B. Parameshwara Udpa, RP of M/s. Easun Reyrolle Limited Vs. DBS Bank India Limited & Ors. - Since the 1st Respondent cannot contribute towards the CIRP costs, the 1st Respondent is debarred from participating in the meetings of the CoC.

NCLT Chennai 12.08.2021) In B. Parameshwara Udpa, RP of M/s. Easun Reyrolle Limited  Vs. DBS Bank India Limited & Ors. [IA/967/IB/2020 in IBA/1045/2019 ] held that;

• The issue which is required to be adjudicated before this Tribunal is to whether the 1st Respondent is required to pay the CIRP in relation to the Corporate Debtor and if not so, what will be consequences. 

• As per Regulation 33 and 34 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 it is the duty of the members of the Committee of Creditors to pay the fees and the cost incurred by the Resolution Professional, once the same has been ratified by the CoC by passing a Resolution to that effect.

• Further, IBC, 2016 being a time bound process; the RP cannot run from pillar to post to collect the CIRP cost. Hence, on equity, we are of the considered view that since the 1st Respondent cannot contribute towards the CIRP costs, the 1st Respondent is debarred from participating in the meetings of the CoC.

Excerpts of the order;

This is an Application filed by the Applicant viz., B. Parameshawara Udpa, Resolution Professional of M/s. Easun Reyrolle Limited under Sections 60(5) read with Section 25(2)(C) of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) seeking reliefs as follows: 

• a. Direct the 1st, 2nd and 3rd Respondents to remit their share of the CIRP costs and Expenditure in proportion to their voting rights i.e. Rs.3,04,504.65 by the 1st Respondent (7.39%), Rs.2,97,891.71 by the 2nd Respondent (11.83%), and Rs.1,93,251.26 by the 3rd Respondent (4.69%) to the Current Account No.39508541515 of the Corporate Debtor. 

• b. Pass such further or other orders which this Hon'ble Tribunal may deem fit and proper in the circumstances of this case and thus render justice. 

# 2. It is seen from the records that after filing of the present Application, the Applicant has filed a Memo vide SR No. 3892 dated 17.12.2020 before this Tribunal stating that the 2nd and 3rd Respondent have paid their respective CIRP cost and expenditure in relation to the Corporate Debtor. The said memo is taken on record and the relief as sought for sustains only in relation to the 1st Respondent. 

# 3. The Learned Counsel for the Applicant submitted that the CIRP in relation to the Corporate Debtor was ordered by this Tribunal on 05.05.2020 and that the Applicant herein was appointed as the Interim Resolution Professional. Further, the Applicant has constituted the Committee of Creditors with 6 Financial Creditor  . . . 

# 4. The Learned Counsel for the Applicant submitted that in the 2nd CoC meeting held on 10.07.2020, discussions were made as to the ratification of the cost incurred to the tune of Rs.16,02,392/ from the date of commencement of CIRP till the date of the 2nd Coc meeting and the following Resolution was passed; 

• i). Resolved that the CIRP Costs of Rs.16,02,392/- for the period from 08.05.2020 till 07.07.2020 is approved, being Expenditure towards Essential commodities i.e. Water, Electricity, Housekeeping, sanitization etc., are also approved. 

• ii). Further resolved that the member Banks may make the payment of their share directly to the CIRP Account maintained at SBI Mookandapalli (IFSC: SBIN0006242) branch immediately in any case not later than three days 

• iii). Further Resolved that Resolution Professional MR. Benegal Parameshwara Udpa is Authorized to make payment of CIRP costs to the concerned persons by issuing Cheques / NEFT / RTGS. 

# 5. Pursuant to above, it was submitted that the Applicant in his capacity as the Resolution Professional in relation to the Corporate Debtor vide his email dated 21.07.2020 requested all the member banks of the CoC to remit their respective share of the CIRP cost incurred. Also, the Applicant has sent an email to the 1st Respondent on 26.07.2020 to pay his share of the CIRP for which, it was submitted that the Applicant has received a vague response from the 1st Respondent on 29.07.2020. It is also pertinent to point out here that the 1st Respondent vide their e-mail dated 03.08.2020 has expressed their denial to remit its agreed share of Rs.1,18,416.77/- towards the CIRP cost. Further, it was also submitted by the Learned Counsel for the Applicant that the State Bank of India, Canara Bank, and the Standard Chartered Bank (India) had remitted their respective shares of the CIRP in the Current Account maintained by the Corporate Debtor. 

# 6. The Learned Counsel for the Applicant submitted that the Applicant in his capacity had raised Interim Finance during the CIRP period with the approval for the CoC members in order to meet out the expenses incurred during the CIRP. However, it was submitted that though the Interim Finance towards the CIRP costs have been consented in full, the 1st Respondent has not remitted his due and the CIRP costs and Expenditure till date, despite several attempts in this regard having been made by the Applicant. 

# 7. Under such circumstances, it was submitted that the Applicant / Resolution Professional was left with no other option than to file the present Application seeking direction against the 1st Respondent for the remittance of the CIRP in proportion to his voting share as approved by the Coc, to be deposited in the Current Account of the Corporate Debtor. 

# 11. Heard the submissions made by the Learned Counsel for both the parties and perused the files including the documents placed on record. The issue which is required to be adjudicated before this Tribunal is to whether the 1st Respondent is required to pay the CIRP in relation to the Corporate Debtor and if not so, what will be consequences. 

# 14. As per Regulation 33 and 34 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 it is the duty of the members of the Committee of Creditors to pay the fees and the cost incurred by the Resolution Professional, once the same has been ratified by the CoC by passing a Resolution to that effect. However the 1st Respondent in the present case is not willing to pay the CIRP costs citing the reason that they have to get approval of the RBI in order to the pay the CIRP costs in relation to the Corporate Debtor, which reason we find it quite bizarre and we are unable to comprehend. The 1st Respondent is ready to receive the proceeds of the Resolution Plan, into its bank account, however for the purpose of the paying the CIRP costs they are raising a feeble defence that they have to get the approval of the RBI. 

# 15. This is a peculiar case, wherein the CoC member has categorically expressed its inability to pay the costs of the CIRP. On perusal of the provisions of the IBC, 2016 and the Rules and Regulations framed thereunder, we do not find any exception to CoC members from payment of the CIRP costs. This leads us to the question that whether a CoC member can participate in the CoC meeting, if they have clearly expressed their inability to pay the CIRP cost. The Regulations framed by the IBBI and the provisions of IBC, 2016 have no specific provisions in relation to the same. However, we are of the view it would be a futile exercise, if we direct a member of the CoC who has already expressed its inability to make the payment towards the CIRP costs. 

# 16. All the Financial Creditors, other than Related Part, be it secured or unsecured, by the provisions of IBC, 2016 becomes the member of the CoC. Further, the Regulation mandates that the Financial Creditors are required to contribute towards the CIRP costs in proportion to their voting share. Thus, it becomes clear that a Financial Creditor so as to continue as the member of the CoC, it is mandatory for them to contribute towards the CIRP costs. Further, it is significant to note here that the Financial Creditor is exercising its voting right in respect of the Corporate Debtor has also been empowered to decide and vote upon the future state of the Corporate Debtor. Thus, the Financial Creditor cannot shy away from their liability of payment towards the expenditure incurred on account of CIRP in relation to the Corporate Debtor. 

# 17. Further, IBC, 2016 being a time bound process; the RP cannot run from pillar to post to collect the CIRP cost. Hence, on equity, we are of the considered view that since the 1st Respondent cannot contribute towards the CIRP costs, the 1st Respondent is debarred from participating in the meetings of the CoC. Also, the 1st Respondent has categorically stated in the counter that they are not the Financial Creditor in respect of the Corporate Debtor and they are acting only as an Arranger for DBS Bank Limited, Singapore. Since both of them are not ready to bear the CIRP costs, we are of the considered view that both the 1st Respondent as well as DBS Bank Limited, Singapore cannot participate in the meetings of the CoC. 

# 18. Under such circumstances, by taking into consideration the facts of the present case and also the fact that the 1st Respondent has expressed its inability to pay the CIRP costs, we hereby direct the Applicant to remove the 1st Respondent from the member of Committee of Creditors and to reconstitute the CoC afresh, without the 1st Respondent. However, it is made clear that the claim of the 1st Respondent will remain intact and only the 1st Respondent is barred from participating in any of the meetings of the CoC in relation to the Corporate Debtor hereinafter. 

# 19. With the above said directions, this Application stands disposed of. 

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Blogger’s comments; From the provisions of the Code & CIRP Regulations following  position emerges;

1. The CIRP cost will be met from the following resources;

1. Internal Resources; 

(i). Liquid funds available with the corporate debtor.

(ii) Disposal of unencumbered assets of CD, book value of which not to exceed 10% of the admitted claims, with the prior approval of CoC.

2. External Resources ;

Interim finance, with or without coupon,  from CoC member or outside financier, with or without creating security interest over assets of the CD, with the prior approval of CoC. Interim finance  will form part of CIRP cost, which shall be repaid in priority during the liquidation process as per the provisions of section 52(8) & 53(1)(a). 

2. The unpaid CIRP cost, alongwith interim finance is to be provided for either in the resolution plan or paid in priority during the liquidation process. 

Nothing in the Code or Regulations suggest that a creditor or CoC member is obliged to contribute to CIRP cost or to provide interim finance to fund the CIRP cost. Rather unpaid CIRP cost is taken care in the resolution plan or is to be carried over to the liquidation process, to be paid in priority as per the provisions of the section 52(8) & Section 53(1)(a).

In chapter II ( CIRP) & chapter III (Liquidation Process), only section 52(8) provides creditor to share insolvency resolution process cost, that too out of  the proceeds of enforcement of security interest. Nowhere else, as per the provisions of the Code, a creditor is required to contribute towards the CIRP cost. Thus, in my views, a creditor can not be forced to contribute towards the CIRP cost during the insolvency resolution process.

Now comes the practical aspect of the problem;

In most of the cases of CD under insolvency, the CD is either facing negative cash flows or the operations are closed. It’s very difficult to envisage a company under insolvency with positive cash flows. It’s only companies with negative cash flows face difficulty in meeting their obligations and slip into insolvency.

 

As per the Code and regulations, IRP/RP is broadly responsible for the follow;

1. Execution of Corporate Insolvency Resolution Process in accordance with the provisions of the Code & Regulations thereof.

2. Manage the CD as a going concern, if it has not stopped operations prior to the date of commencement of insolvency.

In a fairly good number of cases, CoC is reluctant to approve or provide interim finance. This puts the IRP/RP in a precarious situation, as he is responsible to carry out certain statutory duties under the Code besides managing the CD as a going concern. Practically IRP/RP cannot go to AA for directions, as he holds the office of  IRP/RP at the will & pleasure of CoC.

Blogger is of the opinion that CIRP Regulations should have enabling provision (similar to # Regulation 2A of Liquidation process regulations), that the FC with the biggest vote share will provide interim finance, as estimated by IRP /RP, with interest @ SBI MCLR + 2%.

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