, as the Appellant has strong reason to be believe that the Liquidation proceeds may not be enough to cover any claim other than CIRP costs causing severe prejudice to the Appellant, who has paid advance amount to purchase goods from Corporate Debtor undergoing CIRP in good faith. 9. The Liquidator/Respondent No.2 has filed its Reply, wherein it is stated that the Adjudicating Authority has directed him to consider the claim of the Appellant as per rules. Under the Impugned Order Appellants lodged its claim afresh on 03rd January 2020. The claim was under consideration of Respondent No.2, and it was taking some time since several factual clarification was required. Still, the Appellant has filed the present Appeal before this Appellate Tribunal. 10. The Liquidator contends that the respondent No.3 has handed over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be treated as CIRP costs. 15. Corporate Insolvency Resolution Process was initiated on 09th March 2018. After perusal of the record, it is apparent that the Appellant transferred USD 507300.69 in the account of Corporate Debtor Impex Metal and Ferro Alloys Limited on 28th September 2018. The copy of the said transfer memo along with the proforma invoice is annexed with the Appeal paper book is as under for ready reference: 16. It is mentioned explicitly that the advance amount of USD 507314.13, was towards Payment for Goods against Proforma Invoice IMFA/PI/18- 19/006. After adjusting the bill of the goods supplied, balance advance amount USD 333834 remains with the corporate debtor, which is claimed as CIRP cost. 17. The proforma invoice depicts that it was generated for the supply of 900 MT of Ferro Silicon Manganese @ 1040 USD per MT, valued USD 9,36,000/-. It is also stated in the proforma invoice that advance payment is released along with the purchase order and balance amount payable at the time, the loaded container is released from the plant. Appellant has also annexed the copy of commercial invoice dated 15th October 2018 which is relating to the supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. raw materials, entered into a contract with one of the directors of the suspended Board of the corporate debtor, to purchase a certain amount of Ferro Manganese during CIRP period, without any approval or authorisation of Resolution Professional. There is no document on record even slightly showing that the transaction was even feebly ratified or authorised by the IRP/RP. Therefore the Appellants statement cannot and should not be taken to be sacrosanct. 22. It is argued, that the entire transaction was in total disregard of Section 20(2)(b) of the Code, in as much as in terms of the provision thereof only the IRP / RP can enter into a contract on behalf of the corporate debtor, who can amend and modify the contracts or transactions which were entered into before the commencement of CIRP, as the Management of the operations of the corporate debtor remains with The Resolution Professional and power of the Board of directors is suspended. Thus the contract is void ab initio and that being so the Appellant's claim cannot be considered a CIRP cost incurred during the CIRP. The Appellant cannot claim ignorance of the fact that Corporate Debtor is under CIRP as the advance pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of such property is not less than the amount equivalent to twice the amount of the debt. (d) to issue instructions to personnel of the corporate debtor as may be necessary for keeping the corporate debtor as a going concern; and (e) to take all such actions as are necessary to keep the corporate debtor as a going concern.] Section 25: Duties of resolution professional 1[(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:-- (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section 28; (d) appoint accountants, legal or other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital structure of the corporate debtor, including by way of issuance of additional securities, creating a new class of securities or buying back or redemption of issued securities in case the corporate debtor is a company; (d) record any change in the ownership interest of the corporate debtor; (e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting; (f) undertake any related party transaction; (g) amend any constitutional documents of the corporate debtor; (h) delegate its authority to any other person; (i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties; (j) make any change in the Management of the corporate debtor or its subsidiary; (k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business; (l) make changes in the appointment or terms of contract of such personnel as specified by the committee of cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred on or by the interim resolution professional to the extent ratified under Regulation 33; (d) expenses incurred on or by the resolution professional 0fixed under Regulation 34; and (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee. 32. Essential supplies.-The essential goods and services referred to in Section 14(2) shall mean- (1) electricity; (2) water; (3) telecommunication services; and (4) information technology services, to the extent these are not a direct input to the output produced or supplied by the corporate debtor. Illustration.-Water supplied to a corporate debtor will be essential supplies for drinking and sanitation purposes, and not for generation of hydro-electricity. 33. Costs of the interim resolution professional.-(1) The applicant shall fix the expenses to be incurred on or by the interim resolution professional. (2) The Adjudicating Authority shall fix expenses where the applicant has not fixed expenses under sub-regulation (1). (3) The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preserve and protect the Corporate Debtor's assets, including the continued business operations of the Corporate Debtor. 27. 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. 28. 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. 29. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other expenses are determined by him on an arm's length basis, in consonance with the requirements of the integrity and independence; (d) writen contemporaneous records for incurring are agreeing to incur any fee or the expenses are maintained; (e) supporting records of fee and other expenses incurred are maintained at least for 3 years from the completion of the CIRP; (f) approval of the committee of creditors for the fee or other the expense is obtained wherever approval is required; (g) all CIRP related fee and other expenses are paid through banking channel. 33. Based on the above Circular, it is clear that the Committee of Creditors' approval is required for the fee and other expenses incurred by the Resolution Professional, only where approval is required. The Insolvency and Bankruptcy Code provides the places where prior approval is required explicitly with the vote's necessary percentage. Thus, it cannot be said that any action of the Resolution Professional can only be validated if it has the Committee of Creditors' approval. 34. Regarding the argument advanced by the Liquidator about IBBI Circular dated 12th June 2018, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal, the Appellant has jumped one forum which should not be permitted. 40. 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. 41. In case of 2019 SCC OnLine NCLAT 785 M V Projects V Divya Jyoti Sponges Iron Pvt Ltd this Tribunal has held that: 25. In view of the aforesaid provision, if the Appellant has supplied the goods during the period of the 'Corporate Insolvency Resolution Process' to keep the Company as a going concern, it was the duty of the 'Resolution Professional' to include such cost towards 'Resolution Process Cost' for payment in favour of Appellant for non-inclusion of the same, it can be held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m and admitted a sum of ₹ 165.09 Crores payable as on the 'Insolvency Commencement Date'. The 'Corporate Debtor' was availing raw material procurement facility from 'MSTC Limited' from abroad. 21. Further, according to the 'Resolution Professional' a sum of ₹ 165.09 Crores as on the 'Insolvency Commencement Date' less an amount of ₹ 18.5 Crores was disbursed to 'MSTC Limited', after which their pending claim stood at ₹ 146.59 Crores. In order to ensure continued supply of goods (raw materials) through 'MSTC Limited' an advance amount of ₹ 56.72 Crores out of the admitted claim of ₹ 146.59 Crores was made. Thereafter, amount as due was ₹ 108.36 Crores. 22. It was further submitted that 'MSTC Limited' is demanding to treat their outstanding claims of ₹ 108.36 Crores which relates to supply made prior to the 'Insolvency Commencement Date'. It was submitted that the aforesaid amount of ₹ 108.36 Crores cannot be treated as 'Resolution Process Cost'. 23. According to Appellant - 'MSTC Limited', whatever payment made by the 'Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. A perusal of the record of Company Appeal (AT) (Ins.) No. 191 of 2020 shows purchase contract dated 24th August 2018 (Page 64) executed between the Appellant and Youth Star Vanijya Pvt. Ltd. which has an addendum (Page 67) dated 21st S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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