Eastern Power Distribution Company of Andhra Pradesh Ltd. Vs. Maithan Alloys Ltd. - The scope and objective of the Code is to extinguish all claims specifically the ones which were not even made during the CIRP or in the Liquidation stage, to aid the purchaser of the Company as a ‘going concern’ to start on a ‘clean slate’.

 NCLAT (26.05.2022) in Eastern Power Distribution Company of Andhra Pradesh Ltd. Vs. Maithan Alloys Ltd. [Company Appeal (AT) (Insolvency) No. 961 of 2021] held that;

• That when the sale proceeds of a ‘Corporate Debtor’ are duly distributed in the Order of priority and in the manner prescribed under Section 53 of the Code, claims of any other Creditor cannot be entertained contrary to the provisions entailed under Section 53; 

• Subsequent to the distribution of sale proceeds under Section 53 no other entity including any Government entity can claim any past unpaid or outstanding dues against the Appellant who has purchased the ‘Corporate Debtor Company’ as a ‘going concern’

• We are of the considered view that at this stage subsequent to the sale of the ‘Corporate Debtor Company’ as a ‘going concern’, these claims cannot be foisted upon the Appellant. 

• “The scope and objective of the Code is to extinguish all claims specifically the ones which were not even made during the CIRP or in the Liquidation stage, to aid the purchaser of the Company as a ‘going concern’ to start on a ‘clean slate’.

• That the purchaser of the Company even in the Liquidation stage cannot be burdened with past liabilities when it is not mentioned in the ‘Sale Notice’.

• The submission of the Appellant that they are entitled to recover the entire pre-CIRP and post-CIRP dues from the Successful Auction Purchaser i.e. Respondent No. 1 cannot be accepted.

Excerpts of the order; 

# 7. The question to be answered in the present Appeal is:

• “Whether the Respondent No.1, the Successful Auction Purchaser in the liquidation proceeding of the Corporate Debtor, is liable to pay electricity dues due on the Corporate Debtor both pre-CIRP and during the CIRP?

 

# 8. The Liquidator has auctioned the Corporate Debtor as a going concern which is clear from the e-auction notice issued by the Liquidator for sale as going concern. E-auction notice published in the newspaper dated 28.05.2019 contain following heading:

“NOTICE FOR GOING CONCERN SALE (GCS) UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016 E-AUCTION SALE NOTICE”

 

# 9. The Respondent No. 1 has given highest bid of Rs.68.25 Crores. There was brief litigation pertaining to auction sale which culminated into Joint Agreement of Settlement dated 24.05.2021, which settlement agreement was noticed by this Tribunal in its order dated 21.06.2021. Order dated 21.06.2021 is as follows:-

• “O R D E R (Virtual Mode)

• 21.06.2021: Ld. Counsel for the Respondent No. 1 submits that they have paid full consideration as per the settlement to the Liquidator. Ld. Counsel appearing on behalf of the Liquidator is an agreement with the submission made by the Respondent No. 1. Ld. Counsel for the Respondent No. 1 submits the Liquidator may be directed to pay the electricity charges as per Section 53 of IBC. Prayer allowed. The parties shall be bound by the terms and conditions of the settlement agreement and auction notice. 2 Liquidator is directed to extent necessary cooperation so that the electric supply may be restored at the earliest. Thus, the Appeal is disposed of in terms of the settlement arrived at by the parties.”

 

# 10. After aforesaid order dated 21.06.2021, Sale Certificate was also issued by the Liquidator to the Respondent No.1 which clearly mentions that the Liquidator has received the full consideration money for sale of the Corporate Debtor as a going concern “ON AS IS WHERE IS WHATEVER THERE IS AND WITHOUT RECOURSE BASIS”. The terms and conditions of the sale which has been brought on record as Annexure R-1 as well as E-auction Notice which has been filed with the Reply of Respondent No. 1 does not indicate that there was any indication in e-auction notice that electricity dues of the Corporate Debtor shall be payable by the Auction Purchaser. Sheet anchor of the Counsel for the Appellant is Regulation 8.4 of the General Terms and Conditions of Supply. Regulation 8.4 provides as follows:-

• “8.4 Transfer of Service Connection

• The seller of the property should clear all the dues to the Company before selling such property. If the seller did not clear the dues as mentioned above, the Company may refuse to supply electricity to the premises through the already existing connection or refuse to give a new connection to the premises till all dues to the Company are cleared.”

 

# 11. The submission of learned counsel for the Appellant is that the Auction Purchaser is liable to clear all the dues of the Company before obtaining a new connection to the premises. Details of the dues of the Appellant standing on the premises in respect of the Corporate Debtor are to the following effect:-

• 1. Pre-CIRP dues as on 09.03.2018

• a. Arears in respect of Corporate Debtor =19,76,57,061/-

• b. Deemed consumption charges for the Financial Year 2015-16 =13,48,33,740/-

• 2. Dues during CIRP period =20,72,84,722/-

The dues, thus, are in two parts; firstly, prior to CIRP i.e. as on 09.03.2018 and secondly, during the CIRP process. The present is the case where the Corporate Debtor has been sold as going concern under liquidation proceeding under IBC.

 

# 12. The IBC provides for detailed procedure and provisions for dealing with the claims of the creditors which are against the Corporate Debtor who is facing insolvency/ liquidation. Under Section 35 of the Code, the Liquidator is obliged to verify the claims of all the creditors. Section 36 deals with liquidation estate. Under Section 38, Liquidator has to receive/ collate the claims of creditor within 30 days from the date of commencement of the liquidation process. In the present case, the Appellant themselves has filed their claim before the Liquidator. In the reply filed by the Liquidator, details of the claim submitted by the Appellant has been given. The total claim lodged by the Appellant before the Liquidator has been captured in Para 3(h) of the Reply of the Liquidator, which is to the following effect:-

“h. Pursuant to the public announcement published by me on 15.2.2019, the Appellant had lodged its claim with the Liquidator on 11th March 2019 for a total claim of Rs.52,44,85,882/- details of which are as follows:-

 

Sl. No	Particulars	Amount
	Outstanding CC charges arrears at the time of CIRP – Pre CIRP claim	Rs. 19,76,57,061.00
	Outstanding CC Charges arrears in CIRP period – March 2018 to February 2019	Rs. 19,19,95,081.00
	Deemed Consumption charges – 2015-16	Rs. 13,48,22,740.00
		Rs. 52,44,85,882.00

 

# 13. When in the IBC proceedings, the Appellant has lodged his claim before the Liquidator pertaining to pre-CIRP dues, the same has to be dealt with as per the provisions of the Code. Pre-CIPR dues of the Appellant have been treated as operational debt and the same required to be paid as per Section 53 of the Code. The payment under Section 53 of all debts including operational debt has to be made in accordance with Section 53. Thus, the Appellant is entitled to receive pre-CIRP dues as per provisions of section 53. Hence, the Appellant cannot be heard in contending that he should realize the said amount from the Successful Auction Purchaser. The claim of the Appellant to realize the pre-CIRP dues from Successful Auction Purchaser is clearly in conflict of the statutory scheme as laid down in the Code.

 

# 14. Now, we come to the electricity dues during the CIRP. The said dues are also to be taken care of and paid in accordance with Section 53(1). The electricity consumed by the Corporate Debtor during CIRP period is an insolvency process cost which is also to be paid in accordance with Section 53 Sub-section (1) of the Code. The above is the statutory scheme for payment of all claims including operational debts i.e. claim of the electricity dues pre-CIRP and post-CIRP. When the claim of the creditors of a Corporate Debtor which is gone into liquidation are specifically dealt in the Code, the Appellant cannot be heard to say that it shall realize its pre-CIRP dues and post-CIRP dues from the Successful Auction Purchaser. Accepting the said argument of the Appellant will be clear in derogation of the scheme for payment of creditors of the Corporate Debtor as delineated in the Code.

 

# 15. Now, we come to the judgment of Hon’ble Supreme Court in ‘Telangana State Southern Power Distribution Company Ltd. & Anr.’ (supra). The above was the case of Auction Purchaser under SARFAESI Act, 2002. In Para 2 of the Judgment terms and conditions of the sale notice have been captured which is to the following effect:-

• “TERMS AND CONDITIONS

• 21. The successful bidder shall bear the stamp duties, charges including those of sale certificate, registration charges, all statutory dues payable to central/state government, taxes and rates and outgoing, both existing and future relating to the properties.

• XXXXX

• 24. The property is sold in “AS IS WHERE IS, WHAT IS THERE IS AND WITHOUT ANY RECOURSE BASIS” in all respects and subject to statutory dues if any. The intending bidders should make discrete enquiry as regards any claim, charges/encumbrances on the properties, of any authority, besides the bank’s charges and should satisfy themselves about the title, extent, quality and quantity of the property before submitting their bid. For any discrepancy in the property the participating bidder is solely responsible for all future recourses from the date of submission of bid.

• 25. No claim of whatsoever nature regarding the property put for sale, charges/encumbrances over the property or on any other matter etc., will be entertained after submission of the bid/confirmation of sale.

• 26. The Authorised Officer will not be responsible for any charge, lien, encumbrance, property tax dues, electricity dues, etc., or any other dues to the Government, local authority or anybody, in respect of the property under sale.”

 

# 16. In the context of the aforesaid case, the Hon’ble Supreme Court had occasion to consider the clauses of General Terms & Conditions of Supply and Distribution and after noticing the earlier judgments in Para 15 following was laid down:-

• “15. We have gone into the aforesaid judgments as it was urged before us that there is some ambiguity on the aspect of liability of dues of the past owners who had obtained the connection. There have been some differences in facts but, in our view, there is a clear judicial thinking which emerges, which needs to be emphasized:

• A. That electricity dues, where they are statutory in character under the Electricity Act and as per the terms & conditions of supply, cannot be waived in view of the provisions of the Act itself more specifically Section 56 of the Electricity Act, 2003 (in pari materia with Section 24 of the Electricity Act, 1910), and cannot partake the character of dues of purely contractual nature.

• B. Where, as in cases of the E-auction notice in question, the existence of electricity dues, whether quantified or not, has been specifically mentioned as a liability of the purchaser and the sale is on “AS IS WHERE IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS”, there can be no doubt that the liability to pay electricity dues exists on the respondent (purchaser).

• C. The debate over connection or reconnection would not exist in cases like the present one where both aspects are covered as per clause 8.4 of the General Terms & Conditions of Supply.”

 

# 17. It is to be noted that the Hon’ble Supreme Court in the above case was considering the Auction Sale under SARFAESI Act, 2002. No provision of IBC were under consideration of the Hon’ble Supreme Court. In the IBC proceedings, the electricity supplier is also an Operational Creditor who files claim for its operational debt as well as the charges during the CIRP period. IBC deals with the claims and require for payment of the claim of the electricity service provider under Section 53 of the Code in a liquidation proceeding. Regulation formed under Electricity Act, 2003 fastening liability on the Successful Auction Purchaser in the Liquidation Proceedings will be in conflict with the provision of the IBC. IBC having been given overriding effect under Section 238, any contrary provision in any other statute under Electricity Act, 2003 shall be overridden. Therefore, it shall not be open for the Appellant to contend that Appellant shall recover the entire pre-CIRP and post-CIRP dues from the Successful Auction Purchaser in pursuance of Regulation 8.4, as noticed above. The Appellant is entitled to recover its dues under the IBC proceedings.

 

# 18. This Tribunal has occasion to deal with a case where in liquidation proceeding sale was conducted and assets were sold to Successful Auction Purchaser in Company Appeal (AT) (Insolvency) No. 650 of 2020, ‘Shiv Shakti Inter Globe Exports Pvt. Ltd. Through its Authorised Representative vs. KTC Foods Pvt. Ltd. Through Liquidator, Mr. Anup Kumar Singh & Anr.’, 2022 SCC OnLine NCLAT 85, wherein in Para 23 following was laid down by this Tribunal:-

• “21. Adverting to the contention of the Learned Counsel for the Appellant that the Adjudicating Authority has erred in denying the sale of the ‘Corporate Debtor’ as a ‘going concern’ to the Appellant without including any contingent liabilities, we hold that it is a settled law that when the sale proceeds of a ‘Corporate Debtor’ are duly distributed in the Order of priority and in the manner prescribed under Section 53 of the Code, claims of any other Creditor cannot be entertained contrary to the provisions entailed under Section 53; subsequent to the distribution of sale proceeds under Section 53 no other entity including any Government entity can claim any past unpaid or outstanding dues against the Appellant who has purchased the ‘Corporate Debtor Company’ as a ‘going concern’. It is significant to mention that the second Respondent/Liquidator has specifically submitted that even these claims by the Uttar Haryana Bijili Vitran Nigam were not submitted in the prescribed form either during the CIRP Process or at the Liquidation stage. We are of the considered view that at this stage subsequent to the sale of the ‘Corporate Debtor Company’ as a ‘going concern’, these claims cannot be foisted upon the Appellant. The scope and objective of the Code is to extinguish all claims specifically the ones which were not even made during the CIRP or in the Liquidation stage, to aid the purchaser of the Company as a ‘going concern’ to start on a ‘clean slate’. The Hon’ble Supreme Court in ‘Ghanshyam Mishra & Sons Pvt. Ltd.’ Vs. ‘Edelweiss Asset Reconstruction Company Ltd. & Ors.’, Civil Appeal No. 8129 of 2019 and in ‘CoC of Essar Steel India Ltd.’ Vs. ‘Satish Gupta & Ors.’ (2020) 8 SCC 531 has laid down the proposition that the purchaser of the Company even in the Liquidation stage cannot be burdened with past liabilities when it is not mentioned in the ‘Sale Notice’.”

 

# 19. This Tribunal again had occasion to consider a case pertaining to electricity dues in insolvency proceeding in Company Appeal (AT) (Insolvency) No. 13 of 2021 decided on 14.03.2022, ‘Damodar Valley Corporation vs. Karthik Alloys Limited & Anr.’, 2022 SCC OnLine NCLAT 109. This Tribunal held that payment of creditors including Operational Creditors i.e. Electricity Supply Provider shall be dealt with as per the Resolution Plan or Liquidation, as the case may be. In Para 30, this Tribunal laid down following:-

• “30. We note that the context in the matter of Telangana Southern State Power Distribution Company Limited versus Srigdhaa Beverages (2020 SCC OnLine SC 478) cited by Learned Senior Counsel for Appellant is also distinguished from that in the present case, since in the Telangana Southern State Power case auction-purchase of the asset had taken place, whereas in the present case the corporate debtor is under insolvency resolution and the settlement of past debts of financial and operational creditors will be considered under resolution plan or liquidation, as the case may be. Hence DVC, which is an operational creditor, or any other creditor cannot claim and be given priority in payment of its pre-CIRP debt before the resolution plan is finalised and approved by the Adjudicating Authority.”

 

# 20. In the Rejoinder Affidavit filed by the Appellant with regard to CIRP cost it has been pleaded on behalf of the Appellant that appropriate application has been moved before the Adjudicating Authority claiming payment of full CIRP cost in terms of Section 53. Para 20 of the Rejoinder is as follows:-

• “20. That the above chart refers to CIRP Costs vividly and both Liquidator and erstwhile RP have not filed any reply in the impugned proceedings despite opportunities granted and instead sent emails. Thereafter impugned order was passed and Liquidator had again sent the misplaced reply despite specific directions to Liquidator to make payment of CIRP costs. The appropriate application is moved before Adjudicating Authority seeking payment of CIRP costs which are to be paid in full in terms of Section 53 of IBC. The other heads are not being adjudicated by any forum other than this Hon’ble Tribunal.”

 

# 21. The submission raised by learned counsel for the Appellant claiming payment of entire pre-CIRP and post-CIRP dues from Successful Auction Purchaser in liquidation in event is accepted, the same will be in contravention of IBC. If even for argument sake it is accepted that entire pre-CIRP and post-CIRP dues are to be recovered from the Successful Auction Purchaser satisfying the entire dues of the Appellant, hence, in event, as in the present case, Electricity Supply Provider files a claim in the liquidation proceeding which is partly paid in the liquidation proceeding then the said payment shall be in excess to the entire dues realized by the Appellant from the Successful Auction Purchaser, which is not the intend of the IBC proceeding nor a claimant even if it is Electricity Supply Provider can realize its claim against a Corporate Debtor in liquidation contrary to the scheme of IBC.

 

# 22. We, thus, are fully satisfied that the submission of the Appellant that they are entitled to recover the entire pre-CIRP and post-CIRP dues from the Successful Auction Purchaser i.e. Respondent No. 1 cannot be accepted. The Adjudicating Authority did not commit any error in issuing the directions as contained in the order dated 05.10.2021. We, however, are of the view that the Appellant is entitle to claim its electricity dues both pre-CIRP and post-CIRP in accordance with Section 53 of the Code. Ends of justice be served in granting liberty to the Appellant to move the Adjudicating Authority regarding aforesaid claims, if not already filed, which may be considered and decided in accordance with law. In result of the above discussion, we uphold the impugned order of the Adjudicating Authority dated 05.10.2021 with liberty to the Appellant to file appropriate application, if not already filed, before the Adjudicating Authority with regard to its entitlement of pre-CIRP and post-CIRP cost. The Appeal is disposed of accordingly.

 

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Southern Engineers Vs Innoventive Industries Ltd - Cost of goods supplied to CD during CIRP will be treated as CIRP Cost.

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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M V Projects Vs Divya Jyoti Sponge Iron Pvt. Ltd. & Ors - Unpaid cost of goods supplied to CD during CIRP forms part of CIRP cost.

NCLAT (24.04.2019) in M V Projects Vs Divya Jyoti Sponge Iron Pvt. Ltd. & Ors.  [Company Appeal (AT) (Insolvency) No. 481 of 2018] held that; 

• 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’.

Excerpts of the order;

All these appeals arise out of two different orders dated 13th March, 2018 and 11th July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, passed in common proceeding, and as such they were heard together and are being disposed of by this common judgment.

# 4. ‘M/s. MV Projects’- Appellant, in the other appeal one of the ‘Operational Creditor’, is aggrieved against the order dated 11th July, 2018 passed by the Adjudicating Authority in CA (IB) No. 583/KB/2018 in CP(IB) No. 363/KB/2017, whereby the Adjudicating Authority held that the ‘Resolution Plan’ having approved, the application filed by the ‘Operational Creditor’ is not maintainable.

Company Appeal (AT) (Insol.) No. 481 of 2018

# 19. Learned counsel for the Appellant- ‘M/s. MV Projects’ submitted that it is a sole proprietorship concern, which is a ‘supplier of coal’ for the business of the ‘Divya Jyoti Sponge Iron Pvt. Ltd.’- (‘Corporate Debtor’). The supply of coal has been made to the ‘Corporate Debtor’ even after the initiation of the ‘Corporate Insolvency Resolution Process’ on 23rd August 2017 i.e. during the ‘Insolvency Resolution Process’ to keep the company as a going concern. The ‘Resolution Professional’ placed orders with the Appellant even after initiation of the ‘Corporate Insolvency Resolution Process’. An amount of Rs. 26,68,298/- remained outstanding which is due and payable to the Appellant.

# 20. The ‘Resolution Professional’ has not filed any reply denying the claim aforesaid. As per the provisions of the ‘I&B Code’ and the Regulations framed, the ‘Insolvency Resolution Cost’ is payable in priority to other costs both in the case of success of Resolution and in the case of liquidation without any haircuts. The Adjudicating Authority by impugned order dated 11th July, 2018 has not addressed the aforesaid issue on the ground that the ‘Resolution Plan’ has already been approved.

# 21. Section 5(13) defines ‘insolvency resolution process costs’ and reads as follows:

• “5. Definition─ (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;”

# 22. Section 14 defines ‘Moratorium’ and sub-section (2) of Section 14 reads as follows:

• 14. Moratorium. - (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—

• (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

• (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

• (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

• (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

• (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period…….”

# 23. As per Section 30(2), the ‘Resolution Professional’ is required to examine that each of the ‘Resolution Plan’ confirm the provisions as made therein. Relevant portion of sub-clause (a) of sub-section (2) of Section 30 reads as follows:

• “30. Submission of resolution plan - (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan—

• (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor;”

# 24. Regulation 31 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 deals with ‘Insolvency Resolution Process Costs’ and reads as follows:

• “31. Insolvency resolution process costs. ─ “Insolvency resolution process costs” under section 5(13) (e) shall mean─

• (a) Amounts due to suppliers of essential goods and services under Regulation 32;

• (aa) fee payable to authorized representative under sub-regulation (7) of regulation 16A;]

• (ab) out of pocket expenses of authorized representative for discharge of his functions under section 25;]

• (b) Amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under Section 14(1) (d);

• (c) Expenses incurred on or by the interim resolution professional to the extent ratified under regulation 33;

• (d) Expenses incurred on or by the resolution professional fixed under regulation 34; and

• (e) Other costs directly relating to the corporate insolvency resolution process and approved by the committee.”

# 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’.

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