The NCLAT, Principal Bench, New Delhi opined that if the Resolution Professional (hereinafter referred to as “RP”) had taken all the necessary care and caution in holding the Committee of Creditors (hereinafter referred to as “CoC”) meeting and the creditors are absent even in the adjourned meeting, then it cannot be said that the decision taken in that meeting was illegal due to the threshold of votes not being met.
It was held that Regulation 22(3) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as “CIRP Regulations”), provides that the members attending the meeting which was adjourned are quorate and therefore, the decision will not be illegal.
Brief Facts of Company Appeal (AT) Insolvency No. 32 of 2022:
The case of the Appellant is that in one of the meetings, the Appellant was not present, and he holds 85.226% of the voting rights in CoC. Decisions were taken about the Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) dues and such decisions in the absence of the Appellant are illegal in accordance with Section 21(8) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”).
It was contended by the Appellant that the expenses claimed by RP are disproportionately excessive and unreasonable when compared with the assets of the Corporate Debtor. It was also argued that the Assessing Officer can only approve payments up to Rs. 2,00,000 whereas in the present case, expenses up to Rs. 31,10,796 were claimed.
Brief Facts of Company Appeal (AT) Insolvency No. 1123 of 2022:
As per the Appellant, the Respondent who is also the RP raised a big amount as the proportionate share of the Appellant in the total CIRP cost. It was contended that the CoC is only authorized to fix the expenses and that the RP cannot recover the same from the creditors whereas in the present case, the NCLT has directed the Appellant to deposit the amount with the liquidator.
Brief Background:
The Applicant who is the RP of the Corporate Debtor Indianroots Shopping Ltd. had filed an application seeking CIRP dues and expenses to be paid by the Income Tax and Excise and Taxation Department in proportion to the voting share of RP in the CoC.
The Appellants in both appeals are operational creditors of the Corporate Debtor Indianroots Shopping Ltd and are aggrieved by the decision of the NCLT vide which they were directed to pay the CIRP expenses immediately. Therefore, a common judgement is passed in the present case.
Contentions of the Appellant:
In the present case, in CIRP, there is no financial creditor and thus, CIRP only constitutes operational creditors. The Appellant holds 85.226% of the voting share while the Excise and Taxation Department holds 11.53% making it a total of 96.750%. As per Section 21(8) of the IBC, all decisions in Coc are to be taken with a vote of 51% or more whereas in the present case, the decision concerning fixing CIRP cost was taken by a vote of a mere 4%.
It was argued that the decision taken was null and void and the Appellants cannot be directed to pay a high CIRP on basis of a non-est decision.
It was contended that the expenses related to CIRP have to be fixed by CoC but the payment has to be made as per the waterfall mechanism given in Section 53 of IBC.
Contentions of the Respondent:
Relying on Regulation 25(3) CIRP Regulations, it was argued that votes of those members are taken who are present in the CoC meeting and for deciding general issues there is no voting threshold prescribed.
It was further argued that the decision concerning cost was not challenged in the subsequent Coc Meeting. It was only challenged when the order was passed by the NCLT.
Observations of the NCLAT:
It was observed that the notice for the meeting of the CoC was sent to the Appellants and they chose not to be present. Despite the meeting being rescheduled, the Appellants were again absent. Other creditors have deposited their CIRP costs. It was noted that the communication regarding the proportional shares towards CIRP costs was duly communicated to the Appellants and the same was accepted by them without raising any objection or demur.
It was only when the direction was passed against them to pay their respective shares that the Appellants raised the issue of the legality of the said decision.
The Bench noted that there was a substantial lapse of time.
It was held that the RP had taken all the necessary care and caution in holding the CoC meeting. After the meeting is adjourned Regulation 22(3) provides that the members attending that meeting are quorate and therefore, there was no illegality in the decision.
The decision of the Bench:
The Bench noted that the liquidation process must be completed at the earliest so that creditors and stakeholders receive their due payments and for this to happen, the Appellants are required to submit their dues at the earliest.
Accordingly, both appeals were dismissed by the NCLAT.
Case Title: Income Tax Department v. M/s. Indianroots Shopping Ltd. & Ors. With Excise and Taxation Department v. Ashok Kumar, Resolution Professional
Coram: Dr. Alok Srivastava (Technical Member), Justice Rakesh Kumar Jain (Judicial Member)
Case No.: Company Appeal (AT) Insolvency No. 32 of 2022 with Company Appeal (AT) Insolvency No. 1123 of 2022
Advocates for Appellant: Advs. Mr. Vipul Agarwal, Mr. Parth S., Mr. Hemant Gupta, Mr. Varun Goel
Advocates for Respondents: Advs. Ms. Prachi Johri, Ms. Vatsalya Kumar
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