NCLT Mumbai (2018.11.19) in Southern Engineers Vs Innoventive Industries Ltd [MA 441/2018 in C.P. (IB)-01(MB)/2016] held that;
In this case, the alleged amount of Rs.1,15,80,188/ - is due on account of supply of goods made by the applicant to the Corporate Debtor company, in compliance of the order given by the IRP to keep the Corporate Debtor company as a going concern.
Section 53 itself provides priority to the corporate Insolvency Resolution Process (CIRP) costs in the waterfall, over remaining dues. Section 53 (1)(a) provides payment to the Insolvency Resolution Process costs.
Insolvency Resolution Process costs and IRP Costs as defined under Section 5(13)(c) of the C includes any cost incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern.
Excerpts of the order;
MA 441/2018 has been filed by the applicant Southern Engineers against the Liquidator seeking directions against the Respondent Liquidator to forthwith pay the admitted sum of Rs.1,15,80,188/- alongwith the interest at 20% p.a., being the sum due and payable by the Liquidator to the Applicant for the goods supplied by the applicant to the company after commencement of the CIRP and to give first priority to the applicant upon liquidation of the Company’s assets, for repayment of its dues for goods supplied after commencement of the CIRP, i.e. the sum of Rs.1,15,80,188/ - alongwith interest at 20% p.a.
The applicant has stated in the application that “ Innoventive Industries is a Corporate Debtor which was engaged in the business of supplying and manufacturing precision tubes, cold rolled steel products, motor vehicle components etc. However, now the company is in Liquidation. The Respondent was the Interim Resolution professional appointed by the company and is now the Resolution Professional in-charge of the company in liquidation.
The applicant has further stated that “ the company was a regular customer of the applicant, as the applicant was a major supplier of raw materials for the company. On account of the various transactions between the company and the applicant, the company was admittedly liable to pay a sum of Rs.6,72,73,220/ - to the application on 17.1.2017. The respondent was appointed as the Interim Resolution Professional. One of the responsibilities of the IRP was to do all acts necessary for the running of the company.
Consequently, for the business of the company and for running of the company as a going concern, the IRP contacted the applicant for supply of goods which were essential to keep the company running as a going concern. Based on the assurances given by the IRP and considering the reputation of IRP and the protection for payment offered under the Code itself, that the applicant agreed to supply goods for running the business of the company during such insolvency resolution period. Thus, during the period from 17.1.2017 to October 2017, under these new purchase orders, the applicant supplied goods worth Rs.14,03,26,302/- to the company upon orders placed by the IRP from time to time. The payment terms stipulated that the goods would be supplied with a credit of 90 days from the date of receipt of the goods. The applicant supplied all goods under the purchase orders,but the Respondent failed to make the timely payments. After repeated reminders to the Respondent/IRP and after some period of delay, the Respondent/IRP made some payment aggregating to Rs.12,96,64,767/- to the applicant towards part payment for the goods supplied by the applicant during the CIRP. As on 18.10.2017, the balance amount of Rs.1,15,80,188/ - is remained outstanding and payable by the Respondent/IRP, concerning the goods supplied by the applicant after the commencement of CIRP.
The Claim of the applicant being the Operational Creditor of Innoventive Industries has been admitted in its entirety, i.e. Rs.7,88,53,408/- and out of the aforesaid entire claim admitted by the Liquidator, the Applicant’s claim to the extent of Rs.1,15,80,188/- is in respect of the goods supplied by the applicant to the company after the insolvency commencement date, i.e. 17.1.2017, which fact was also intimated to the Liquidator in the prescribed Form C submitted under Regulation 17 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
The controversy has arisen on account of the email reply dated 10.5.2018 which has necessitated the filing of the present application, wherein the Respondent has illegally taken the stand that supplies made by the applicant to the respondent after commencement of the Insolvency Resolution process does not form part of the Insolvency Resolution Process costs. The Respondent/Liquidator has failed to acknowledged that out of the entire admitted claim of Rs.7,88,53,408/ - of the applicant, the sum of Rs.1,15,80,188/- is not merely an operational debt of the company but rather a debt which was agreed to be paid within 30/90 days (as the case may be) and is also and an insolvency resolution process cost the same are costs, on account of goods supplied after commencement of the CIRP essential for the running of the company as a going concern and are, therefore, immediately due and payable to the applicant. Therefore, the applicant has filed this applicant seeking directions against the Respondent. In the reply to the above application, the Respondent/Liquidator has filed counter wherein it is stated that the supplies of steel coils made by the applicant to the Corporate Debtor during its CIRP period were of operational nature, and had direct input to the output produced/supplied by the Corporate Debtor, and the same was also not covered by the definition of CIRP costs, being not in the nature of costs incurred for carrying out the CIRP of the Corporate Debtor Liquidator that the .It is further stated by the Liquidator that the payment towards the said claim would be made to the applicant as an unsecured operational creditor as per the liquidation waterfall provided under Section 53 of the Code.
We have heard the arguments of both the parties and perused the records. It is necessary to point out that Section 5(13)(c) provides that “ any cost incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern.” In this case, the alleged amount of Rs.1,15,80,188/ - is due on account of supply of goods made by the applicant to the Corporate Debtor company, in compliance of the order given by the IRP to keep the Corporate Debtor company as a going concern. Contention of the Respondent is that the payment towards the said claim would be made to the applicant as operational debt, as per the liquidation waterfall as provided under Section 53 of the Code. This Contention of the liquidator is not sustainable, because Section 53 itself provides priority to the corporate Insolvency Resolution Process (CIRP) costs in the waterfall, over remaining dues. Section 53 (1)(a) provides payment to the Insolvency Resolution Process costs. In the waterfall mechanism, priority is given to the Insolvency Resolution Process costs and IRP Costs as defined under Section 5(13)(c) of the C includes any cost incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern.
The alleged supply made by the applicant is undoubtedly made to the company during the CIRP to keep it as a going concern. Therefore, it became a part of the Insolvency Resolution process costs defined under Section 5(13) of the Insolvency Resolution process costs.
In the light of the statutory provisions of Section 53 of the IBC read with Section 5(13)(c), we hereby decide that the alleged payment of Rs.1,15,80,188/- shall form part of the Insolvency Resolution process costs and it can be paid in accordance with the provisions of Section 53 of the Code.
MA 441/2018 is hereby disposedof accordingly.
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