A review of the NCLT Chandigarh Bench’s decision on the computation of liquidator’s fee and exclusion of period in liquidation process under the IBC
Introduction
The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive legislation that aims to provide a speedy and efficient resolution of insolvency and bankruptcy cases in India. The IBC lays down the rules and regulations for the liquidation process of a corporate debtor that fails to revive under the corporate insolvency resolution process (CIRP). The IBC provides for the appointment of a liquidator who is responsible for taking over the assets of the corporate debtor, realizing them and distributing them among the stakeholders in accordance with the hierarchy of claims under section 53 of the IBC. The IBC also provides for the remuneration of the liquidator, which is based on a percentage of the amount realized and distributed by him.
Background
One such case was Mr. Sanjay Kumar Aggarwal (Liquidator of Punjab Basmati Rice Ltd.) vs Canara Bank, decided by the National Company Law Tribunal (NCLT) Chandigarh Bench on 15th March 2023. The case involved a dispute between Mr. Sanjay Kumar Aggarwal (the appellant liquidator) and Canara Bank (the respondent bank) over the computation of liquidator’s fee and exclusion of period in liquidation process under the IBC.
The corporate debtor, Punjab Basmati Rice Ltd. (the corporate debtor), had availed various credit facilities from various banks, including the respondent bank. The corporate debtor had also created security interest over its assets in favour of the banks. The corporate debtor had defaulted in repaying its debts and was admitted into CIRP under the IBC on 23rd August 2019 by an order of the NCLT Chandigarh Bench. The appellant liquidator was appointed as the resolution professional (RP) for the CIRP.
The CIRP failed to yield any resolution plan and the corporate debtor was ordered to be liquidated by the NCLT Chandigarh Bench on 24th February 2020. The appellant liquidator was appointed as the liquidator for the liquidation process. The appellant liquidator invited claims from all the stakeholders of the corporate debtor. The respondent bank submitted its claim as a secured creditor before the appellant liquidator.
The appellant liquidator prepared a list of stakeholders and their claims and submitted it to the NCLT Chandigarh Bench for approval. The list showed that the respondent bank had a claim of Rs. 1,02,62,00,000/- as a secured creditor and that it had agreed to relinquish its security interest over some of the assets of the corporate debtor in favour of other secured creditors. The list also showed that the total value of assets realized by the appellant liquidator was Rs. 1,03,00,00,000/-.
The appellant liquidator also filed various applications before the NCLT Chandigarh Bench seeking exclusion of certain periods from the total duration of the liquidation process due to various reasons such as COVID-19 pandemic, lockdowns, legal disputes, etc. The NCLT Chandigarh Bench allowed the applications filed by the appellant liquidator and excluded a total period of 365 days from the calculation of the liquidation period.
The appellant liquidator then filed an application before the NCLT Chandigarh Bench seeking direction to the respondent bank to compute his fee as per Regulation 4(3) of the Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations, 2016 (Liquidation Process Regulations) by excluding the period allowed by the NCLT Chandigarh Bench from the total duration of the liquidation process. The appellant liquidator contended that he was entitled to his fee as per Regulation 4(3) of the Liquidation Process Regulations, which provides that
“Where an asset is realized or distributed during any quarter after two years from commencement of liquidation process or after such extended period as may be allowed by Adjudicating Authority under section 33(7) or section 33(8), as may be applicable, he shall be entitled to receive remuneration at half rate specified in sub-regulation (2).”
The appellant liquidator argued that since he had realized and distributed assets within two years from commencement of liquidation process if the excluded period was deducted, he should be paid his fee at full rate specified in Regulation 4(2) of the Liquidation Process Regulations, which provides that
“Where an asset is realized or distributed during any quarter within two years from the liquidation commencement date, he shall be entitled to receive remuneration at the following rates, namely:- (a) three per cent. of the amount of the asset realised; or (b) two per cent. of the amount of the asset distributed.”
The appellant liquidator also claimed that he had performed his duties with due diligence and without any prejudice to any stakeholder.
The respondent bank opposed the application filed by the appellant liquidator and argued that he was not entitled to his fee as per Regulation 4(3) of the Liquidation Process Regulations by excluding the period allowed by the NCLT Chandigarh Bench from the total duration of the liquidation process. The respondent bank contended that the excluded period was not an extension granted by the NCLT Chandigarh Bench under section 33(7) or section 33(8) of the IBC, but a mere exclusion for the purpose of calculating the liquidation period. The respondent bank also contended that the appellant liquidator had not acted with due diligence and had caused delay and prejudice to the stakeholders.
The NCLT Chandigarh Bench heard the arguments of both the parties and passed an order on 15th March 2023.
NCLT Chandigarh Bench’s Decision
The NCLT Chandigarh Bench allowed the application filed by the appellant liquidator and directed the respondent bank to compute his fee as per Regulation 4(3) of the Liquidation Process Regulations by excluding the period allowed by the NCLT Chandigarh Bench from the total duration of the liquidation process. The NCLT Chandigarh Bench held that:
(i) The appellant liquidator had carried out his responsibility with due diligence and without any prejudice to the applicant or any other stakeholder. A reference was also made to the decision in the case of SIDBI Vs. Shri Vijender Sharma (2022) ibclaw.in 879 NCLAT and Ashish Arjun Kumar Rathi, wherein on similar facts, the Hon’ble National Company Law Appellate Tribunal (NCLAT), Delhi and Chennai, respectively, had allowed exclusion of period of the said liquidation process of the corporate debtor from the calculation of the time taken for realisation and distribution of the assets of the corporate debtor in terms of Regulation 44 read with Regulation 4(3) of the IBBI (Liquidation Process) Regulation 2016.
(ii) In view of the same, it was directed that the period of exclusions allowed by this Adjudicating Authority in the orders dated 01.11.2021, 30.03.2022, and 02.02.2023 be also excluded for the computation of the liquidation period for the purpose of calculating the liquidator’s fee slab under Regulation 4 of the Liquidation Process Regulations 2016.
(iii) The Stakeholder Consultation Committee/ respondents-Canara Bank were directed to complete the process of computation of the liquidator fee within 15 days of this order and make the payments thereof within the said period. However, no relief was granted with regard to the other prayers arising out of this main grievance of non-crystallisation of the liquidator’s dues.
Conclusion
The NCLT Chandigarh Bench’s decision in Mr. Sanjay Kumar Aggarwal (Liquidator of Punjab Basmati Rice Ltd.) vs Canara Bank is an important one as it clarifies the computation of liquidator’s fee and exclusion of period in liquidation process under the IBC. The decision also recognizes the due diligence and efforts of the liquidator’s fee in realizing and distributing assets among stakeholders in a time-bound manner. The decision is in line with the objective and spirit of the IBC, which aims to provide a speedy and efficient resolution of insolvency and bankruptcy cases in India.
