PTC India Financial Services Ltd. Vs. Vikas Prakash Gupta RP - On careful examination of Section 53(1), case laws and other facts as discussed above we are of the view that Section 53(1) does not recognize any inter se ranking of charges among financial creditors existing before initiation of CIRP for distribution of sale proceeds under liquidation.

NCLT Hyderabad (06.07.2023) In PTC India Financial Services Ltd. Vs. Vikas Prakash Gupta RP [IA. No. 1341 of 2022 and I.A. No.254/2023  in CP (IB) No. 377/7/HDB/2018, (2023) ibclaw.in 329 NCLT] held that;

• On careful examination of Section 53(1), case laws and other facts as discussed above we are of the view that Section 53(1) does not recognize any inter se ranking of charges among financial creditors existing before initiation of CIRP for distribution of sale proceeds under liquidation. 

• Section 53(2) also further clarifies that liquidator shall disregard any contractual arrangement between recipient under Sub-Section 53(1) with equal ranking if disrupting the order of priority. 

• Also, Section 53(1) very clearly defines the classes and order of water fall mechanism and has no scope for adding other sub-classes. 

Excerpts of the Order;

IA. No. 1341 of 2022

# 5. After hearing learned counsels from both sides and after perusal of written statements and other documents submitted to the Tribunal, the point for consideration is Point:

• “Whether inter se ranking of the charges among Secured Financial Creditors existing before initiation of CIRP will be recognized while distributing the sale proceeds in liquidation under Section 53(1) of IBC, 2016”. 

6. Our observations in this regard are as under: 

a. This is an application filed by one of the secured financial creditor i.e PTC India Financial Services Limited against the Liquidator, and SBI challenging the distribution of proceeds from the sale of corporate debtor under liquidation. The third respondent is M/s. Indo Unique Flame Limited, who has also filed a similar Application, IA No.254/2023 against the Respondent No.1&2. 

b. In the stake holders meeting dated 28.09.2022, an opinion on the basis of a legal decision was taken to distribute the proceeds from the sale of assets of the corporate debtor as per the inter se ranking of charges and accordingly liquidator has given full amount to SBI who is the first charge holder amongst the Secured financial creditors. Some relevant extract from the above said report are reproduced below: 

• “PTC India Financial Services are secured creditors with second charge on the movable and immovable fixed assets of the corporate debtor.” 

• “Liquidator assured the financial creditors that as per Regulation 43 of the liquidation regulations, undertaking from the eligible stakeholders shall be taken wherein they are required to refund the amount of money which has been paid to them in excess if any to which they are not entitled to or no subsequently become entitled on the basis of decision of any court or authority. Accordingly, the same shall be taken from the SBI before the funds are distributed”. 

c. The Applicant herein has alleged that the act of liquidator is contrary to the Section 53(1) of the IBC, 2016 and he has wrongly distributed the sale proceeds to only one secured financial creditor i.e SBI and not made justice to the Applicant despite Applicant being a secured financial creditor. 

d. Applicant further pleaded that Section 53(1) does not stipulate any inter se ranking amongst secured financial creditor and all the secured financial creditors are in one category and there is no ranking or sub-clause like first charge holder or second charge holder amongst the secured financial creditors. The Applicant has relied on the Judgment of Hon’ble NCLAT dated 26.05.2022 in the matter of Oriental Bank of Commerce Vs Anil Anchalia and Anr. Being Comp.App(AT) (Ins) No.547/2022. The relevant portion of the judgment is reproduced below: 

In a recent judgment delivered by this Appellate Tribunal in Company Appeal (AT) (Ins.) No. 644 of 2021 dated 06.05.2022-"Indian Bank vs. Charu Committee of GB Global Ltd. & Anr.", a similar contention raised by the Indian Bank which was secured creditor who was Dissenting Financial Creditor was repelled. After relying the judgment of the Hon'ble Supreme Court in M/s. Amit Metaliks Ltd. (supra), this Tribunal in paragraphs 27 and 28 laid down following:- 

• 27. The Judgment of the Hon'ble Supreme Court, in the above case, is that when the extent of value received by the creditors under Section 53 is given which is in the same proportion and percentage as provided to the other Financial Creditors, the challenge is to be repelled." 

• We thus, do not find any merit in the submissions of the Learned Counsel for the Appellant. The submission that earlier judgment of this Tribunal in "Technology Development Board" having been stayed by the Hon'ble Supreme Court on 29.06.2021, no reliance can be placed on the said judgment looses its importance in view of the subsequent judgment of the Hon'ble Supreme Court dated 13.05.2021 M/s. Amit Metaliks Ltd. (supra). The issue is no more res integra and no error is committed by the Adjudicating Authority in rejecting the Application filed by the Appellant. There is no merit in the Appeal. The Appeal is dismissed. 

# 7. The respondents have placed reliance on Section 48 of the Transfer of Property Act, 1882, accordingly to which the claim of first charge holder shall prevail over the claim of second charge holder. In our view the contention of the respondents is not maintainable as Section 53(1) very clearly states that 

• “Section 53(1) :Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified” and IBC being a new law, it will certainly prevail upon the Transfer of Property Act, 1882. 

8. In this case the issue revolve around Section 53(1) of IBC, 2016 and therefore the said section is reproduced below: 

• Section 53 (2) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, 

• (a) the insolvency resolution process costs and the liquidation costs paid in full; 

• (b) the following debts which shall rank equally between and among the following. (i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has ARY relinquished security in the manner set out in section 52; 

• c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; 

• (d) financial debts owed to unsecured creditors; 

• (e) the following dues shall rank equally between and among the following:- (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; 

• (f) any remaining debts and dues; 

• (g) preference shareholders, if any; and 

• (h) equity shareholders or partners, as the case may be. 

# 9. On careful examination of Section 53(1), case laws and other facts as discussed above we are of the view that Section 53(1) does not recognize any inter se ranking of charges among financial creditors existing before initiation of CIRP for distribution of sale proceeds under liquidation. Section 53(2) also further clarifies that liquidator shall disregard any contractual arrangement between recipient under Sub-Section 53(1) with equal ranking if disrupting the order of priority. Also, Section 53(1) very clearly defines the classes and order of water fall mechanism and has no scope for adding other sub-classes. 

# 10. In view of the above we allow this Application and direct the respondents as under 

• 1. The 2 nd Respondent (SBI) is hereby directed to refund the amount as per the undertaking given by them to the Liquidator as referred in minutes of SCC meeting dated 07.10.2022. 

• 2. Liquidator is directed to re-calculate and redistribute the amount to all secured financial creditors putting all of them on same pedestal irrespective of priority of charge. 

# 11. With the above directions IA No.1341/2022 is disposed of. 

------------------------------------------------

I.A. No.254/2023 

# 1. This application is filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 Read With Rule 11 and 13 of the National Company Law Tribunal Rules, 2016 seeking following reliefs : 

• a) Declare the decision as regards to the distribution of sale proceeds in stakeholders meeting dated 28.09.2022 as null and void. 

• b) Directions to the Liquidator to distribute the proceeds from the sale of assets of the Corporate Debtor under liquidation, equally among all the secured creditors of the Corporate Debtor as envisaged under Section 53 of the Code; 

• c) Directions to State Bank of India, i.e., Respondent No.2 to refund the amount as mentioned in the distribution chart with interest at the rate of SBI prime lending rate to the Liquidator for recalculation and redistribution to all Secured creditors, irrespective of nature of charges; 

• d) Grant ex-parte ad interim stay on distribution of the proceeds of the sale of the assets of the Corporate Debtor to State Bank of India during the pendency of the instant Application; OR In the alternative in case proceeds already distributed, then direct SBI to secure the entire amount distributed to them in a No Lien Interest bearing account during the pendency of the instant application; and/or 

• e) To pass any such orders as may be deemed fit, proper and necessary in the instant case. 

# 5. After hearing learned counsels from both sides and after perusal of written statements and other documents submitted to the Tribunal, the point for consideration is Point: 

• “Whether inter se ranking of the charges among Secured Financial Creditors existing before initiation of CIRP will be recognized while distributing the sale proceeds in liquidation under Section 53(1) of IBC, 2016”. 

# 6. Our observations in this regard are as under: 

a. This is an application filed by one of the secured financial creditor i.e M/s Indo Unique Flame Limited against the Liquidator and SBI challenging the distribution of proceeds from the sale of corporate debtor under liquidation. 

b. In the stake holders meeting dated 28.09.2022, an opinion on the basis of a legal decision was taken to distribute the proceeds from the sale of assets of the corporate debtor as per the inter se ranking of charges and accordingly liquidator has given full amount to SBI who is the first charge holder amongst the Secured financial creditors. Some relevant extract from the above said report are reproduced below: “The Representative of Indo Unique Flame Limited enquired the reasons and whey he should not be categorized as a secured first charge holder when the charge is registered with MCA and NOC obtained from SBI has been submitted with liquidator.” 

c. The Applicant herein has alleged that the act of liquidator is contrary to the Section 53(1) of the IBC, 2016 and he has wrongly distributed the sale proceeds to only one secured financial creditor i.e SBI and not made justice to the Applicant despite Applicant being a secured financial creditor. 

d. Applicant further pleaded that Section 53(1) does not stipulate any inter se ranking amongst secured financial creditor and all the secured financial creditors are in one category

and there is no ranking or sub-clause like first charge holder or second charge holder amongst the secured financial creditors. The Applicant has relied on the Judgment of Hon’ble NCLAT dated 26.05.2022 in the matter of Oriental Bank of Commerce Vs Anil Anchalia and Anr. Being Comp.App(AT) (Ins) No.547/2022. The relevant portion of the judgment is reproduced below: 

• In a recent judgment delivered by this Appellate Tribunal in Company Appeal (AT) (Ins.) No. 644 of 2021 dated 06.05.2022-"Indian Bank vs. Charu Committee of GB Global Ltd. & Anr.", a similar contention raised by the Indian Bank which was secured creditor who was Dissenting Financial Creditor was repelled. After relying the judgment of the Hon'ble Supreme Court in M/s. Amit Metaliks Ltd. (supra), this Tribunal in paragraphs 27 and 28 laid down following:- 

• 27. The Judgment of the Hon'ble Supreme Court, in the above case, is that when the extent of value received by the creditors under Section 53 is given which is in the same proportion and percentage as provided to the other Financial Creditors, the challenge is to be repelled." 

• We thus, do not find any merit in the submissions of the Learned Counsel for the Appellant. The submission that earlier judgment of this Tribunal in "Technology Development Board" having been stayed by the Hon'ble Supreme Court on 29.06.2021, no reliance can be placed on the said judgment looses its importance in view of the subsequent judgment of the Hon'ble Supreme Court dated 13.05.2021 M/s. Amit Metaliks Ltd. (supra). 

• The issue is no more res integra and no error is committed by the Adjudicating Authority in rejecting the Application filed by the Appellant. There is no merit in the Appeal. The Appeal is dismissed. 

e) The respondents have placed reliance on Section 48 of the Transfer of Property Act, 1882, accordingly to which the claim of first charge holder shall prevail over the claim of second charge holder. In our view the contention of the respondents is not maintainable as Section 53(1) very clearly states that 

• “ Section 53(1):Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified” and IBC being a new law, it will certainly prevail upon the Transfer of Property Act, 1882.

f) In this case the issue revolve around Section 53(1) of IBC, 2016 and therefore the said section is reproduced below: 

• Section 53 (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, 

• (a) the insolvency resolution process costs and the liquidation costs paid in full; 

• (b) the following debts which shall rank equally between and among the following. (i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has ARY relinquished security in the manner set out in section 52; 

• c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; 

• (d) financial debts owed to unsecured creditors; 

• (e) the following dues shall rank equally between and among the following:- (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; 

• (f) any remaining debts and dues; 

• (g) preference shareholders, if any; and 

• (h) equity shareholders or partners, as the case may be. 

g) On careful examination of Section 53(1), case laws and other facts as discussed above we are of the view that Section 53(1) does not recognize any inter se ranking of charges among financial creditors existing before initiation of CIRP for distribution of sale proceeds under liquidation. Section 53(2) also further clarifies that liquidator shall disregard any contractual arrangement between recipient under Sub-Section 53(1) with equal ranking if disrupting the order of priority. Also, Section 53(1) very clearly defines the classes and order of water fall mechanism and has no scope for adding other sub-classes. 

h) In view of the above we allow this Application and direct the respondents as under 

• 1. The 2nd Respondent (SBI) is hereby directed to refund the amount as per the undertaking given by them to the Liquidator as referred in minutes of SCC meeting dated 07.10.2022.

•  2. Liquidator is directed to re-calculate and redistribute the amount to all secured financial creditors putting all of them on same pedestal irrespective of priority of charge. 

i) With the above directions IA No.254/2023 is disposed of.

---------------------------------------------

Mrs. Teena Saraswat Pandey, Vs, Regional Provident Fund Commissioner, - Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received.

 NCLT Mumbai-V (10.07.2023) In Mrs. Teena Saraswat Pandey, Vs, Regional Provident Fund Commissioner, [I.A. 962 OF 2022 IN C.P.(IB) No. 3703/MB/2019] held that;

• Accordingly, this Bench is of the considered view that Section 14(1)(a) imposes complete embargo on any proceeding against the Corporate Debtor by any Authority till the completion of CIRP. 

• Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received. 

• It may also be inferred from the circumstances and intent of legislation that in the present cases, the lien created prior to the initiation of the ‘Corporate Insolvency Resolution Process cannot sustain as it will hinder the entire resolution process.

• It is evident that the that amount deducted for `Provident Fund’, purely belongs to an `Employees’ and is not to be treated as an `Asset’ of the ‘Corporate Debtor’ and cannot be touched by an `Interim Resolution Professional’/`Resolution Professional’/ `Liquidator’ as the case may be. 

• However, it is important to note that such `Provident Fund’, has to be an `Establishment Fund’, kept separately by the company and only then this proviso will be applicable. 

• If even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, in that event `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016.

Excerpts of the Order;

# 1. The present Application is filed by the Applicant, namely, Mrs. Teena Saraswat Pandey, under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“Code”) read with rule 11 of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”) seeking directions to the Regional Provident Fund Commissioner (hereinafter referred to as “Respondent”) to remove the lien and release the amount which is held in its custody during the Corporate Insolvency Resolution Process. 

FACTS OF THE CASE 

# 2. The Applicant is the Insolvency Professional of M/s S & H Gears Private Limited (hereinafter referred to as “Corporate Debtor”). 3. Company Petition No. 3703 of 2019 was admitted vide order dated 24.01.2020 under Section 7 of the Code and the Corporate Insolvency Resolution Process was commenced against the Corporate Debtor. Mr. Navin Khendelwal (Erstwhile IRP) was appointed as the Interim Resolution Professional. 

# 4. The Applicant has submitted that even after the erstwhile IRP had published Form A on 18.03.2020, the Respondent issued a notice through its authorised recovery officer on 15.06.2020 in order to initiate recovery proceedings against the Corporate Debtor. 

# 5. The Applicant has submitted that the Respondent had filed its claim vide email dated 01.12.2020 for an amount of Rs.2,98,11,102/- which the erstwhile IRP had accepted vide email dated 01.12.2020. In respect of the said claim, the Respondent had passed multiple orders calling upon the Corporate Debtor to pay the outstanding dues. 

# 6. Referring to the Item No.7 of the minutes of the sixth Committee of Creditors (COC) Meeting conducted by the erstwhile IRP on 16.12.2020, the Applicant has submitted that the erstwhile IRP had specifically taken the permission of the COC to operate the current account of the Corporate Debtor which was maintained in HDFC Bank, Dewas Branch for the receipts and payments during the CIRP Period, until the new current account was opened. 

# 7. The Applicant has submitted that the erstwhile IRP had communicated to the Respondent via email dated 16.04.2021 about the Initiation of CIRP and informed the Respondent that in order to meet the CIRP expenses, the HDFC bank Account needs to be maintained by the erstwhile IRP only and all the other signatories had to be suspended. Further, the erstwhile IRP had also requested the Respondent to instruct the HDFC Bank to remove the lien on the Corporate Debtors Account. The erstwhile IRP had also acknowledged that the Respondent's dues would be distributed as per the provisions of the Code. 

# 8. The Applicant was appointed as the Resolution Professional by the order of this Tribunal 24.06.2021. Subsequent to her appointment, she had taken over the affairs of the Corporate Debtor. It was brought to the notice of the Resolution Professional that one HDFC Bank Account bearing Account Number 08872320000129 (hereinafter referred to as “Bank Account”) was frozen by the Respondent on 24.08.2018 on the ground the Corporate Debtor was a defaulter. Hence the bank account was frozen by the Respondent. 

# 9. The Applicant has submitted that vide emails dated 21.08.2021 and 09.09.2021, she has communicated with the authorized representative of the Respondent and requested the Respondent to release the lien on the bank account in which an amount of Rs.3,81,676.32 was received from the prospective Resolution Applicants during the CIRP. 

# 10. The Applicant has further submitted that she had sent a legal notice on 30.09.2021 to the Respondent and has mentioned about creation of a lien on the accounts of Corporate Debtor which was under moratorium from 24.01.2020. The Respondent had replied to the legal notice through a reply letter dated 13.10.2021 stating that the Corporate Debtor was under liquidation not under CIRP and had asked the Applicant to clear the dues which is totally against the law. 

# 11. With the above averments, the Applicant has prayed to allow the present Applicant. 

REPLY FILED ON BEHALF OF THE RESPONDENT 

# 12. At the outset, the Respondent denied each and every contention raised by the Applicant in the present Application. 

# 13. The Respondent has submitted that the dues as on 23.01.2020 (date of commencement of CIRP) was Rs.3,10,68,057/- for the period from December 2007 to January 2020 under Section 7A, 14 B and 7Q of the EPF and MP Act, 1952 and a further amount of interest of Rs. 41,04,943/- was due under Section 7Q for the period January 2020 to April 2023. 

# 14. The Respondent has further submitted that the Code only provides for moratorium against commercial claims whereas EPF dues are social dues for the welfare of the workers and such statutory dues need to be assessed and recovered in the interest of the workmen so that their financial interests can be secured. 

# 15. The Respondent has further placed its reliance upon Section 529 of Companies Act 1956 and has submitted that the official liquidator is entitled to represent the workmen and enforce such charge. This section specifically empowers the official liquidator to represent the workmen and to enforce pari passu charge in favour of workmen in realization. Therefore, the official liquidator is duty bound to represent workmen even though no claim has been filed with respect to the provident fund dues. This is an obligation to be performed by official liquidator to satisfy the claim of provident fund dues prior to dealing with other debts, being the statutory amount to be paid to the workmen. 

# 16. It has been submitted that under the provision of IBC 2016 and EPF & MP Act, 1952 the Provident Fund dues are one of the most important dues to be considered by the liquidator and has undoubtedly privilege and preference over the other payments due from the corporate debtor. 

# 17. The Respondent has further submitted that the dues of workmen have to be given priority under Section of 53 of the IB Code and EPF & MP Act. It has further submitted that the EPFO Authority submitted a claim before the IRP/Liquidator but the same has not been allowed by the IRP/Liquidator. 

# 18. It has further been submitted that the Resolution Professional, while rejecting the claims of the Respondent, has failed to secure the rights of labourers and also to honour the statutory provisions of EPF Act. The Respondent has further submitted that it is well settled and established law that there is no inconsistency between Section 238 and other provision of IBC and section 11(2) and other provisions of EPF & MP Act. 

# 19. With reference to other contentions and allegation made in the application, the Respondent has denied the same and has prayed for the dismissal of the Application. FINDINGS 

# 20. We have heard the Ld. Counsels appeared for the parties and perused the record. 

# 21. The present Application has been filed by the Applicant against the lien created by the Respondent i.e Regional Provident Fund Commissioner on account of the Corporate Debtor during the pendency of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. 

# 22. It is an undisputed fact that the HDFC Bank Account bearing Account Number 08872320000129 (hereinafter referred to as “Bank Account”) was frozen by the Respondent on 24.08.2018. However, the CIRP was commenced against the Corporate Debtor vide order dated 24.01.2020. 

# 23. The issue which needs to be resolved is – Whether an Attachment on Corporate Debtor's bank account that was imposed before the initiation of CIRP, can continue during Moratorium under Section 14 of IBC? 

# 24. Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 is reproduced as under: Section 14: Moratorium. 

• *14. (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; 

# 25. From the above, 14(1)(a), it is clear that 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’ will temporarily cease to operate during `Moratorium’. The purpose of the Section 14 is to ensure that no depletion of `Assets’ of the ‘Corporate Debtor’ takes place during the ‘Corporate Insolvency Resolution Process’ and the ‘Corporate Debtor’ is allowed to continue as a going concern in order to maximise the value for all the `Stakeholders’. Accordingly, this Bench is of the considered view that Section 14(1)(a) imposes complete embargo on any proceeding against the Corporate Debtor by any Authority till the completion of CIRP. Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received. It may also be inferred from the circumstances and intent of legislation that in the present cases, the lien created prior to the initiation of the ‘Corporate Insolvency Resolution Process cannot sustain as it will hinder the entire resolution process. 

# 26. The Bench is aware about the provision of Section 36(4) of I & B Code 2016 which provides as under:

•  “36(4). The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation- 

• (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;” 

# 27. From the above referred Section, it is evident that the that amount deducted for `Provident Fund’, purely belongs to an `Employees’ and is not to be treated as an `Asset’ of the ‘Corporate Debtor’ and cannot be touched by an `Interim Resolution Professional’/`Resolution Professional’/ `Liquidator’ as the case may be. However, it is important to note that such `Provident Fund’, has to be an `Establishment Fund’, kept separately by the company and only then this proviso will be applicable. If even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, in that event `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016. 

# 28. It is pertinent to note that in the present case, the Resolution Professional in the 6th CoC meeting dated 14.12.2020 had sought permission to operate the Current Account which is being maintained with HDFC Bank, Dewas Branch for receipt and payment for the CIRP period and the same was approved by the members of the CoC. However, the said bank account had been frozen by the Respondent on 24.08.2018. Therefore, the Bench is of the considered view that since the Corporate Debtor had not opened a separate Bank Account for the `Provident Fund', the aforesaid account has to be treated as per Section 53 of the I & B Code, 2016. It would be pertinent to mention here that so far as the EPF claims are concerned, the Resolution Professional had admitted the said claims to the tune of Rs. 1,26,12,838/- , based on the records available with the Corporate Debtor and the admitted amount of EPF is proposed to be paid in the Resolution Plan approved by the CoC in its 21st meeting held on 13.12.2021 and 14.12.2021. Therefore, I.A. 962 OF 2022 IN C.P.(IB) No. 3703/MB/2019 9 the continuation of the lien on the bank account would not serve any purpose. 

# 29. Therefore, the Bench is of the considered view that the `Resolution Professional’ is in its right in seeking lifting of the lien created by the Respondent on Bank Account of the Corporate Debtor. 

# 30. Accordingly, this Interlocutory Application No. 962 of 2022 is “Allowed” with an order that the lien created by the Respondent on the HDFC Bank Account bearing Account Number 08872320000129 is hereby quashed/ set aside and the Resolution Professional shall be at liberty to deal with the same in accordance with the IB Code 2016. A copy of this order shall be forwarded to the Bank concerned for necessary compliance. 

---------------------------------------------

Jasamrit Designers Pvt. Ltd. Vs. Mr. Gian Chand Narang, Liquidator of Apex Buildsys Ltd - A successful bidder who is declared as successful bidder of sale as going concern can seek access of the Adjudicating Authority and may pray for necessary directions in accord with and in consonance with the process document in the liquidation proceedings.

NCLAT (04.07.2023) In Jasamrit Designers Pvt. Ltd. Vs. Mr. Gian Chand Narang, Liquidator of Apex Buildsys Ltd. [Company Appeal (AT) (Insolvency) No. 258 of 2023] held that;

• When the process document clearly contemplated such consequences the said consequences shall ensue on sale as going concern and if any roadblocks come into ways of successful resolution applicant, necessary directions, clarifications can very well be issued by the Adjudicating Authority on an Application filed under Section 60(5)(c) of the Code.

• That ends of justice will be served in granting liberty to file an Application before the Adjudicating Authority claiming reliefs/concessions/directions which may be necessary for operationalisation of the Corporate Debtor as per terms and conditions of the process document.

• Successful Bidder on e-Auction of the Corporate Debtor as a going concern can make only such prayers for reliefs/concessions which are commensurate and in accordance with the terms and conditions of the process document.

• A successful bidder who is declared as successful bidder of sale as going concern can seek access of the Adjudicating Authority and may pray for necessary directions in accord with and in consonance with the process document in the liquidation proceedings.

Excerpts of the Order;

# 1. This Appeal has been filed by Successful Bidder challenging the Order dated 02.12.2022 passed by National Company Law Tribunal, New Delhi, Principal Bench (hereinafter referred to as “The Adjudicating Authority”) disposing of I.A. No. 3207 of 2022 filed by the Appellant.

# 2. Brief facts of the case necessary to be noted for deciding this Appeal are:-

a. The Adjudicating Authority passed an order dated 09.01.2020 for liquidation of Apex Buildsys Limited-Corporate Debtor.

b. E-Auction Notice was issued by the Liquidator for sale of the Corporate Debtor as a going concern. After issuance of several E-Auction Notices by the Liquidator, e-Auction Notice was issued on 04th May, 2022 fixing 23rd May, 2022 as date for e-auction. E-auction process information document was also issued inviting bids for auction/sale of M/s. Apex Buildsys Limited as a going concern in its totality along with its employees/workers.

c. E-auction document contained various annexures and formats. E-Auction Notice also contained terms and conditions of the e-auction. Prospective bidders were required to make their own independent inquiries regarding the encumbrances, title of assets/properties of the company put on auction as going concern. It is useful to extract clause 2 of Terms and Conditions of the E-Auction which is to the following effect:

“The prospective bidders should make their own independent inquiries regarding the encumbrances, title of assets/properties of the company put on auction as going concern and claims/rights/dues/affecting the assets and should conduct their own due diligence prior to submitting their bid. The e-auction advertisement does not constitute and will not be deemed to constitute any commitment or any representation of the Liquidator. The company is being sold with all the existing and future encumbrances/claims/dues/demands whether known or unknown to the liquidator. Liquidator shall not be responsible in any of way for any third party claims/rights/dues.”

d. Terms and Conditions of e-Auction under Heading P(II) Other Terms and Conditions of E-auction contains certain additional terms and conditions. Under clause 2, following has been stated:

“2. The Liquidator has proposed to conduct sale of the Corporate Debtor as a going concern in its totality as contemplated under Regulation 32(e) of the Liquidation Regulations through E-auction Process, as under: –

a. Upon payment of 25% of the bid amount, A Term Sheet shall be executed between the Liquidator representing the Corporate Debtor and the successful bidder to give effect for sale of the Corporate Debtor as a going concern in its totality alongwith its employees/workers. The broad terms are stated herein below: –

• The cut-off date for the purposes of determination of all assets and liabilities of the Corporate Debtor shall be the liquidation commencement date, i.e., January 9th 2020.

• The sale of the Corporate Debtor as a going concern shall result in the transfer of the entire available assets of the Corporate Debtor in favour of the successful bidder on the date of transfer after payment of full sale consideration amount, i.e., on the date of handover of the reins of the company.

• All known or unknown, claimed or unclaimed, disclosed or undisclosed liabilities/ obligations, risks as on the cut-off date including prior claims of all creditors whether secured, unsecured, workers, employees, statutory authorities on account of Income Tax, Sales Tax, GST, Service Tax, DGFT, Excise, Customs etc., shareholders on account of transactions prior to the cut-off date shall be dealt with as per Section 53 of the Insolvency and Bankruptcy Code, 2016 as full and final settlement of their dues. The Liquidator shall in no event be responsible for any liabilities /obligations/ risks pertaining to the period prior to the Cut-off date, and the same shall be dealt with as per the provisions of law and directions of Hon ‘ble NCL Tor any higher authority thereof.

• The transfer of ownership of the Corporate Debtor shall take place by way of writing off the entire existing shareholding of Corporate Debtor and issuance of fresh equity shares to the successful bidder. The shares shall be issued only in the name of the successful bidder and will not be issued in any other name.

• The closing date of the transaction shall be 90 days from the payment of the full consideration amount, wherein in these 90 days, all the ancillary processes as mentioned in the Term Sheet shall be executed and implemented by the Liquidator and the bidder. The said executions include but are not restricted to distribution of the purchase consideration to various stakeholders, extinguishment of shares of the Corporate Debtor, issuance of fresh equity shares to the bidder, etc.

b. Confirmation of sale: On payment of the 100% of the bid amount, and any applicable GST/Taxes, registration fees, transfer fee etc. the successful bidder shall be issued the letter for confirmation of sale. The confirmation of sale is subject to the necessary approvals and processes, if any, towards various statutory and non-statutory authorities which include but is not restricted to Securities and Exchange Board of India, Bombay Stock Exchange, National Stock Exchange, The Directorate General of Foreign Trade, Income Tax, GST Department, Factory Inspector, PCB, SIDCUL, MIDC.”

e. The Appellant was selected as a highest bidder in the e-Auction held on 23rd May, 2022. Appellant has submitted a bid of INR 91 Crores against the reserve price of INR 73 Crores. There was certain challenge by another bidder which challenge was unsuccessful. The Appellant made the payment of sale consideration. Liquidator issued a Sale Certificate dated 22nd June, 2022 to the Appellant. Appellant thereafter filed an I.A. No. 3207/2022 in Company Petition seeking certain directions/reliefs/concessions and the provisions which according to the Appellant were necessary for fulfilling and actualizing the sale of the corporate debtor as a going concern.

f. The Application was listed before the Adjudicating Authority, the Adjudicating Authority by Order dated 02.12.2022 disposed of the Application. In the order, the Adjudicating Authority noticed large number of prayers which were made by Appellant in the Application and after extracting prayers made in the Application, the Adjudicating Authority disposed of the Application by following order:

“The Applicant in this case is a successful auction purchaser of the Respondent/Corporate Debtor i.e. namely M/s. Apex Buildsys Limited.

Though the application is filed with a number of reliefs. In this application, we are not constrained to go to every aspect of the relief and concessions sought, except observing that the applicant successful auction purchaser will be entitled to seek appropriate relief from the respective department concerned in accordance with the law.

IA-3207 /2022 stands disposed of in the above terms.

In so far as the direction to ROC is concerned, we are inclined to accept the plea and direct the ROC to change the status of the corporate debtor from under liquidation to action on the application made by the applicant.”

g. The above order indicates that except one direction directing ROC to change the status of the corporate debtor from under Liquidation to action on the application made by the applicant, for other reliefs and concessions, the Adjudicating Authority observed that applicant – successful auction purchaser will be entitled to seek appropriate relief from the respective department concerned in accordance with law.

# 3. We have heard Ms. Pooja Mahajan, Learned Counsel for the Appellant and Mr. Abhishek Anand, Learned Counsel for the Liquidator.

# 4. Learned Counsel for the Appellant submits that Application filed by the Appellant seeking certain reliefs/concessions/directions were necessary to affect the takeover of the Corporate Debtor on clean slate basis. The Adjudicating Authority erred in not granting the said reliefs. The question of settlement of liabilities of the creditors under Section 53 of the Code in case of sale of a corporate debtor in liquidation is a question that ought to be decided by the Adjudicating Authority in the Application filed under Section 60(5)(c ) of the Code. It is submitted that without judicial order, the statutory authorities are not accepting settlement of their claims in terms of Section 53 of the Code. In the present case after passing of the impugned order applicant did approach various authorities for waiver of their liabilities which stood settled in terms of Section 53 of the Code however the Tax Authority informed the Applicant that since the impugned order does not grant any relief, the Appellant should contest the pending tax cases on merits. Notices have been issued by SIDCUL for payment of past dues, despite the fact that the E-Auction Process Notice specifically provided that SIDCUL’s claim will be settled under Section 53 of the Code. When the Liquidator after receipt of the sale consideration has settled all claims of the creditors, no creditors can insist for any claim which stood settled under the liquidation. It is submitted that Adjudicating Authority have passed several orders in relation to sale as a going concern allowing various reliefs, concessions and directions whereas several reliefs and concessions have been granted. Learned Counsel for the Appellant submits that due to non-consideration of various reliefs, concessions and directions which are necessary for operationalisation of Corporate Debtor as a going concern, the objective of the Code shall not be fulfilled.

# 5. Learned Counsel for the Liquidator during his submissions supported the claims for reliefs, concessions and directions as was made by the Applicant. However, in the written-submissions, the Liquidator has submitted that there are certain reliefs claimed by the Appellant in I.A. No. 3207 of 2022 which is neither permissible under the Code nor in terms of settled position of law. Liquidator further submits that sale of the Corporate Debtor as a going concern would entail transfer of both assets as well as liabilities of the Corporate Debtor in favour of the Successful Bidder. Learned Counsel for the Liquidator further raised question as to whether principle of clean slate theory will be applicable in case which is applicable in case of approval of Resolution Plan hence whether shall also be applicable with regard to sale of the corporate debtor as a going concern under Regulation 32A of the Liquidation Regulations, 2016.

# 6. We have considered the submissions of Learned Counsel for the parties and have perused the record.

# 7. From the facts brought on record, it is clear that sale of Corporate Debtor was sale as a going concern. E-Auction Process Document on the basis of sale as a going concern plays an important role and clarificatory role. Other terms and conditions of the e-auction as extracted above states that all known or unknown, claimed or unclaimed, disclosed or undisclosed liabilities/ obligations, risks as on the cut-off date including prior claims of all creditors whether secured, unsecured, workers, employees, statutory authorities on account of Income Tax, Sales Tax, GST, Service Tax, DGFT, Excise, Customs etc. are required to be dealt with as per Section 53 of the Code as full and final settlement of their claims. When the process document clearly contemplated such consequences the said consequences shall ensue on sale as going concern and if any roadblocks come into ways of successful resolution applicant, necessary directions, clarifications can very well be issued by the Adjudicating Authority on an Application filed under Section 60(5)(c) of the Code.

# 8. Further the process document clearly contemplated that transfer of ownership of the corporate debtor shall take place by way of writing off entire existing shareholding of the corporate debtor and issuance of fresh equity shares to the successful bidder. The share shall be included in the name of Successful Bidder and will not be issued in any other name.

# 9. Learned Counsel for the Appellant has brought on record the letter dated 3rd March, 2023 issued by the State Infrastructure and Industrial Development Corporation of Uttrakhand Limited informing the liquidator that necessary application for transfer of the land should be undertaken. By an affidavit dated 01st April, 2023, the Appellant has brought on record various communications received from several authorities including notices issued by various departments. Notices issued by Income Tax Department claims reference to various outstanding payments.

# 10. In view of the subsequent facts and notices brought on record by the Appellant and other terms and conditions of the process document as extracted, we are of the view that ends of justice will be served in granting liberty to file an Application before the Adjudicating Authority claiming reliefs/concessions/directions which may be necessary for operationalisation of the Corporate Debtor as per terms and conditions of the process document.

# 11. We may also observe that prayers which were included in I.A. No. 3207 of 2022 were too elaborate and general prayers which cannot be made by a Successful Bidder who have been declared as Successful Bidder. Successful Bidder on e-Auction of the Corporate Debtor as a going concern can make only such prayers for reliefs/concessions which are commensurate and in accordance with the terms and conditions of the process document. Prayers in general in a very wide term as contained in I.A. No. 3207 of 2022 may not require any consideration by the Adjudicating Authority.

# 12. We while granting such liberty to the Appellant observe that law is well settled, a successful bidder who is declared as successful bidder of sale as going concern can seek access of the Adjudicating Authority and may pray for necessary directions in accord with and in consonance with the process document in the liquidation proceedings. In result, we partly allow this Appeal and hold that applicant’s prayers i.e. relief/concessions/directions needs consideration by the Adjudicating Authority for which we grant liberty to the Applicant to make a fresh Application containing prayers which may be commensurate and in accord with terms and conditions of the process document of e-auction process document. The Appellant may submit a fresh application praying for reliefs, concessions and directions which may be considered and decided by the Adjudicating Authority in accordance with law. The Appeal is disposed of, accordingly.

---------------------------------------------