NCLAT (08.02.2021) in Tuf Metallurgical Private Limited & Anr. Vs Impex Metal & Ferro Alloys Limited & Ors.. [Company Appeal (AT) (Insolvency) No. 190 & 191 of 2020] held that;
It is an advance for payment of goods which the Corporate Debtor as a going concern may be manufacturing. The goods are either to be supplied, or the amount should be returned. If the goods are not supplied, the purchaser cannot be made to run for his money. If this approach as in the present matter is not changed, it will become difficult to keep the Corporate Debtors as a going concern. Such amount received as an advance payment for the supply of goods during the CIRP would have to be treated as CIRP costs.
Excerpts of the order;
# 2. These brief facts of the case are as follows:
The Appellant in CA (AT) (Ins.) No. 191 of 2020 Million Link (China) Investment Limited filed an Application seeking directions against the Liquidator/Corporate Debtor to refund an amount of Rs.2,40,35,301/- immediately- (Rupees Two Crores Forty Lacs Thirty-Five Thousand Three Hundred and One Only) paid as advance by the Appellant for purchase of Ferro Silicon Manganese from Corporate Debtor during CIRP period as the Corporate Debtor failed to supply the said goods on account of a breakdown in its manufacturing abilities or in the alternative to treat the said refund/claim of the Appellant as CIRP costs for disbursement under Section 52 read with Section 53 I&B Code.
# 3. The Appellant had also filed their claims above in Form 'G' claiming it part of CIRP costs before the Learned Liquidator (Section 38 of I&B Code, 2016). But the Liquidator failed to communicate its decision of acceptance or rejection of the Appellant's claim as CIRP costs, which violates Section 40(2) of I&B Code, 2016 read with Regulation 30 of Liquidation Process Regulation.Thus, the Appellants applied to the Adjudicating Authority under Sec 60(5) of the Code, which got numbered as Company Appeal (IB) No. 625/KB/2019 and Company Appeal (IB) No. 615/KB/2019.
# 6. In Company Appeal (AT) (Ins.) No. 190 of 2020 has been filed by Tuf Metallurgical Private Limited against the Liquidator of the Corporate Debtor on being aggrieved by the interim order passed by the Adjudicating Authority/National Company Law Tribunal, Kolkata passed in CA (IB) No.615/KB/2019 in Company Petition No.176/KB/2018 under Section 60(5) of the Code.
# 7. Brief facts of this Company Application is that the Appellant filed an Application before the Liquidator of the Corporate Debtor for issuing a direction to refund an amount of Rs.4,50,54,512/- (Rupees Four Crore FiftyLacs Fifty Four Thousand Five Hundred Twelve Only) paid in advance by the Appellant for purchase of Ferro Silicon Manganese from the Corporate Debtor during CIRP period as the Corporate Debtor failed to supply the said goods on account of breakdown in its manufacturing abilities and a further amount of Rs.43,56,897/- payable as damages by Corporate Debtor on account of his default to pay for the raw materials (Manganese Ore) supplied by Appellant during CIRP period; or in the alternative to treat the said total refund/claim amounting to Rs.4,94,11,409/- (Rupees Four Crore Ninety Four Lacs Eleven Thousand Four Hundred Nine Only) of the Appellant as CIRP costs for the purpose of disbursement under Section 52 read with Section 53 of I&B Code, 2016. The Appellant has also submitted the aforesaid claim as part of CIRP costs before the Learned Adjudicator as per Section 38 of I&B Code in Form 'G'. However, the Liquidator failed to communicate his decision of acceptance of the rejection of Appellant's claim as CIRP costs as per Section 40(2) of I&B Code, 2016. Therefore, the Appellant approached the Adjudicating Authority by way of CA (IB) No.615/KB/2019. The Adjudicating Authority vide order dated 13th June 2019 stayed the disbursement of sale proceeds to be realised from the Liquidation proceeds during the aforesaid Application's pendency.
# 11. Liquidator further states that if an advance has been paid by the purchaser, under no circumstances does the same fall under any of the clauses of Section 5(13) of the Code. It is contended that the alleged advance cannot be treated as interim finance because there is no CoC ratification to that effect. The expenses incurred and approved by the RP such as the purchase of raw materials, workers engaged, electricity purchase etc. will ome within this ambit are covered in phrase 'expenses incurred by the RP', but the advance given by purchaser cannot under any circumstances be treated as an expense incurred by a Resolution Professional. Hence the advance will be treated as an 'unsecured financial loan', and the Appellant is required to lodge its claim with the Liquidator, which may be considered as the claim for an unsecured financial loan. No expense unless it comes within the ambit of Section 5(13) of the Code can be treated as CIRP cost.
# 13. Based on the pleadings following questions of law arise in this Appeal:
Whether advance paid to the RP for purchase of goods from Corporate Debtor during CIRP to keep the Corporate Debtor as a going concern, in case of breach of contract, on account of a breakdown in the corporate debtor manufacturing ability, can be treated as CIRP cost
Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP to keep the corporate debtor as a going concern ought to be treated as CIRP cost by the Liquidator for the purposes of disbursement under section 52, read with Section 53 of I&B Code, 2016?
Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP ought to be refunded by the RP on account of delivery failure?
# 14. The moot question that arises for our consideration is whether the advance paid to Corporate Debtor for the supply of goods during CIRP, on failure to supply part goods, during CIRP can be treated as CIRP costs.
# 28. In the instant case, it is noticed that the Corporate Debtor raised proforma invoice during CIRP for the supply of 900 metric tons of Ferro Silicon Manganese at the rate of US$ 1040 per metric ton. But it supplied only 162 metric tons of Ferro Silicon Manganese. It is also on record that the Corporate Debtor received an advance of US$ 507,314 for the supply of industrial raw material Ferro Silicon Manganese. It is also undisputed that the goods worth ₹1 US$ 168,480 could be supplied and US$ 338,834 remained left as advanced money with the Corporate Debtor. During Corporate Insolvency Resolution Process the Corporate Debtor was under Management and control of the Resolution Professional.
# 29. The Liquidator's learned counsel contends that if an advance has been paid by the purchaser, under no circumstances does the same fall under the ambit of Section 5(13) of the Code. Firstly, because there is no CoC ratification to that effect and further, the Appellant has not made out a case that it is interim finance. The same cannot be construed under Section 5(13) of the Code as a cost incurred by the Resolution Professional to keep the Company a going concern. The Appellant has tried to make out a case that the advance given by it comes within the Clause (c) of Section 5(13) of the Code, i.e., the Resolution Process Cost to keep the Corporate Debtor as a going concern. The expenses incurred or approved by the Resolution Professional, such as purchasing raw material, workers engaged, electricity purchased, etc. will come within this ambit of interim finance covered under the head CIRP cost.
# 31. It is further argued that the claim lodged by the Appellant is absolutely mala fide and harassing in nature and for malafide reasons. Since the Appellant itself states that if its claim is not considered as CIRP cost, then the chances are that under Section 53 of the Code, the Appellant will not receive any amount. Thus, according to the Appellant's own admissions, they desperately tried to fit their claim as a CIRP cost. They can realise their claims as CIRP cost, or in the alternative, chances are bleak if the waterfall mechanism in Section 53 is considered.
# 34. Regarding the argument advanced by the Liquidator about IBBI Circular dated 12th June 2018, it is pertinent to mention that the Circular provides that Insolvency Professional is to ensure that fee and other expenses incurred by him are directly related to and are reasonable and necessary for the CIRP. It is further provided that wherever approval is required, Insolvency
Professional (in short 'IP') is to obtain approval of the CoC.
# 35. The Learned Counsel for the Liquidator argued that an advance given by a purchaser could under no circumstance be treated as covered in the phrase 'an expense incurred by the Resolution Professional'. The advance could only be treated as an unsecured financial loan, and the Appellant isrequired to lodge its claim before the Liquidator. It is stated that no expense
unless it comes within Section 5(13) of the Code can be treated as CIRP cost.
# 41. In case of 2019 SCC OnLine NCLAT 785 M V Projects V Divya Jyoti Sponges Iron Pvt Ltd this Tribunal has held that:
"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'."
# 43. It is important to mention that under Regulation 30 of The Insolvency and Bankruptcy Board of India (Liquidation Process Regulation, 2016) the Liquidator is duty-bound to verify the claim submitted, within 30 days from the last date of receipt of the claims. He may either admit or reject the claim, in whole or in part, as the case may be but cannot simply sit on it. We find that the Liquidator has failed to admit or reject the claim even after receiving the claim on 03rd January 2020. Section 40 of the Insolvency and Bankruptcy Code, 2016 mandates the Liquidator to communicate his reasons for admission or rejection of claim within 7 days of such admission or rejection of claims. The liquidation process is a time-bound process. In the instant case, the Liquidator failed to adhere to his duties of accepting or rejecting the Appellant's claim as per given in schedule provided under the Code. Liquidator states that the records pertaining to the claims are not fully available with him. He has not the first-hand information of the transaction. He is in the process of obtaining the details of the transaction from the Respondent No. 3 for the purpose of responding to the detailed claim dated 03rd January 2020. Liquidator further states that the instant case remedy lies before the Adjudicating Authority under Section 42 of the Code. When the Appellant filed an application before the Adjudicating Authority for issuing a direction to the Liquidator to decide the Appellant's claim, the Adjudicating Authority passed an order for considering the claim of the Appellant as per Rules.
# 44. A perusal of Section 20 of IBC makes it clear that after the CIRP is initiated, the IRP/RP is required to manage the Corporate Debtor's operations as a going concern. Section 20(2) (e) gives power to the IRP (Subsequently RP) to take all actions as are necessary to keep the Corporate Debtor as a going concern. In such a process of managing the business operations of the Corporate Debtor, if advance payments for supply of goods is received, it cannot be treated as raising an interim finance. It is an advance for payment of goods which the Corporate Debtor as a going concern may be manufacturing. The goods are either to be supplied, or the amount should be returned. If the goods are not supplied, the purchaser cannot be made to run for his money. If this approach as in the present matter is not changed, it will become difficult to keep the Corporate Debtors as a going concern. Such amount received as an advance payment for the supply of goods during the CIRP would have to be treated as CIRP costs. A perusal of the record of Company Appeal (AT) (Ins.) No. 191 of 2020 shows purchase contract dated 24th August 2018 (Page 64) executed between the Appellant and Youth Star Vanijya Pvt. Ltd. which has an addendum (Page 67) dated 21st September 2018.
This date of 21st September 2018 is subsequent to the date of admission of the Application under Section 7 of IBC on 09th March 2018. Then, there is a document relating to the supply of a part of the goods to the extent of 162.240 MT of Ferro Silicon Manganese. There are rubber stamps with signature claiming to be authorised signatory of the Corporate Debtor on both the above documents. We have already referred to the Transfer Memo and Proforma Invoice. Proforma Invoice also has the rubber stamp of the Corporate Debtor and signature purporting to be of authorised signatory which document is dated 24th September 2018. With such and other documents available on record, we are not ready to accept the Reply filed by the Liquidator as referred by us in Paragraph 39 supra, that he is in the process of obtaining details of the transactions from Respondent No. 3. It will not be permissible for the Liquidator to state that he does not have the record. He has a duty to obtain informations from IRP/RP, and the IRP/RP would be duty-bound to give requisite informations to the Liquidator and on failure, the Liquidator will file report before the Adjudicating Authority and will have to refer the matter to IBBI. We find that the Respondent No. 3/RP, although served in these Appeals, preferred not to appear and not to respond to the Appeals. Such conduct by a responsible professional recognised under the IBC cannot be accepted. It is necessary for the IRP/RP to share all the information with the Liquidator. If the IRP/RP wants to state that the transactions were not authorised, an explanation may be necessary regarding how goods were exported from the Corporate Debtor; and how money was received without demur, as the Management was with IRP/RP during CIRP period.
As in the present matter, the Liquidator failed to take a decision, one way or the other on the lame excuse that the Liquidator is in the process of obtaining details of transactions from Respondent No. 3 and now wants to claim that the Appellants have jumped forum, we feel it appropriate to give certain directions while disposing the present Appeal.
ORDER
We direct the Respondent No. 3/RP to respond to the claims made in both these Appeals and supply all the necessary details and information relating to transactions impugned in these Appeals before the Liquidator within 15 days of the passing of this Judgment. The Liquidator will consider the response and obtain informations as above and as may be further necessary and admit or reject the claims of the Appellants recording reasons in terms of Section 40 of I&B Code within 30 days from the date of this Judgment. If the claims are rejected, the Liquidator will communicate the reason to the Appellants and not act on the rejections for 14 days in terms of Section 42 of I&B Code, to enable Appellants to move before the AdjudicatingAuthority. We make it clear that if the IRP/RP fails to file response and submit all the necessary information before the Liquidator within 15 days as directed above, the Liquidator will file report before the Adjudicating Authority and refer the matter to IBBI for taking suitable steps/actions in the matter.
Registry to send the copy of this Judgment to the parties immediately.
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