Case Law Details
Amit Gupta Vs Insolvency and Bankruptcy Board of India (Bombay High Court)
a) Paragraph 2.1 and Paragraph 2.5 of the Impugned IBBI Circular dated 28th September, 2023 are hereby struck down as being ultra vires the LP Regulations and the IBC. They introduce substantive amendments to statutory legislation even while purporting to be mere clarifications. The changes they seek to bring in are not even covered by the IBC and the LP Regulations. Due process by way of compliance with the statutory requirements of the Law-Making Regulations is missing. Therefore, in the course of conducting the quasi-judicial proceedings, the IBBI is prohibited from placing any reliance on Paragraph 2.1 and Paragraph 2.5 of the Impugned Circular in determining if any fee charged by the Petitioner in the liquidation assignments in question, was in excess of permissible thresholds;
b) Paragraph 2.2 is upheld in its terms since it does not stipulate any new standard and rightly clarifies the legal position under Section 5(16) of the IBC read with Regulation 2(1)(ea) of the LP Regulations in discerning the meaning of the term “liquidation cost”. The definitional content of Regulation 2(1) (ea) of the LP Regulations is only illustrative of the types of “liquidation cost” that are covered by the term “any cost incurred” under Section 5(16) of the IBC;
c) Paragraph 2.3 and Paragraph 2.4 are upheld. Payments to those doing business with the Corporate Debtor in the course of keeping the business running as a going concern pending liquidation, would not constitute a “distribution” to “stakeholders” from the proceeds of realisation, if they are paid in priority as “liquidation costs”. If any business counter-party is willing to wait in queue to be paid as part of the eventual waterfall mechanism (potentially, in itself, a theoretical and impractical proposition), then such counter-party may be an operational creditor who is a stakeholder to whom proceeds from realisation have to be distributed. But a counter-party who is paid for the purpose and while the business of the Corporate Debtors is running as a going concern during liquidation, and that too ahead of all others (only possible because such payment is a “liquidation cost”) would not be a “stakeholder” waiting for “distribution” of the liquidation proceeds realised. Any reliance on Paragraph 2.3 and Paragraph 2.4 of the Impugned Circular in the proceedings, must be in accordance with the declaration of the law on the respective subjects as articulated above;
d) We have expressed no opinion on the facts relating to the Petitioner’s handling of the eight liquidation assignments. The Petitioner is free to address his arguments and submissions before IBBI in its quasi-judicial capacity. The IBBI shall apply its mind to the facts of the case in accordance with the law declared in this judgment;
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