Tuesday, 19 January 2021

Gainwell Commosales Private Limited Vs. Rockwell Resources Earthmovers Private Limited - Where there is no resolution, CoC & Applicant to bear the CIRP cost.

NCLT Kolkata (15.01.2021) in  Gainwell Commosales Private Limited Vs. Rockwell Resources Earthmovers Private Limited  [IA No. 1372/KB/2020 in CP (IB) No. 1733/KB/2018]  held that; 

  • Section 30(2)(a) of the Code provides that the insolvency resolution process cost is to be paid by the Resolution Applicant. However, in cases where there is no resolution it is the duty of the CoC and the applicant at whose behest the CIRP is initiated to pay the RP.


Excerpts of the order;

# 1. This court convened via video conference today.


# 2. This is an application filed by the Resolution Professional (RP) of the Corporate Debtor, viz., Rockwell Resources Earthmovers Private Limited, praying for direction to release the fund deposited by Gainwell Commosales Private Limited (operational creditor), lying in the escrow account maintained by the Registrar, National Company Law Tribunal (NCLT), Kolkata bench.


# 3. This Adjudicating Authority vide its order dated 25.11.2019 on a Petition filed by the operational creditor under section 9 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) directed initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor and appointed the Applicant herein as the Interim Resolution Professional (IRP) who was later confirmed as the RP by the Committee of Creditor (CoC) on 21.12.2019.


# 4. In the said order dated 25.11.2019, this Adjudicating Authority had directed the operational creditor to deposit a sum of Rs. 3,00,000/- (Rupees Three Lakhs Only) in the escrow account maintained with SBI by the Registrar, NCLT, Kolkata bench for the purpose of meeting preliminary expenses for initiating the CIRP. The aforesaid amount was deposited in the said account.


# 5. The Authorised Representative submits as follows: 

  • a. The corporate debtor is a going concern. It used to provide support services to a joint venture firm in which it is a partner holding majority stake. The corporate debtor has paid Rs. 5,00,000/- (Rupees Five Lakhs Only) towards the fees of the IRP and RP for the period of 25.11.2019-07.02.2020. The RP is regularly working and has incurred costs amounting to a sum of Rs. 18,34,894/- (Rupees Eighteen Lakhs Thirty Four Thousand Eight Hundred Ninety Four Only) which is inclusive of his fees from 10.02.2020 to 24.10.2020. He has also committed an amount of Rs. 4,11,800/- (Four Lakhs Eleven Thousands and Eight Hundred Only) which is due for payment towards fees of valuer, auditors, etc. However, due to the lockdown since the last week of March, 2020 there has been no business in the corporate debtor company. The corporate debtor is not in a position to pay the RP due to poor liquidity.

  • b. The CoC at its meeting held on 21.12.2019 has approved the expenses incurred by the RP with 100% votes.

  • c. The RP had requested the Registrar NCLT, Kolkata bench to release the said amount vide his letter dated 21.10.2020. The Registrar had asked the RP to make an application before this Adjudicating Authority to that effect vide a letter dated 02.11.2020. Thus, the RP has filed this application.


# 6. I have heard the Authorised Representative appearing on behalf of the RP and the RP appearing in person and perused the records.


# 7. The RP cannot, even in the interim, be expected to pay for the substantial expenses out of his own pocket. As per regulation 34 of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 the CoC is supposed to fix the expenses to be incurred on or by the RP and the expenses shall constitute insolvency resolution process costs. Section 30(2)(a) of the Code provides that the insolvency resolution process cost is to be paid by the Resolution Applicant. However, in cases where there is no resolution it is the duty of the CoC and the applicant at whose behest the CIRP is initiated to pay the RP.


# 8. Be that as it may, to keep the CIRP running can be a costly affair and the RP cannot be expected to empty his coffers only to be paid later. Although, the amount deposited in the escrow account is  comparatively less than what has been incurred by the RP, it will certainly provide him the room to breathe.


# 9. The Registrar, NCLT, Kolkata bench is, therefore, directed to release the said amount deposited by the operational creditor in the escrow account maintained by him to the RP. This amount shall be reimbursed in full to the operational creditor within a period of fifteen days from the date of pronouncement of this order, since this amount is part of CIRP costs.


# 10. The application bearing IA (IB) No. 1372/KB/2020 shall stand disposed of in accordance with the above directions.


# 11. CP (IB) No. 1733/KB/2018 to come up on 20.01.2021, which is the date already fixed.


# 12. The Registry is directed to send e-mail copies of the order forthwith to all the parties and their Authorised Representatives for information and for taking necessary steps.


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Blogger’s Comments; This order has rendered the following provisions of the Code as meaningless & infructuous;


# Section 52. Secured creditor in liquidation proceedings.

XXXXX

(8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate.


# Section 53. Distribution of assets. -

(1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period as may be specified, namely: -

  • (a) the insolvency resolution process costs and the liquidation costs paid in full;

  • XXXX


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Blog ;  Can a CoC member be asked to contribute towards CIRP cost ?


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Disclaimer:

The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.