NCLT HAS NO POWER TO CONVERT A CIRP INTO FAST TRACK CIRP, EXTEND CIRP PROCESS BEYOND 270 DAYS AND REJECT THE FEES OF RP ALREADY FIXED BY COC
IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Sanjay Kumar Ruia vs. Catholic Syrian Bank Ltd. & Anr.
(Company Appeal (AT) (Insolvency) No. 560 of 2018) dated: 03.01.2019
FACTS OF THE CASE
This appeal has been preferred by Mr. Sanjay Kumar Ruia (herein after referred to as Appellant) erstwhile ‘Resolution Professional’ of ‘S.N. Plumbing Private Limited’ against the order passed by the NCLT, Mumbai.
NCLT extended the period of resolution process in exercise of power conferred under Section 55 of I&B Code treating the matter as ‘Fast Track CIRP’ also determining the ‘CIRP fee’ and the ‘cost’ incurred and payable to Appellant.
ISSUES BEFORE NCLAT
Three issues were for consideration before the Court:
Whether the NCLT has power to convert the CIRP as a Fast Track CIRP under Section 55 of the IBC?
Whether COC had jurisdiction to replace the Resolution Professional after completion of 270 days?
Whether the NCLT is empowered to decide the resolution cost, including the resolution fee payable to the RP?
For determining the 1st issue, the NCLAT referred to Section 55 of the IBC which states that:
“55. Fast track corporation insolvency resolution process –A Corporate Insolvency Resolution process carried out in accordance with this Chapter shall be called as fast track corporate insolvency resolution process.
An application for fast tract corporate insolvency resolution process may be made in respect of the following corporate debtors, namely:-
a corporate debtor with assets and income below a level as may be notified by the Central Government; or
a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government; or
such other category of corporate persons as may be notified by the Central Government.”
Section 55 (2) clarifies that Fast Track CIRP is only limited to certain class of Corporate Debtor.
In the present case, the application itself was not filed under Section 55 but filed under Section 9 of the ‘I&B Code’.
The ‘Corporate Debtor’ does not come within the category of ‘Corporate Debtor’ in terms of clauses (a) or (b)or (c) of sub-section (2) of Section 55 as its assets and income being not below a level, notified by the Central Government nor having class of creditors or amount of debt as notified by the Central Government.
Therefore, Section 55 cannot be invoked against the Corporate Debtor.
For determining the 2nd issue, the NCLAT referred to Section 12 of the IBC which states that:
“12. Time – limit for completion of insolvency resolution process.
Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.
The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of seventy-five per cent. of the voting shares.
On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days:
Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once.”
Section 12 clarifies that the CIRP was required to be completed within 180 days from the date of initiation of CIRP.
Further, Sub-section (3) of Section 12 empowers the NCLT to extend the period beyond 180 days but it cannot exceed 90 days.
However, after completion of 270 days NCLT have to either approve the Resolution Plan, if any, as approved by COC or in absence of any Plan, the NCLT is bound to pass an order of liquidation
As after completion of 270 days, the COC ceased to exist and thereby they have no jurisdiction to replace a RP.
Therefore, it held that COC does not have any power to replace RP after completion of 270 days.
For determining the 3rd issue, the NCLAT referred to Regulation 31 & Regulation 34 of the IBBI Regulation, 2016.
Regulation 31states that:
“Insolvency resolution process costs –
Insolvency resolution process costs under section 5(13)(e) shall mean-
amounts due to suppliers of essential goods and services under Regulation 32;
amounts due to a person whose rights re prejudicially affected on account of the moratorium imposed under section 14(1)(d);
expenses incurred on or by the interim resolution professional to the extent ratified under regulation 33;
expenses incurred on or by the resolution professional fixed under regulation 34; and
other costs directly relating to the corporate insolvency resolution process and approved by the committee.”
Regulation 34 states that:
“Resolution professional costs –
The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs.
Explanation – For the purposes of this Regulation, “expenses” mean the fee to be paid to the resolution professional and other expenses, including the cost of engaging professional advisors, to be incurred by the resolution professional.”
Regulation 34 aforesaid makes it clear that the COC is required to determine the expenses incurred on or by the RP, which shall also constitute Insolvency Resolution Process Costs.
It is only thereafter NCLT will approve at the time of approval of Resolution Plan.
In the present case, as no order has been passed by NCLT under Section 31 or under Section 33 of the IBC. Therefore, NCLAT held that the NCLT had no jurisdiction to decide the resolution cost including the fee of the ‘Resolution Professional’.
NCLAT concluded that NCLT has no power for the following:
a.NCLT will not have any power or Jurisdiction to convert the CIRP initiated under Section 7, 9 or 10 of IBC as a Fast Track CIRP under Section 55 of the IBC.
b.COC ceased to exist under IBC after completion of 270 days therefore COC will not have any power or jurisdiction to replace the RP after completion of 270 days.
c.NCLT is not empowered to decide the Resolution Cost, including the Resolution fee payable to the RP as only COC has the power or Jurisdiction to decide the Fee of the RP.
Therefore NCLAT referred the matter back to NCLT with a direction to pass order under Section 31 and if no Resolution plan is approved then NCLT will pass an order of Liquidation.
Further NCLT directed NCLT that while determining ‘Resolution Cost’, the amount already paid to the Appellant RP should be adjusted. If further amount is payable, it should be paid to the Appellant RP.
On the other hand, if it is determined that less amount is payable, the Appellant RP will refund the excess amount immediately.
In this case, the NCLAT has reiterated the power of the NCLT and the COC and clarified that the power cannot be interchanged by the parties.
The CIRP can be maximum for a period of 270 days and it cannot be extended by NCLT as neither it has such powers nor it is vested by the Code.
It must be noted that as an exception and to bring a logical end to the CIRP of Essar Steel, the Apex Court had invoked Article 142 for extending the period beyond 270 days.
Neither the NCLT nor COC can decide anything over and above the power specified under the IBC or the Regulations specified by the Board.
NCLAT’s judgement in this case will help bring clarity to RP, COC and NCLT in adjudicating similar disputes.
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