9911796707
TMI Blog2024 (5) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the CIRP to be treated as CIRP costs. Brief Background of the case : 2. On November 18, 2014, National Thermal Power Corporation Limited (NTPC) issued a Letter of Award to the Corporate Debtor (SHEL) to construct CW Systems and MUW Systems Civil Works for the Darlipali Super Thermal Power Project, Odisha. On February 27, 2018, the Corporate Debtor (SHEL) entered into a sub-contract with Respondent No. 1/ M/s RBM Enterprises, appointing it to fabricate and erect CW ducts at the NTPC project site at Darlipali, Odisha. The work order was issued in favor of Respondent No. 1 and was a sub-contract under the main contract executed between the Corporate Debtor and National Thermal Power Corporation Limited ("NTPC") on back-to-back basis. In September 2018, the Adjudicating Authority initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor and appointed Mr. Harshad Deshpande as the Interim Resolution Professional (IRP). Following this, a public announcement was made inviting claims from creditors. Subsequently, Mr. Ashish Rathi was appointed as the Resolution Professional (RP), and later on an Interlocutory Application for liquidation of the Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Corporate Debtor, filed an Interlocutory Application under Section 33 of the Code for the liquidation of the Corporate Debtor. It was admitted by the Adjudicating Authority vide order dated 25.06.2019 ("Liquidation Order") and Mr. Avil Menezes, the Appellant herein was appointed the liquidator of the Corporate Debtor. The Appellant as liquidator in turn invited claims by publishing the Public Announcement as required by Regulation 12 of the Liquidation Regulations, 2016. 9. The Appellant- liquidator received a claim dated 26.07.2019 filed by Respondent No. 1 claiming an amount of INR 1,36,41,854/- (Indian Rupees One Crore Thirty-Six Lakhs Forty One Thousand Eight Hundred and Fifty Four Only) out of which, Rs. 1,25,84,249/- (Indian Rupees One Crore Twenty- Five Lacs Eighty-Four Thousand Two Hundred and Forty-Nine Only) was for work completed by Respondent No.1 during the CIRP Period and Rs.10,57,605/- (Rupees Ten Lakhs Fifty Seven Thousand Six Hundred and Five only) was for work before CIRP period. This claim pertains to the execution of fabrication and erection works of CW ducts at the project site at Darlipali. 10. Pursuant to the Liquidation Commencement, Respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the cost incurred by the Appellant was part of the CIRP cost. The Appellant, vide email dated 07.10.2020, responded to the above legal notice wherein the Appellant clearly stated that the dues of Respondent No.1 were not classified as CIRP costs by Respondent No. 2 and, therefore, the Appellant cannot treat the claim of Respondent No. 1 as a CIRP cost. And the same would be distributed following Section 53 of the Code. 14. Being aggrieved, Respondent No. 1 filed an Interlocutory Application No. 162 of 2021 before the Hon'ble Adjudicating Authority. Vide Order dated 14.12.2021, Adjudicating Authority directed the Respondent No.1 to submit his claim to the Appellant, and the Appellant was directed to process the amount claimed on merits as per Rules and Regulations of the Code. After due consideration of the submitted claim and in compliance with the Order of the AA dated 14.12.2021, the Appellant informed Respondent No. 1 that its claim cannot be considered or treated as CIRP Cost as the same is not considered as CIRP Cost by Respondent No. 2 and will be paid as per Section 53 of the Code. 15. Being aggrieved by the decision of the Appellant, Respondent No. 1/subcon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 passed in I.A. No. 1810 of 2021, I.A. No.1812 of 2021, I.A. 2583 of 2021 and I.A. No. 2587 of 2021:- "We observe that there is no relationship of these expenses as per the list prepared by the RP and confirmed by the CoC. Further, this was also not considered as a part of the CIRP cost when Liquidator convened another meeting of the Creditors. Hence, the Applications is liable to be rejected. Accordingly, this IAs are dismissed as rejected". 19. The Appellant submits that the Adjudicating Authority was bound by the doctrine of stare decisis, which forbids the tribunal/courts from taking any view opposite to its earlier decisions. Issues in the captioned Application have already been adjudicated by the Adjudicating Authority in I.A. No. 162 of 2021 filed by Respondent No. 1. Therefore, the captioned Application was barred by principles of res judicata. The Appellant submits that the Adjudicating Authority was bound by the principles of res judicata. 20. The Applicant submits that it is evident from the Application filed by Respondent No.1 that dues up to INR 10,57,605/- (Rupees Ten Lakhs Fifty Seven Thousand Six Hundred and Five only) are for works before the CIRP Period. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etings that dues of the vendors/subcontracts for projects, where the payments have not been received from the employer should not be treated as CIRP cost. Therefore, the CoC decided that payments would be made from the cashflows of each project, and where payments were not received, those dues would be treated as having not been incurred to keep the Corporate Debtor as a going concern. Accordingly, the resolution professional and the Appellant herein followed the decision of the CoC and did not treat Respondent No. 1's claim as CIRP cost. 26. The Appellant relies on this Tribunal's judgment in Bharat Hotels Ltd. v Tapan Chakraborty Company Appeal (AT) (Insolvency) No. 1074 of 2022 where it was held that "Question of cost and its approval lays in the domain of the CoC. The CoC may ratify, modify or set aside the cost claimed. These issued may be decided in the meeting of the CoC and are not to be examined by the Adjudicating Authority even before the CoC takes a decision. It shall be always open for the appellant to raise issue regarding the cost in the meeting of the Committee of Creditors." This position was also restated in Mehul Parekh and Ors. v. Unimark Remedies and Ors. Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of the Corporate Debtor make it clear that the Resolution Professional, during the ongoing CIRP of the Corporate Debtor, has specifically approved the invoices and has made the comment "work done" for specific months during the CIRP Period. This is sufficient proof of the fact that the Respondent had, on the basis of specific directions of the Resolution Professional, continued to provide services to the Corporate Debtor, and the Resolution Professional has approved the said invoices of the Respondent during the CIRP of the Corporate Debtor. Corporate Debtor, has specifically handed over a Confirmation of Account dated April 2019, which is signed and confirmed by the senior executives of the Corporate Debtor, i.e., Engineering Project, Deputy General Manager Accounts under the control of RP. Resolution Professional, have confirmed the outstanding payable to the Respondent of Rs. 1,25,84,249/- for the work done by the Respondent during the CIRP period. Under such circumstances, it is totally false upon the Appellant to state that since the project was completed during the CIRP period, the same cannot be attributed as CIRP cost. 32. Further as per Section 5(13)(c), "any cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be deployed back in the project or not. The RP also added that letters have been written to all the customers stating that best efforts would be put in by RP and his team to provide all the assistance and deploy back the funds at the earliest convenience depending on the availability of funds. The CoC members stated that the Company officials and the RP should ensure certain cut back to meet other costs of the Corporate Debtor and to take care of the CIRP costs" 37. Further, the CIRP expenses were also discussed in the 10th CoC meeting held on June 03, 2019 and the relevant extract of minutes are as under: "Agenda Item No. 4 - To take note of the Corporate Insolvency Resolution Process ("CIRP") expenses. The RP then presented the CIRP costs till date to the members and stated these are approximate numbers, and that the costs required to be incurred till final orders are passed u/s 31 or u/s 33 would also be CIRP cost. The RP also added that costs relating to sites which are inactive or have been terminated earlier/during the CIRP may not form a part of CIRP cost, as the CoC had authorized payments for the sites out of the cash flows being received from such sites, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge of his functions under 4[section 25A];] (b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d); 5[(ba) fee payable to the Board under regulation 31A;] (c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33; (d) expenses incurred on or by the resolution professional fixed under Regulation 34; and (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee." [ Emphasis Supplied ] It would be apparent from the highlighted portion of the Regulation that costs would be CIRP costs if they are directly related to the Corporate Insolvency Resolution Process and also approved by the Committee of Creditors (CoC). And in this case CoC had not approved for it to the treated as CIRP costs. 41. Another dimension which is peculiar to the facts of the case, is the contractual condition, specifically clause 5 which relates to back-to-back contract. The RP had classified the projects into different categories as follows and was treating them differently for CIRP costs- 1) Active Projects - wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phasis supplied] 42. RP/CoC in their 5th and the 10th meeting had decided that payments to vendors engaged in specific projects would be sourced from the cash flow generated by those projects' customers. The Darlipali Plant of the Corporate Debtor ceased operations during the CIRP Period. Consequently, the activities undertaken by Respondent No. 1, acting as a subcontractor, did not contribute to the Corporate Debtor's viability as a "going concern." Given that the Corporate Debtor was functioning as a contractor, its ability to fulfil financial obligations hinges upon the receipt of payments from NTPC. This dependency is also underscored by Clause 5 of the commercial terms outlined in the back-to-back contract executed on 17th February 2018 with Respondent No. 1, stipulating that payments to Respondent No. 1 are contingent upon NTPC's disbursement. Consequently, both within and outside the purview of the Corporate Insolvency Resolution Process (CIRP), the Corporate Debtor remains bound by the contractual obligation to remunerate Respondent No. 1 solely upon the receipt of funds from NTPC. Until such time, the obligation to compensate Respondent No. 1 does not crystal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the Liquidator to ascertain these facts and admit the claim of the Applicant after applying the aforesaid principle." [ emphasis supplied ] 44. Adjudicating Authority has returned a finding that the Corporate Debtor as a whole need to be considered as going concern and not parts of the Corporate Debtor. Applying this in present case, all the costs pertaining to all the sites will have to be taken as CIRP costs, which may lead to an absurd situation that the vendors of these sites would get priority over the payments in waterfall mechanism under section 53 of the Code, even in a situation when there are no cash inflows from that particular project, and that might encroach upon the rights of the other stakeholders who would otherwise have priority in the waterfall mechanism. 45. Such a finding also goes against the existing legal provisions and precedents and the facts of the case as noted in the subsequent paragraphs. 46. Moreover, such decisions need the approval of the CoC as is clear from the Section 5(13) of the Insolvency and Bankruptcy Code, 2016 and also Regulation 31 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 which says that "In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, wherever approval is required; and (g) all CIRP related fee and other expenses are paid through banking channel. 7. The Code read with regulations made thereunder specify what is included in the insolvency resolution process cost (IRPC). The IP is directed to ensure that:- (a) no fee or expense other than what is permitted under the Code read with regulations made thereunder is included in the IRPC; (b) no fee or expense other than the IRPC incurred by the IP is borne by the corporate debtor; and (c) only the IRPC, to the extent not paid during the CIRP from the internal sources of the Corporate Debtor, shall be met in the manner provided in section 30 or section 53, as the case may be. 8. It is clarified that the IRPC shall not include : (a) any fee or other expense not directly related to CIRP; (b) any fee or other expense beyond the amount approved by CoC, where such approval is required; (c) any fee or other expense incurred before the commencement of CIRP or to be incurred after the completion of the CIRP; (d) any expense incurred by a creditor, claimant, resolution applicant, promoter or member of the Board of Directors of the corporate debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2022 it was held that : "5. In the present case, the CIRP had commenced on 19.12.2019 and after more than two years, resolution was passed on 28.06.2022 for liquidation. The Application which was filed by the Appellant on the very next day of passing of the resolution was indirectly for challenging the liquidation. The Appellant who is a minority shareholder in the CoC cannot resist the passing of the resolution. The Adjudicating Authority has rightly rejected the application filed under Section 18 of Code and Regulation 34A, which was not to be entertained. The Appellant asked Resolution Professional to disclose item wise insolvency resolution process costs in such manner as required by the Board (IBBI). Question of cost and its approval lays in the domain of the CoC. The CoC may ratify, modify or set aside the cost claimed. These issued may be decided in the meeting of the CoC and are not to be examined by the Adjudicating Authority even before the CoC takes a decision. It shall be always open for the appellant to raise issue regarding the cost in the meeting of the Committee of Creditors. With reference to the grievance of the Appellant with regard to obtaining valuation re ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
