Saturday, 13 February 2021

M V Projects Vs Divya Jyoti Sponge Iron Pvt. Ltd. & Ors - Unpaid cost of goods supplied to CD during CIRP forms part of CIRP cost.

NCLAT (24.04.2019) in M V Projects Vs Divya Jyoti Sponge Iron Pvt. Ltd. & Ors.  [Company Appeal (AT) (Insolvency) No. 481 of 2018] held that; 

  • In view of the aforesaid provision, if the Appellant has supplied the goods during the period of the ‘Corporate Insolvency Resolution Process’ to keep the company as a going concern, it was the duty of the ‘Resolution Professional’ to include such cost towards ‘Resolution Process Cost’ for payment in favour of Appellant, for non-inclusion of the same, it can be held that the ‘Resolution Plan’ in question is in violation of Section 30(2) (a) of the ‘I&B Code’.


Excerpts of the order;

All these appeals arise out of two different orders dated 13th March, 2018 and 11th July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, passed in common proceeding, and as such they were heard together and are being disposed of by this common judgment.


# 4. ‘M/s. MV Projects’- Appellant, in the other appeal one of the ‘Operational Creditor’, is aggrieved against the order dated 11th July, 2018 passed by the Adjudicating Authority in CA (IB) No. 583/KB/2018 in CP(IB) No. 363/KB/2017, whereby the Adjudicating Authority held that the ‘Resolution Plan’ having approved, the application filed by the ‘Operational Creditor’ is not maintainable.


Company Appeal (AT) (Insol.) No. 481 of 2018

# 19. Learned counsel for the Appellant- ‘M/s. MV Projects’ submitted that it is a sole proprietorship concern, which is a ‘supplier of coal’ for the business of the ‘Divya Jyoti Sponge Iron Pvt. Ltd.’- (‘Corporate Debtor’). The supply of coal has been made to the ‘Corporate Debtor’ even after the initiation of the ‘Corporate Insolvency Resolution Process’ on 23rd August 2017 i.e. during the ‘Insolvency Resolution Process’ to keep the company as a going concern. The ‘Resolution Professional’ placed orders with the Appellant even after initiation of the ‘Corporate Insolvency Resolution Process’. An amount of Rs. 26,68,298/- remained outstanding which is due and payable to the Appellant.


# 20. The ‘Resolution Professional’ has not filed any reply denying the claim aforesaid. As per the provisions of the ‘I&B Code’ and the Regulations framed, the ‘Insolvency Resolution Cost’ is payable in priority to other costs both in the case of success of Resolution and in the case of liquidation without any haircuts. The Adjudicating Authority by impugned order dated 11th July, 2018 has not addressed the aforesaid issue on the ground that the ‘Resolution Plan’ has already been approved.


# 21. Section 5(13) defines ‘insolvency resolution process costs’ and reads as follows:

  • “5. Definition─ (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;

  • (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern;

  • (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and

  • (e) any other costs as may be specified by the Board;”


# 22. Section 14 defines ‘Moratorium’ and sub-section (2) of Section 14 reads as follows:

  • 14. Moratorium. - (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—

  • (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

  • (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

  • (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

  • (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

  • (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period…….”


# 23. As per Section 30(2), the ‘Resolution Professional’ is required to examine that each of the ‘Resolution Plan’ confirm the provisions as made therein. Relevant portion of sub-clause (a) of sub-section (2) of Section 30 reads as follows:

  • “30. Submission of resolution plan - (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan—

  • (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor;”


# 24. Regulation 31 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 deals with ‘Insolvency Resolution Process Costs’ and reads as follows:

  • “31. Insolvency resolution process costs. ─ “Insolvency resolution process costs” under section 5(13) (e) shall mean─

  • (a) Amounts due to suppliers of essential goods and services under Regulation 32;

  • (aa) fee payable to authorized representative under sub-regulation (7) of regulation 16A;]

  • (ab) out of pocket expenses of authorized representative for discharge of his functions under section 25;]

  • (b) Amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under Section 14(1) (d);

  • (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.”


# 25. In view of the aforesaid provision, if the Appellant has supplied the goods during the period of the ‘Corporate Insolvency Resolution Process’ to keep the company as a going concern, it was the duty of the ‘Resolution Professional’ to include such cost towards ‘Resolution Process Cost’ for payment in favour of Appellant for non-inclusion of the same, it can be held that the ‘Resolution Plan’ in question is in violation of Section 30(2) (a) of the ‘I&B Code’.


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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.