NCLAT (03.01.2019) in Sanjay Kumar Ruia Vs. Catholic Syrian Bank Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 560 of 2018] held that;
We, therefore, hold that the Adjudicating Authority exceeded its jurisdiction by extending the period of 90 days after completion of 270 days of the ‘Corporate Insolvency Resolution Process’ wrongly exercising its power under sub-section (2) of Section 55 which is not applicable.
we hold that after completion of 270 days, the ‘Committee of Creditors’ ceased to exist and thereby they have no jurisdiction to replace a ‘Resolution Professional’ under Section 22 of the ‘I&B Code’. Even if the decision to replace the ‘Resolution Professional’ is taken prior to 270 days, in absence of any order passed by the Adjudicating Authority, such decision cannot be entertained on completion of 270 days.
we hold that the Adjudicating Authority had no jurisdiction to decide the resolution cost including the fee of the ‘Resolution Professional’.
Excerpts of the order;
03.01.2019─ This appeal has been preferred by Sanjay Kumar Ruia, erstwhile ‘Resolution Professional’ of ‘S.N. Plumbing Private Limited’ against the order dated 25th July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal) Mumbai Bench, Mumbai, in MA No. 580 of 2018 (in CP(IB) No. 1268/MB/MAH/2017), whereby and whereunder, the Adjudicating Authority while extending the period of resolution process in exercise of power conferred under Section 55 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code”) treating the matter as ‘Fast Track Corporate Insolvency Resolution Process’ also determining the ‘Corporate Insolvency Resolution Process fee’ and the ‘cost’ incurred and payable to Appellant (Sanjay Kumar Ruia) to the tune of Rs. 23,69,064/- plus G.S.T.
# 2. Learned Counsel appearing on behalf of Sanjay Kumar Ruia, erstwhile ‘Resolution Professional’ of ‘S.N. Plumbing Private Limited’, submits that the ‘Resolution Professional’ has incurred expenditure against different heads and submitted professional bill totaling Rs. 1,45,92,064/- which was also approved by the ‘Committee of Creditors’. Thereafter, the Adjudicating Authority while passing order under Section 55, without any basis, reduced the amount to the tune of Rs. 23,69,064/- plus G.S.T., which is not permissible in law.
# 3. It is further submitted that after completion of 270 days of the ‘Resolution Process’, the ‘Committee of Creditors’ had no power to replace the ‘Resolution Professional’ and the Adjudicating Authority had no power to extend the period beyond 270 days.
# 6. The questions arise for consideration in this appeal are:
i. Whether in a ‘Corporate Insolvency Resolution Process’ triggered under Sections 7 or 9 or 10 of the ‘I&B Code’, the Adjudicating Authority has power to convert the ‘Corporate Insolvency Resolution Process’ as a ‘Fast Track Corporate Insolvency Resolution Process’ under Section 55 of the ‘I&B Code’?
ii. Whether ‘Committee of Creditors’ had jurisdiction to replace the ‘Resolution Professional’ after completion of 270 days? And;
iii. Whether Adjudicating Authority is empowered to decide the resolution cost, including the resolution fee payable to the ‘Resolution Professional’?
Issue No.1
# 11. We, therefore, hold that the Adjudicating Authority has no jurisdiction to proceed with the ‘Corporate Insolvency Resolution Process’ beyond the period of 270 days having not empowered under the provisions of the ‘I&B Code’.
# 14. Admittedly, the ‘Corporate Debtor’- ‘S.N. Plumbing Private Limited’ does not come within the category of ‘Corporate Debtor’ in terms of clauses (a) or (b) or (c) of sub-section (2) of Section 55, its assets and income being not below a level, notified by the Central Government nor having class of creditors or amount of debt as notified by the Central Government. Therefore, Section 55 cannot be invoked against the ‘Corporate Debtor’- ‘S.N. Plumbing Private Limited’.
# 15. We, therefore, hold that the Adjudicating Authority exceeded its jurisdiction by extending the period of 90 days after completion of 270 days of the ‘Corporate Insolvency Resolution Process’ wrongly exercising its power under sub-section (2) of Section 55 which is not applicable. Accordingly, the Issue No.1 is answered in negative.
Issue No.2
# 16. After completion of 270 days of ‘Corporate Insolvency Resolution Process’, the Adjudicating Authority can pass order under Section 31 of the ‘I&B Code’, if a ‘Resolution Plan’ has been approved by the ‘Committee of Creditors’. In absence of any ‘Resolution Plan’, the Adjudicating Authority is bound to pass order under Section 33 by initiating liquidation proceeding against the ‘Corporate Debtor’.
# 17. In the background of law as discussed above, we hold that after completion of 270 days, the ‘Committee of Creditors’ ceased to exist and thereby they have no jurisdiction to replace a ‘Resolution Professional’ under Section 22 of the ‘I&B Code’. Even if the decision to replace the ‘Resolution Professional’ is taken prior to 270 days, in absence of any order passed by the Adjudicating Authority, such decision cannot be entertained on completion of 270 days. However, the ground taken by the ‘Committee of Creditors’ can be looked into by the Adjudicating Authority to decide whether the same ‘Resolution Professional’ should be allowed to continue as ‘liquidator’ of the ‘Corporate Debtor’. The Issue No.2 is also answered in negative.
Issue No.3
# 20. The Regulation 34 aforesaid makes it clear that the ‘Committee of Creditors’ is required to determine the expenses incurred on or by the ‘Resolution Professional’, which shall also constitute ‘Insolvency Resolution Process Costs’. Explanation below Regulation 34 indicates that “expenses” which includes the fee to be paid to the resolution professional and the other expenses, including the cost of professional advisors, to be incurred by the resolution professional.
# 22. On combined reading of Section 30 of the ‘I&B Code’ with Regulations 31, 34 & 38, it is clear that the ‘Committee of Creditors’ is required to determine the resolution cost to be incurred by ‘Resolution Professional’ including the fee which is to be incurred in the ‘Resolution Plan’ in terms of sub-section 2(a) of Section 30, which includes ‘Insolvency Resolution Process’ including i.e. the expenses to be incurred on failure of the ‘Resolution Plan’. It is only thereafter when the Adjudicating Authority either approve(s) the ‘Resolution Plan’ under Section 31 of the ‘I&B Code’, the ‘Resolution Professional’ is entitled to know the actual expenses allowed, as approved by the ‘Committee of Creditors’ and the Adjudicating Authority. Once the ‘Resolution Plan’ is determined by the ‘Committee of Creditors’, the Adjudicating Authority cannot differ with the same nor can sit in appeal, except in cases where there is an arithmetical error.
# 23. In case ‘Corporate Insolvency Resolution Process’ fails and order of liquidation is passed under Section 33 in such case, the ‘Resolution Professional’ can be removed if it is found that he has violated Section 30(2) or otherwise he is to be allowed to function as ‘liquidator’.
# 24. In the present case, as no order has been passed under Section 31, nor any order has been passed by the Adjudicating Authority under Section 33, we hold that the Adjudicating Authority had no jurisdiction to decide the resolution cost including the fee of the ‘Resolution Professional’. Issue No.3 is answered accordingly.
# 26. For the reasons aforesaid, the impugned order dated 25th July, 2018 is set aside. The Adjudicating Authority is directed to pass order under Section 31 but if no ‘Resolution Plan’ has been approved, the Adjudicating Authority will pass order under Section 33 of the ‘I&B Code’, more than 270 days having expired.
# 27. Pursuant to the interim order of this Appellate Tribunal dated 24th September, 2018, a sum of Rs. 20 lacs, including GST has already been paid to the Appellant. In view of such payment, we direct that while ‘Resolution Cost’ will be determined by the Adjudicating Authority, the amount already paid should be adjusted. If further amount is payable, it should be paid to the Appellant. On the other hand, it is determined that less amount is payable, the Appellant will refund the excess amount immediately. The Appeal is allowed with aforesaid observation. No order towards cost.
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