NCLT Chennai-1 (13.06.2023) In Nishar Engineering Works Vs. CA S. Palaniappan Liquidator of M/s. SLO Industries Limited [IA(IBC)/946(CHE)/2022 in CP/1246/IB/2018 ] held that;
The Advance paid by and Applicant during the CIRP period to the Corporate Debtor is to be treated as 'CIRP cost'.
Excerpts of the order;
IA(IBC)/946(CHE)/2022 is an Application filed by the Applicant under Section 60(5) of IBC, 2016 read with Rule 11 of NCLT Rules, 2016 seeking relief as follows;
(i) Stay the distribution of sale proceeds of Liquidation assets, under the provisions of Section 53 of the Code, during the pendency of aforesaid Application.
(ii) Direct the Liquidator to treat & categorize the claim of Rs.15,00,150/- the applicants as CIRP Costs. .
(iii) Grant further relief which the Hon'ble Tribunal may deem fit and proper in the circumstances of this case and in the interest of justice and thus render justice.
# 2. The CIRP in respect of the Corporate Debtor was initiated by this Tribunal on 04.11.2019 and the 2nd Respondent herein was appointed as IRP. Subsequently this Tribunal vide its order dated 21.01.2022 ordered for Liquidation of the Corporate Debtor and appointed Mr. S. Palaniappan, the 1st Respondent herein as the Liquidator of the Corporate Debtor.
# 3. It was submitted that the Applicant herein was doing regular business with the Corporate Debtor before the commencement of the CIRP and that the RP of the Corporate Debtor has approach the Applicant and insisted on keeping business relations intact and to purchase the goods from the Corporate Debtor to keep the Corporate Debtor as a going concern. It was submitted that the Applicant has ordered for purchase of goods from the Corporate Debtor and has paid an advance of Rs.27,76,840/- on 10.04.2021 and the Corporate Debtor represented by the 2nd Respondent has supplied the following invoices:
# 4. It was submitted that the Applicant has paid an Advance amount of Rs.27,76,840/-, however the RP has supplied the goods only to the tune of Rs.12,76,690/- and the remaining supply amount to the tune of Rs.15,00,150/- is still pending.
# 5. It was submitted that after the order of the liquidation has passed by this Tribunal on 21.01.2022, the Applicants herein has filed his claim before the Liquidator. It was submitted that the Liquidator has accepted the Applicant, however, the Liquidator has not treated the claim of the Applicant as CIRP cost. Hence the present Application.
# 6. The 1st Respondent has filed Reply and it is stated that the erstwhile RP has sent an email to the Liquidator that he has not visited the premises of the Corporate Debtor after 13.07.2021 and hence it was submitted by the Liquidator that the invoices which were approved by the RP alone can be considered by him. It was submitted that upon scrutiny of the Tally backup provided by the erstwhile RP it was observed that the Applicant has not paid such payment and only a journal entry has been posted on the said date in the Corporate Debtor's account. Hence, it was submitted that the onus of proving such payment lies with the Applicant.
# 7. It was further submitted by the Liquidator that, no items of inventory, finishing good and raw materials was handed over to the Liquidator by the erstwhile RP and also it was submitted there was no agreement between the erstwhile RP and the Applicant herein to supply goods during the CIRP period. Hence it was submitted that the claim of these Applicants cannot be treated as CIRP costs.
# 8. The Applicant has filed rejoinder and has rebutted all the averments made by the Liquidator in its reply. It is also stated in the rejoinder that the RP has received the supplied the goods to the Applicant during the CIRP period. Hence it was submitted that the supply made during the CIRP period is eligible to be treated as CIRP cost. Further, it was submitted that all the supplies were made before 13.07.2021.
# 9. Heard the submissions made by Ld. Counsels for both the parties. The issue which is required to be decided in the present Application is whether the supplies made by the Corporate Debtor to the Applicant and the advances received by the RP of the Corporate Debtor during the CIRP period can be treated as CIRP costs. In this regard, it is pertinent to refer to Section 5 (13) of IBC 2016 which defines the term "Insolvency Resolution Process Cost".
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# 10.."Section 5 (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;
As to the present case, it is seen that the supply has been made by the Corporate Debtor to the Applicant during the CIRP period in order to keep the Company as a going concern and as such the supply made by the Applicant would fall under Section 5(13)(c) of IBC, 2016.
# 11. Further, the Hon'ble NCLAT in the matter of Tuf Metallurgical Private Limited Vs Impex Metal & Ferro Alloys Limited & 2 Ors [Company Appeal (AT) (Insolvency) No. 190 of 2020) has held that;
37 Section 14 of the Code comes into operation with the Initiation of CIRP. Section 14(2)(a) provides that:
"Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified."
38. We are not convinced with the Liquidator's argument that purchaser's advance during CIRP can never be treated as an expense in the ambit of Section 5(13) of the Code.
39. n this case, Liquidator has filed its Reply stating that the Appellant had filed Form 'G' relating to its claim on 03rd January 2020, and that there is no document on record showing that the transaction was authorised or approved by the IRP/RP. It is further stated that he is in the process of obtaining details of the transaction from Respondent No.3. If the Appellant is aggrieved by his Order, he must file an Appeal under Section 42 of the Code before the Adjudicating Authority. That by filing the present Appeal, the Appellant has jumped one forum which should not be permitted.
40. It is admitted fact that the Liquidator received the claim on 03rd January 2020. Section 40(2) mandates the Liquidator to communicate its decision of admission or rejection of the claim to the Creditor and the Corporate Debtor within seven days of admission or rejection of the claim. Section 42 of the Code provides that a creditor may file an Appeal before the Adjudicating Authority against the Liquidator's decision to accept or reject the claim, within 14 days from receipt of such decision. The Liquidator cannot simply sit on the claim without deciding the same one way or the other.
43. .....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 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.
.....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 information from IRP/RP, and the IRP/RP would be duty-bound to give requisite information 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.
# 12. Thus, the Hon'ble NCLAT in the aforesaid matter has made in clear that the Advance paid by an Applicant during the CIRP period to the Corporate Debtor is to be treated as 'CIRP cost'.
# 13. In the present case, the Liquidator has denied that the amount is not reflecting in the Tally account and only a journal entry has been made in the books of the Corporate Debtor. However, in stark contrast to the same, it is seen that the Liquidator has accepted the entire claim of the Applicant to the tune of Rs.15,00,510/- as an 'operational debt' vide his order dated 19.03.2022.
# 14. Thus, in terms of the Judgment of the Hon'ble NCLAT in the matter of Tuf Metallurgical Private Limited (supra) the supply made by the Corporate Debtor during the CIRP period to the Applicant herein is to be treated as CIRP cost. Accordingly, we issue direction as follows;
i. The admitted claim of the Applicant to the tune of Rs.15,00,150/- in the present Application is to be treated as CIRP cost.
# 15. With the above said directions IA(IBC)/946(CHE)/2022 stands allowed.
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