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TMI Blog2023 (12) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... ose dues are upto Rs.10 lakhs and those whose dues are more than Rs.10 lakhs? - HELD THAT:- It is not the case of the Appellant that amount proposed to the Operational Creditor in the category of employees is less than the amount, which they would have received in event of liquidation of the Corporate Debtor. Hence, there are no error in the distinction of payment as contained in paragraph 3.3.2 of the Resolution Plan. The distribution to the employees, whose liquidation value was NIL falls within the commercial wisdom of the CoC and the said clause of Resolution Plan cannot be impugned on the said ground, nor the said proposal for payment is violative of Section 30, sub-section (2) (b) of the Code. Whether the Adjudicating Authority erred in issuing directions for redetermination of the CIRP cost by the CoC? - HELD THAT:- In the present case, it has not been shown that CIRP cost, which has been determined by the Resolution Professional for running the business of the Corporate Debtor was required approval of CoC under Section 28 of the Code. The Adjudicating Authority by the impugned order in paragraph 6.2 has held that CoC shall be competent to determine the quantum of CIRP cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pursue the avoidance applications by the CoC as issued therein is fully justifiable and does not warrant any interference at the instance of the Appellant. Appeal allowed in part. X X X X Extracts X X X X X X X X Extracts X X X X ..... r during the CIRP period due to low capacity utilization and high employee costs. We clarify that our observation in relation to CIRP cost should not be taken as our approval of CIRP cost claimed by the Resolution Professional in the submissions before us and CoC shall be competent to determine the quantum of CIRP cost payable under the Plan. To be deleted 3. 6.5 We clarify that the Resolution Professional shall ensure that no claim in relation to avoidance transaction, where any of promoters/ KMPs falling under employees category, is pending for adjudication before the Adjudicating Authority before releasing the amount payable to such promoters/ KMPs under the plan. The amounts so detained shall be subject to appropriation towards amount found recoverable from such promoter/ KMP in accordance with the order passed by the Adjudicating Authority. To be deleted 4. 9 The MA 269/2019 pertaining to adjudication of avoidance transactions u/s 43, 45, 49 & 66 OF THE Code, pending before the Adjudicating Authority, shall be pursued by Committee of Creditors and the proceeds of recovery in pursuance thereto shall be distributed amongst the Financial Creditor. If any balance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajan, learned Counsel appearing for the Resolution Professional; Shri Abhijeet Sinha, learned Counsel appearing for Successful Resolution Applicant as well as learned Counsel appearing for the Financial Creditors. 6. The Appellant submits that Adjudicating Authority committed error in issuing direction to CoC to redetermine CIRP cost after approval of Resolution Plan, which is not sustainable in law. The Resolution Plan having been approved, the determination of CIRP cost is to be done by the Resolution Professional, which has already been determined by the Resolution Professional, there was no occasion to issue a direction to the CoC to redetermine the CIRP Cost. It is contended that CoC has already approved the salary without any upper limit in its Meeting held on 03.05.2018. It is contended that CoC under the garb of redetermination of CIRP cost cannot reverse its own decision for its unfair gain. The expenses incurred by the RP for running the business of Corporate Debtor as a going concern being CIRP cost within the meaning of Section 5(13)(c) of the Code has to be paid first before any payment made to any other creditor. The Adjudicating Authority exceeded its authority in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are not merely Operational Creditors, but also 'related party' to the Corporate Debtor. Hence, the Resolution Plan can provide for a differential treatment as against other Operational Creditors (employees and workmen). The Appellants belong to a class distinct from other employees. The contention of the Appellants claiming parity in treatment with the employees and workmen is misconceived and legally untenable. The learned Counsel, however, submits that Appellants were the employees of the Corporate Debtor and were assisting in the operations of the Corporate Debtor during the CIRP period. The CoC has already approved the dues of the Appellants during the CIRP period in the first CoC Meeting held on 3rd May, 2018. However, pursuant to the impugned order, the Resolution Professional has not distributed the unpaid dues towards the CIRP period. It is submitted that Resolution Professional has already filed an Application for avoidance of fraudulent transactions against the Promoters/ Key Managerial Personnel ("KMPs"), which is pending adjudication before Adjudicating Authority. The dues of Promoters/ KMPs are liable to be set-off against the amounts recoverable from them under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments to employees of the Corporate Debtor differently from those whose dues are upto Rs.10 lakhs and those whose dues are more than Rs.10 lakhs. The Resolution Professional has filed reply in the Appeal and has given the details of claims submitted in CIRP of the Corporate Debtor and claims admitted. It has been pleaded by the Resolution Professional that no claim of workmen was received by the Resolution Professional. In paragraph 4.9 and 4.10 of the reply, following have been stated: "4.9. It may be noted that during the corporate insolvency resolution process ("CIRP") of the Corporate Debtor, the Answering Respondent received a total claim of INR 11.05 Crores from the employees of the Corporate Debtor. This comprises an amount of INR 7.36 Crores towards salary and other dues, INR 2.28 Crores towards gratuity dues and INR 0.81 Crores towards leave encashment dues. The entire amount of INR 11.05 Crores of employee claim has been admitted by the Answering Respondent. It may also be noted that the liquidation value payable to the employees is 'nil' and no workmen claims have been received by the Answering Respondent. 4.10 Clause 3.3 of the Resolution Plan de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution plans not providing for any payment to such related parties were upheld by this Court; and that the principles of non-discrimination would not be applicable to the decision of CoC. It has been argued on behalf of the resolution professional that none of the statutory requirements are of any mandate that a provision has to be made in the resolution plan for payment to the related parties. According to the learned counsel, the need is, essentially, to ensure that the plan provides for payment to financial creditors (including dissenting financial creditors) entitled to vote. Thus, the plan in question cannot be said to be standing in contravention of any mandatory requirements. Per contra, the learned counsel appearing for the related party would submit that even when related party is to be treated as a separate class in terms of the principles laid down by this Court in Phoenix ARC (supra), so as to be excluded from CoC, there is no reason that they be treated as separate class when it comes to payment of dues under the resolution plan. It is submitted that failure to provide for discharge of debt of the related party is in violation of Section 30(2)(b), (e) and (f) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said related party. Suffice it would be to observe for the present purpose that the Appellate Tribunal has erred in applying the principles of non- discrimination and thereby holding against the resolution plan in question for want of provision for related party." 13. The above judgment fully supports the contention of Respondent that with regard to payment to 'related party' there can be no discrimination nor any parity can be claimed by the 'related party' with regard to similar category creditors. The above judgment makes it clear that distinction between payment to 'related party', i.e., Appellants before us, cannot be found fault with. It is to be noted that it is the only 'related party' that has come up in this Appeal and we need to examine their claim of payments only. 14. It has been pleaded that liquidation value for payment to employees being 'NIL', they were not entitled for any more payment as has been proposed under Section 30,sub-section (2) (b) of the Code. The payments to Operational Creditors has to be as per Section 30, sub-section (2), which is as follows: "30(2). The resolution professional shall examine each resolution plan received by him to confirm tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law." 15. It is not the case of the Appellant that amount proposed to the Operational Creditor in the category of employees is less than the amount, which they would have received in event of liquidation of the Corporate Debtor. Hence, we do not find any error in the distinction of payment as contained in paragraph 3.3.2 of the Resolution Plan. The distribution to the employees, whose liquidation value was 'NIL' falls within the commercial wisdom of the CoC and the said clause of Resolution Plan cannot be impugned on the said ground, nor the said proposal for payment is violative of Section 30, sub-section (2) (b) of the Code. 16. Now coming to Question No.(II), it is relevant to notice that CIRP cost as defined in Section 5, sub-section (13), which is as follows: "5(13) "insolvency resolution process costs" means - (a) the amount of any interim finance and the costs incurred in raising such finance; (b) the fees payable to any person acting as a resolution professional; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor. (2) The resolution professional shall convene a meeting of the committee of creditors and seek the vote of the creditors prior to taking any of the actions under sub- section (1). (3) No action under sub-section (1) shall be approved by the committee of creditors unless approved by a vote of 1 [sixty-six] per cent. of the voting shares. (4) Where any action under sub-section (1) is taken by the resolution professional without seeking the approval of the committee of creditors in the manner as required in this section, such action shall be void. (5) The committee of creditors may report the actions of the resolution professional under sub-section (4) to the Board for taking necessary actions against him under this code." 19. In the present case, it has not been shown that CIRP cost, which has been determined by the Resolution Professional for running the business of the Corporate Debtor was required approval of CoC under Section 28 of the Code. The Adjudicating Authority by the impugned order in paragraph 6.2 has held that CoC shall be competent to determine the quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imself and to obtain a confirmation of his determination of the CIRP cost by an Auditor, which having been done, no further approval of the CoC was required for payment of CIRP Cost. We, thus, are of the view that directions issued by the Adjudicating Authority in paragraph 6.2, empowering the CoC to redetermine CIRP cost deserves to be set aside and is hereby set aside. 21. Now coming to Question No.(III), by which Adjudicating Authority directed the Resolution Professional not to release the payment of CIRP cost, till the disposal of the avoidance application, and the amount to be detained shall be subject to appropriation towards any amount found recoverable from such promoter/ KMP. 22. The determination of CIRP cost and payment of CIRP cost to those who found entitled to receive the payments is an independent process from any recovery from Promoters/ KMPs, consequent to avoidance application filed by Resolution Professional under the provisions of the Code, including Section 66 of the Code. The directions, which were issued by the Adjudicating Authority in paragraph 6.5 was to withhold the claim of Promoters/ KMPs, falling for adjudication and before releasing the amount paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance is left after satisfaction of their admitted claim the same shall be distributed amongst other creditors in accordance with section 53 of the Code." 24. After approval of the Resolution Plan, the Adjudicating Authority is fully empowered to issue any direction, as to how the avoidance applications has to be pursued and direction to pursue the avoidance applications by the CoC as issued therein is fully justifiable and does not warrant any interference at the instance of the Appellant. 25. In view of the foregoing discussions, we partly allow the Appeal in following manner: (a) Direction contained in paragraph 6.2 of the impugned order is set aside. (b) Direction contained in paragraph 6.5 is modified in following manner: (i) The amount of CIRP cost payable to Promoters/ KMPs as determined by Resolution Professional, shall be kept in a FDR in favour of such Promoters or KMPs in any of the nationalized bank by the Resolution Professional. (ii) The FDR shall be released in favour of Promoters/ KMPs after adjusting any amount, which is found recoverable from such Promoters/ KMPs, consequent to any order passed by the Adjudicating Authority in avoidance applications, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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