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TMI Blog2023 (12) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal under sub-section (6) of Section 230. Whether the Scheme Proponent, who has submitted scheme for compromise and arrangement is liable to pay any liquidation fee, since in the present case, Liquidator is claiming a liquidation fee of Rs.23,01,000/- from the Scheme Proponent? - HELD THAT:- The provision of Section 34, sub-sections (8) and (9) is perused, which deals with fee of Liquidator for conduct of liquidation proceedings. The payment of fee, thus, has to be as per the statutory provisions under Section 34 sub-sections (8) and (9). Regulation 2B, which deals with compromise or arrangement specifically provide for payment of cost incurred by the Liquidator in relation to compromise and arrangement - The sub-regulation (3) of Regulation 2B, makes it clear that Liquidator is entitled to receive the cost incurred by the Liquidator in reference to comprise and arrangement from the Corporate Debtor and from the Proponent of the Scheme. In case the compromise is sanctioned, the cost shall be borne by the Corporate Debtor and in case compromise is not sanctioned the cost shall be borne by the parties, who proposed compromise or arrangement. The statutory provision is, thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Liquidator, he was not entitled to a fee of Rs.23,01,000/- and after deducting the amount of Rs.23,01,000/- in total amount, the Liquidator at best is entitled for amount of Rs.1,11,172/- towards all expenses claimed by the Liquidator. The Adjudicating Authority has rightly directed the Liquidator to refund of the amount. As observed above, the Liquidator at best is entitled to expenses as claimed by him in the liquidation process and if the amount of all expenses claimed by the Liquidator are deducted, still the Liquidator is liable to refund the amount of Rs.22,77,108/-, as per his own calculation - the direction to refund the amount of Rs.23,88,280/- be modified for refund of the amount of Rs.22,77,108/-. From the facts which have been noticed and the manner in which the Liquidator has conducted the liquidation process, raises question on understanding of the liquidation process, liquidation regulations and the manner in which the Liquidator has demanded liquidation fee from the Scheme Proponent - appeal dismissed. - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Anoop Prakash Awasthi , Advocate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt paid by the Respondent to the Liquidator was Rs.23,88,280/- from 20.04.2022 to 28.02.2023. (iv) Under the order of the Adjudicating Authority dated 06.01.2023, the Liquidator convened a meeting of Creditors on 17.02.2023. In the meeting of the Creditors held on 17.02.2023, the scheme submitted by Respondent was rejected by the Creditors. Respondent received an email from the Liquidator on 1st March, 2023 informing it that in the meeting of the Creditors, the scheme submitted by the Respondent has been rejected. (v) The Respondent, i.e. , the Scheme Proponent filed an Application before the Adjudicating Authority being I.A. (IB) No.975/KB/2023, where following prayers were made: a. That this Hon ble Tribunal be pleased to direct the Respondent to forthwith refund the amount of Rs.23,88,280 (Rupees Twenty-Three Lakh Eighty-Eight Thousand Two Hundred and Eighty Only) to the Applicant or such other amount as this Hon ble Tribunal may deem fit and proper. b. That this Hon ble Tribunal be pleased to pass such other and further orders as the Hon ble Tribunal may deem fit and proper in the facts and circumstances of the present case. (vi) The Liquidator filed a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t during the period of consideration of the scheme of compromise and arrangement. It was the Scheme Proponent, who has to bear the liquidation fee. The terminology of liquidation cost , is not applicable to cases under Section 230 of the Companies Act, 2013. The Adjudicating Authority was utterly unjustified in depriving the Appellant of its legitimate fee and the order is against the provisions of the Code and Regulations. 5. The learned Counsel for the Respondent contended that amount of Rs.23,88,280/- was paid by the Respondent at the insistence of the Liquidator. The Liquidator pressurized the Respondent into making payment, which is clear from the email sent by the Liquidator on 23.12.2022. Even after the scheme was rejected on 17.02.2023, the Liquidator accepted the amount from the Respondent. It is submitted that as per Regulation 2B(3) of the Liquidation Regulations, 2016, cost in relation to compromise and arrangement is to be borne by the parties, who proposes compromise and arrangement. The term cost only indicates cost incurred by the Liquidator in respect of compromise and arrangement and no other cost as sought to be asserted by the Liquidator could have been pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and Filing fee for IA 358/2023 Affidavit of Service u/r 12 of CAA Rules 10,000 Drafting and Filing fee for IA 521/2023 Result of meeting of creditors 11,800 Publication of Form CAA 2 2,352 Audit fee for FY 2021- 22 20,000 Bank charges till 17.02.2023 638 MSME registration of the Corporate Debtor 2,700 ROC filing fee 600 Sub-total 23,94,466 Other expenses Publication of sale notices dt. 27.02.2022, 22.03.2022 and 14.04.2022 10,626 E-voting charges 7,080 Total 24,12,172 8. When we look into the reply of Liquidator filed in the Application, the Liquidator has claimed Liquidator s fee for 13 months as Rs.23,01,000/- and rest of the amount included in total of Rs.24,12,172/- is the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ories under sub regulation (3) of regulation 2A; (viii) any other cost incurred by the liquidator which is essential for completing the liquidation process: Provided that the cost, if any, incurred by the liquidator in relation to compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013), if any, shall not form part of liquidation cost. 10. The proviso to above definition makes it clear that cost, if any, incurred by the Liquidator in relation to compromise or arrangement under Section 230 of the Companies Act, if any, shall not form part of liquidation cost. 11. Regulation 2B of the Liquidation Regulations, 2016, deals with Compromise or arrangement , which is as follows: 2B. Compromise or arrangement. (1) Where a compromise or arrangement is proposed under section 230 of the Companies Act, 2013 (18 of 2013), it shall be completed within ninety days of the order of liquidation under sub-sections (1) and (4) of section 33. Provided that a person, who is not eligible under the Code to submit a resolution plan for insolvency resolution of the corporate debtor, shall not be a party in any manner to such compromise or arrangement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the amount distributed, for the balance period of liquidation, as under: Amount of Realisation/ Distribution (In Rupees) Percentage of fee on the amount realized/ distributed in the first six months in the next six months thereafter On the first 1 crore 5.00 3.75 1.99 On the next 9 crore 3.75 2.80 1.41 On the next 40 crore 2.50 1.88 0.94 On the next 50 crore 1.25 0.94 0.51 On further sums realized 0.25 0.19 0.10 Amount Distributed to Stakeholders On the first 1 crore 2.50 1.88 0.94 On the next 9 crore 1.88 1.40 0.71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Regulations, 2016 deals with fee. Thus, the Rule making Authority is fully aware of the difference between the cost and fee. Regulation 2B does not indicate that any fee by Liquidator can be charged from the Scheme Proponent. The Liquidator is entitled to his fee as per the statutory provision of Section 34, sub-section (8) and (9) as noted above read with Regulation 4 of Liquidation Regulations, 2016. No fee can be charged from the Scheme Proponent, who has submitted the Scheme under Section 230 of the Companies Act, 2013 read with Regulation 2B of Liquidation Regulations, 2016. Thus, the insistence of Liquidator and defense taken by the Liquidator in reply to I.A. (IB) No.975/KB/2023 that he is entitled to fee of Rs.23,01,000/- is wholly erroneous and unsupported by any statutory scheme. 18. The learned Counsel for the Appellant contended that in event the Scheme Proponent is not saddled with liquidation fee and cost, non-serious Scheme Proponent will be encouraged and shall be wasting time of the liquidation. The consideration of the scheme submitted by a Scheme Proponent for comprise or arrangement is governed by statutory provisions, which is required to be completed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In Para 9.4 of the scheme submitted by you, you have indicated the final shareholding pattern of the Corporate Debtor after implementation of the scheme. However, you have not indicated the treatment of the existing shares of the Corporate Debtor, i.e. whether the existing shares will be transferred to you, or will they be extinguished and you shall be issued new shares. Request you to clarify the same in the same undertaking as required in Para (1) of this email. 4. You have already paid Rs.7,88,280 pertaining to the liquidation costs and fee of the liquidator for the anticipated 90 day period of the scheme of compromise and arrangement. However, since the scheme is taking longer to be approved by the Adjudicating Authority, we call upon you to contribute the fee of the liquidator for the period 24.05.2022 23.09.2022 as indicated in regulation 4(2)(a) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 ( Liquidation Regulations ) @ Rs.1.50 lacs per month plus GST amounting to Rs.7.08 lacs. 5. As discussed in our mail dt. 21.03.2022, in compliance with Rule 3(6)(b) of the Companies (Compromises, Arrangements and Amalgamations) Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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