CA Jai Narayan Gupta Vs Radhasiriya Properties Pvt. Ltd. (NCLAT Delhi)
No fee could be charged by Liquidator under scheme of section 230 of Companies Act, 2013 read with Regulation 2B of Liquidation Regulations, 2016
Conclusion: No fee could be charged from the Scheme Proponent, who had submitted the Scheme under Section 230 of the Companies Act, 2013 read with Regulation 2B of Liquidation Regulations, 2016. Liquidator was entitled to fee under Section 34 of the Insolvency and Bankruptcy Code, 2016 (IBC) and Regulation 4 of the Liquidation Regulations, 2016, therefore, Adjudicating Authority had rightly directed the Liquidator to refund of the amount of expenses as claimed by him in the liquidation process and if the amount of all expenses claimed by the Liquidator were deducted, still the Liquidator was liable to refund the amount of Rs.22,77, 108/-, as per his own calculation.
Held: Appellant-Liquidator charged fee for the period from 15.03.2022 to 17.02.2023 as per the provisions of Regulation 4(2)(a) read with Proviso to Regulation 2B(3) of the Liquidation Regulations, 2016. It was contended that Regulation 2B had been prepared to balance the equity to encourage only the serious proposals of compromise or arrangement and hence, the time taken, was taken outside the liquidation period and where compromise or arrangement was not sanctioned by the Tribunal, the Applicant (Proponent of the Scheme) of such compromise or arrangement was burdened with the cost. Appellant was not required to work free of cost during the period of consideration of the scheme of compromise and arrangement. It was the Scheme Proponent, who had to bear the liquidation fee. The terminology of “liquidation cost”, was not applicable to cases under Section 230 of the Companies Act, 2013. Adjudicating Authority was unjustified in depriving the Appellant of its legitimate fee and the order was against the provisions of the Code and Regulations. Respondent submitted that the Liquidator pressurized the Respondent into making payment, which was clear from the email sent by the Liquidator on 23.12.2022. Even after the scheme was rejected on 17.02.2023, the Liquidator accepted the amount from the Respondent and that as per Regulation 2B(3) of the Liquidation Regulations, 2016, cost in relation to compromise and arrangement was to be borne by the parties, who proposed compromise and arrangement. It was held that Liquidator was entitled to his fee as per the statutory provision of Section 34, sub-section (8) and (9) read with Regulation 4 of Liquidation Regulations, 2016. No fee could be charged from the Scheme Proponent, who had submitted the Scheme under Section 230 of the Companies Act, 2013 read with Regulation 2B of Liquidation Regulations, 2016. Liquidator was not entitled to claim any liquidation fee from Respondent for the period during which compromise and arrangement scheme was under consideration. Liquidator had claimed a fee of Rs.23,01,000/-, which was clearly unsustainable. Liquidator had given the details of all expenses and fee payable totaling to Rs.24, 12,172. At the highest, the Liquidator was entitled to expenses. Thus, even if we allow all expenses claimed in paragraph 14 of the reply of the Liquidator, he was not entitled to a fee of Rs.23,01,000/- and after deducting the amount of Rs.23,0 1,000/- in total amount, the Liquidator at best was entitled for amount of Rs.1,1 1,172/- towards all expenses claimed by the Liquidator. In view of the foregoing discussions and our conclusion, Adjudicating Authority had rightly directed the Liquidator to refund of the amount. Liquidator at best was entitled to expenses as claimed by him in the liquidation process and if the amount of all expenses claimed by the Liquidator were deducted, still the Liquidator was liable to refund the amount of Rs.22,77, 108/-, as per his own calculation.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
This Appeal by the Liquidator of Corporate Debtor has been filed challenging the order dated 03.10.2023 passed by the National Company Law Tribunal, Division Bench, Court No.II, Kolkata in I.A. (IB) No.975/KB/2023 filed by Respondent. The Adjudicating Authority by the impugned order has directed the Liquidator to refund the amount of Rs.23,88,280/-, which was received from Respondent towards fee of
Liquidator and cost. The Appellant aggrieved by the said order has come up in this Appeal.
2. Brief facts of the case necessary to be noticed for deciding the Appeal are:
(i) Liquidation process of the Corporate Debtor – M/s Barcle Enterprises Limited commenced by an order dated 24.01.2022. The Appellant was appointed as a Liquidator of the Corporate Debtor in terms of Section 33, sub-section (2) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code”).
(ii) The Respondent – Radhasiriya Properties Pvt. Ltd. sent an intimation to the Liquidator, expressing its interest in submitting a scheme of compromise and arrangement. On 15.03.2022, Respondent No.1 submitted its scheme to the Liquidator. After certain correspondence, the Liquidator accepted the scheme on 12.05.2022 and I.A. (IB) No.495/KB/2022 was filed by the Liquidator before the Adjudicating Authority seeking a direction to the Liquidator to conduct a meeting of the Creditors under Regulation 2B of the IBBI (Liquidation Process) Regulation, 2016 (hereinafter referred to as the “Liquidation Regulations, 2016”) read with Section 230(1) of the Companies Act, 2013.
(iii) The Liquidator sent different emails to the Proponent of the Scheme demanding various amounts from Respondent to be paid. Certain amounts were paid by Respondent to the Liquidator. The Liquidator sent various reminders asking the Respondent to make the payment towards cost and fee of the Liquidator as well as for depositing the estimated amount under the Scheme. A letter was written by Respondent to the Liquidator asking the provision of the Code under which the Liquidator is seeking payment of the entire amount proposed to be paid under the Scheme. On account of various letters issued by the Liquidator, further amounts were paid by the Respondent to the Liquidator. Total amount paid by the Respondent to the Liquidator was Rs.23,88,280/- from 20.04.2022 to 28.02.2023.
(iv) Under the order of the Adjudicating Authority dated 06.01.2023, the Liquidator convened a meeting of Creditors on 17.02.2023. In the meeting of the Creditors held on 17.02.2023, the scheme submitted by Respondent was rejected by the Creditors. Respondent received an email from the Liquidator on 1st March, 2023 informing it that in the meeting of the Creditors, the scheme submitted by the Respondent has been rejected.
(v) The Respondent, i.e. , the Scheme Proponent filed an Application before the Adjudicating Authority being I.A. (IB) No.975/KB/2023, where following prayers were made:
“a. That this Hon’ble Tribunal be pleased to direct the Respondent to forthwith refund the amount of Rs.23,88,280 (Rupees Twenty-Three Lakh Eighty-Eight Thousand Two Hundred and Eighty Only) to the Applicant or such other amount as this Hon’ble Tribunal may deem fit and proper.
b. That this Hon’ble Tribunal be pleased to pass such other and further orders as the Hon’ble Tribunal may deem fit and proper in the facts and circumstances of the present case.”
(vi) The Liquidator filed a reply to the Application, justifying the payments received from the Respondent. It was pleaded by the Liquidator that under the Liquidation Regulations, 2016, the Liquidator is entitled to receive his fee for the period of compromise and arrangement. It was pleaded that the amount deposited covers the fee from the Liquidation Commencement Date, i.e., 24.01.2022 till 25.02.2023 amounting to Rs.23,01,000/-. In paragraph 14 of the reply, details were given by the Liquidator regarding liquidation costs during the period of compromise.
(vii) The Adjudicating Authority after hearing the Counsel for the Respondent as well as the Liquidator, passed the impugned order allowing the Application filed by the Respondent. The Adjudicating Authority in the impugned order held that Liquidator is not entitled to receive any fee. It was held by the Adjudicating Authority that since the Scheme was rejected, the liquidation cost including liquidation fee was wrongly claimed by the Liquidator from the Scheme Proponent, i.e., Respondent. The Adjudicating Authority, consequently directed the Liquidator to refund the entire amount of Rs .23,88,280/-.
Aggrieved by which order this Appeal has been filed.
3. We have heard Shri Anoop Prakash Awasthi, learned Counsel appearing for the Appellant and Ms. Swati Dalmia, learned Counsel appearing for the Respondent.
4. The learned Counsel appearing for the Appellant challenging the impugned order submits that the Appellant charged fee for the period from 15.03.2022 to 17.02.2023 as per the provisions of Regulation 4(2)(a) read with Proviso to Regulation 2B(3) of the Liquidation Regulations, 2016. It is contended that Regulation 2B has been prepared to balance the equity to encourage only the serious proposals of compromise or arrangement and hence, the time taken, is taken outside the liquidation period and where compromise or arrangement is not sanctioned by the Tribunal, the Applicant (Proponent of the Scheme) of such compromise or arrangement is burdened with the cost. It is submitted that if liquidation fee and cost is not charged from Scheme Proponent, non-serious parties or parties with vested interest and malafide motives may come up and propose compromise and arrangement and will be able to successfully halt the liquidation process without any pecuniary consequences on them. The Appellant was not required to work free of cost during the period of consideration of the scheme of compromise and arrangement. It was the Scheme Proponent, who has to bear the liquidation fee. The terminology of “liquidation cost”, is not applicable to cases under Section 230 of the Companies Act, 2013. The Adjudicating Authority was utterly unjustified in depriving the Appellant of its legitimate fee and the order is against the provisions of the Code and Regulations.
5. The learned Counsel for the Respondent contended that amount of Rs.23,88,280/- was paid by the Respondent at the insistence of the Liquidator. The Liquidator pressurized the Respondent into making payment, which is clear from the email sent by the Liquidator on 23.12.2022. Even after the scheme was rejected on 17.02.2023, the Liquidator accepted the amount from the Respondent. It is submitted that as per Regulation 2B(3) of the Liquidation Regulations, 2016, cost in relation to compromise and arrangement is to be borne by the parties, who proposes compromise and arrangement. The term ‘cost’ only indicates cost incurred by the Liquidator in respect of compromise and arrangement and no other cost as sought to be asserted by the Liquidator could have been paid. In cases where scheme of arrangement submitted by a Propounder is rejected, then at the highest, such Propounder is liable to contribute towards the expenses incurred in relation to such compromises or arrangements. The Liquidator is entitled to his fee as per Section 34, subsection (9) of the Code for conducting the liquidation proceedings, out of the proceeds of the liquidation estate. The Liquidator has attempted to incorrectly and inaptly interpret Regulation 2B of the Liquidation Regulations, 2016. The Liquidator has wrongfully withheld the amount remitted by the Respondent. The present Appeal deserves to be dismissed with costs.
6. We have considered the submission of learned Counsel for the parties and have perused the records.
7. The facts and sequence of events between the parties have been noted by the Adjudicating Authority in its impugned order, which needs no repetition. It is admitted fact between the parties that the Respondent, who has proposed the scheme of compromise and arrangement dated 15.03.2022 was required by the Liquidator to pay various amounts from time to time and total amount paid by the Respondent was an amount of Rs.23,88,280/-, for refund of which amount an I.A. (IB) No.975/KB/2023 was filed, which was allowed by the Adjudicating Authority. The Liquidator has filed the reply to the I.A. (IB) No.975/KB/2023, where it has given the details of amount, which according to the Liquidator, the Respondent was liable to pay. It is useful to extract paragraph 14 of the reply, which contain all details regarding liquidation fee and the expenses as was claimed by the Liquidator. Paragraph 14 of the reply of the Liquidator is as follows:
