NCLT Kolkata (28.05.2021) in Varrsana Employee Welfare Association Vs. Anil Goel & others. [IA No.1014/KB/2020 in CP (IB) No.543/KB/2017] held that;
Regulation 31A(1) casts a duty on the Liquidator to constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31, to advise him on the matters relating to sale under regulation 32 (emphasis added).
The prayer for inclusion of a representative of the workmen and employees on the SCC is not acceded to, since the workers at this point of time do not have a subsisting claim, and we have held that there is a symbiotic relationship between regulations 31 and 31A of the Liquidation Regulations. The claim for inclusion in the SCC will subsist only if there is inclusion in the list of stakeholders and not de hors it .
Excerpts of the order;
# 1. Preamble
1.1. This is an application filed by Varrsana Employee Welfare Association against Mr Anil Goel, Liquidator of Varrsana Ispat Limited (Corporate Debtor), seeking multifarious reliefs inter alia as follows: -
(a) An order directing the Liquidator to immediately refund the fees of ₹1.5 crore (approx) taken by the Liquidator for or on account of illegal distribution of funds among the creditors of the corporate debtor to the bank account of the corporate debtor along with interest;
(b) Direction upon the Liquidator to immediately include a representative of the Applicant in the Stakeholders' Consultation Committee (SCC) of the Corporate Debtor and the Liquidator be directed not to take any decision without including the representative of the Applicant in the SCC of the Corporate Debtor;
(c) Necessary orders directing the Liquidator to immediately take steps and direct the financial creditors to immediately deposit ₹26 crore (approx) in an interest-bearing account of the corporate Debtor in accordance with the order dated 26.06.2010 (sic 26.06.2020) passed by NCLT Kolkata Bench;
(d) An appropriate order directing the Liquidator to immediately recover the sum of money illegally recovered by the Banks/Lenders/Financial Creditors in violation of the moratorium order and in violation of section 14 of IBC, 2016 as more particularly held in the order dated 12.07.2018 passed by this Adjudicating Authority in CA (lB) No.563/KB/2018;
(e) Injunction restraining the Liquidator from convening any meeting of the SCC without giving prior reasonable notice to the applicant;
(f) Injunction restraining the Liquidator from distributing margin money among the Creditors;
(g) Injunction restraining the creditors/Banks from receiving margin Money from the corporate Debtor before sale of assets of the Corporate Debtor;
(h) Order be passed directing the Liquidator to forthwith issue notices of meetings of the SCC of the corporate debtor to the applicant and to permit representation and participation of the applicant at all meetings of the SCC; and
(i) Any SCC meetings/decision taken at the SCC meetings till date be adjudged null and void.
# 1.3. Arguments were primarily addressed in respect of these prayers: -
(a) An order directing the Liquidator to immediately refund the fees of ₹1.5 Crore (approx) taken by the Liquidator for or on account of illegal distribution of funds among the creditors of the corporate debtor to the bank account of the corporate debtor along with interest;
(b) Direction upon the Liquidator to immediately include a representative of the Applicant in the SCC of the Corporate Debtor and the Liquidator be directed not to take any decision without including the representative of the Applicant in the SCC of the Corporate Debtor;
(c) Necessary orders directing the Liquidator to immediately take steps and direct the Financial creditors to immediately deposit ₹26 crore (approx) in an interest-bearing account of the corporate Debtor in accordance with the order dated 26.06.2010 (sic 26.06.2020) passed by NCLT Kolkata Bench;
(d) An appropriate order directing the Liquidator to immediately recover the sum of money illegally recovered by the Banks/Lenders/Financial Creditors in violation of the moratorium order and in violation of section 14 of IBC, 2016 as more particularly held in the order dated 12.07.2018 passed by this Tribunal in CA (lB) No.563/KB/2018.
1.4. The other prayers are consequential prayers, and really hinge on the grant of the four prayers as mentioned in this para.
# 9. Analysis of the pleadings, arguments and findings thereon
9.1. We have perused the pleadings and heard the arguments of the learned counsel for the parties, including the learned senior counsel appearing for the Liquidator.
# Prayer (a) for refund of Liquidator’s fee
9.2. Since the first prayer for refund of the fee of ₹1.5 crore taken by the Liquidator has become infructuous following the recoupment of the same into the account of the corporate debtor, that prayer is deemed to have been given up.
9.3. However, we note that the Liquidator did not refund the fee of ₹1.5 crore not out of any change of heart but because of the order dated 29.10.2020 passed by the Disciplinary Committee of the IBBI, wherein it was observed as follows: -
“Further, taking a percentage of the amount distributed / amount realised out of the current assets of working capital of the CD by the Liquidator as his fee would only serve to vitiate the purpose of the Code. Instead of running the Company effectively, the liquidator may engage in distributing the working capital to earn a quick penny at the expense of the livelihood of the employees and workers who are dependent on the CD as a going concern. Hence, the IP has contravened sections 35, 36, 208(2)(a) and (e) of the Code read with Regulation 4(2)(b) of Liquidation Regulations and Regulation 7(2)(h) of IP Regulations read with clauses 2 and 14 of Code of Conduct of the IP Regulations.”
# Prayer (b) for inclusion of workmen on the SCC
9.6. Mr Rishav Banerjee relied on regulation 28(1) of the Liquidation Regulations regarding debts payable at a future time. However, this regulation is of no help to the Applicant, inasmuch as there is no discharge of the employees and workmen. Among other reasons, a claim for gratuity will arise only on termination. However, this is a company which, in the Applicant’s own words, is “fully a going concern.” The workers and employees are being paid their full wage. If that be so, the claim for gratuity cannot be countenanced when the services of the workers and employees are being utilised and there is no retrenchment. In the case of a going concern, the provisions of section 33(7) of the Code would not apply. Therefore, we have to hold that as on date, there is no claim pending from the side of the workmen.
9.7. Regulation 31 of the Liquidation Regulations mandates the Liquidator to prepare the list of stakeholders, category-wise, on the basis of claims submitted and accepted under the Regulations. The list cannot be populated with everyone, it is necessarily restricted to those who have a claim. It has to be categorised. This list is required to be filed with the Adjudicating Authority within forty-five days from the last date for receipt of claims, with such filing being announced to the public in the manner specified in regulation 12(3). The words, “on the basis of claims submitted and accepted” cannot be rendered hollow. It has to be ascribed some meaning. Therefore, we hold that for getting on the list of stakeholders, the pre-requisite is an existing claim.
9.8. Regulation 31A(1) casts a duty on the Liquidator to constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31, to advise him on the matters relating to sale under regulation 32 (emphasis added).
9.11. In the present case, having come to the conclusion that there is no subsisting claim vide para 9.6 supra, there is no question of including a representative of the workmen and employees on the SCC.
# On the constitution of the SCC with more than four financial creditors
9.16. We, therefore, have no hesitation in holding that the constitution of the SCC with all financial creditors – or even with six financial creditors as stated by the Liquidator – is unlawful. The Liquidator is hereby directed to take steps immediately to reconstitute the SCC in a manner consistent with regulations 31 and 31A.
# Prayer (c) for orders directing the Liquidator to take steps and direct the Financial creditors to immediately deposit approximately ₹26 crore in an interest-bearing account of the corporate debtor
9.19. In the normal course, once a direction has been passed by this Adjudicating Authority, the Liquidator ought to have taken further necessary steps in this regard. However, the Liquidator himself has filed an appeal before the Hon'ble NCLAT challenging the order dated 26.06.2020 whereby such directions were passed. The Hon'ble NCLAT is still seized of the matter. We are not aware of the basis of the challenge before the Hon'ble NCLAT, only that the appeal has been filed by the Liquidator and not by the financial creditors. Therefore, the order dated 26.06.2020 has become final qua the financial creditors.
9.20. Hence, we direct the financial creditors to keep the amounts so disbursed in an interest-bearing account, if not already done, and report compliance within a period of fifteen days from today.
# On conflict of interest of Mr Joy Saha, learned Sr Counsel
9.22. Rule 33 of the Bar Council of India Rules clearly states that an advocate who has, at any time, advised in connection with the institution of a suit, appeal or other matter or has drawn pleadings, or acted for a party, shall not act, appear or plead for the opposite party.
9.24. At least a part of the reliefs sought in the present application is for a direction to the Liquidator to recover monies from the financial creditors, one of whom happens to be Central Bank of India. It certainly cannot be said with any degree of certainty that the interests of the Liquidator and the Central Bank of India are in complete alignment in so far as the present application is concerned. Therefore, at least to this extent, there may potentially be a conflict of interest.
# On locus/lack of authority for filing the present application
9.26. The present application is probably the fourth filed by Varrsana Employee Welfare Association. In this application, the reliefs sought are mainly for implementation of the orders passed in the earlier applications. No objection has been raised in the earlier round of litigation.
9.29. Therefore, the objection regarding the locus of the Applicant to maintain the present application is misconceived and deserves to be rejected.
# 10. Orders
10.1. In sum, –
(a) On prayer (a): The prayer for refund of the Liquidator’s fee of ₹1.5 crore has become infructuous since the refund has already taken place vide cheque dated 03.11.2020, though under compelling circumstances (para 9.2 and 9.3 supra).
(b) On prayer (b): The prayer for inclusion of a representative of the workmen and employees on the SCC is not acceded to, since the workers at this point of time do not have a subsisting claim, and we have held that there is a symbiotic relationship between regulations 31 and 31A of the Liquidation Regulations. The claim for inclusion in the SCC will subsist only if there is inclusion in the list of stakeholders and not de hors it (para 9.6, 9.10 and 9.11 supra).
(c) On prayer (c): The prayer for direction to the Liquidator to take steps to recover the sum of ₹26 crore paid to the financial creditors cannot be acceded to at this stage, since the very order whose implementation is sought, i.e., the order dated 26.06.2020 passed by this Adjudicating Authority, is under challenge before the Hon'ble NCLAT. However, the financial creditors are hereby directed to file affidavits within fifteen days from the date of pronouncement of this order, regarding keeping the amounts distributed to them, in an interest-bearing account (para 9.20 supra).
(d) On prayer (d): This was not argued by both sides
(e) On prayer (e), (h) and (i): These are related to the main prayer (b). Since that prayer is not being granted, these prayers do not survive.
(f) On prayer (f) and (g): These were not argued by both sides.
(g) On locus: We hold that the Applicant has locus to file the present application, since – (i) the provisions of section 50 of the Maharashtra Public Trust Act, 1950 will apply only to “suits” and not to the present proceedings; (ii) section 50 ibid will apply only to the administration of the trust itself and not to proceedings of this nature; (iii) the present petition is the latest in a series of applications filed by the applicant herein to compel the Liquidator to comply with the Code and the Regulations made thereunder; (iv) the objections regarding locus have not been taken in the reply filed by the Liquidator, but seems to be an afterthought (paras 9.28 and 9.29 supra).
(h) On conflict of interest: At least a part of the reliefs sought seems to indicate that the interests of the Liquidator and of the Central Bank of India are not in complete alignment as far as the present application is concerned. Therefore, there may potentially be a case of conflict of interest (para 9.24 supra).
(i) On proper constitution of the SCC: The Liquidator shall take steps immediately to reconstitute the SCC in accordance with regulation 31A read with regulation 31 of the Liquidation Regulations, since the SCC constituted with all nine financial creditors is violative of regulation 31A(2) of the Regulations ibid (para 9.16 supra).
10.2. IA No.1014/KB/2020 shall stand disposed of accordingly.
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