RP rightly approached AA seeking directions to pay CIRP costs due to CoC stalemate

Case Details: Income-tax Department, Assistant Commissioner of Income-tax, Delhi v. Indianroots Shopping Ltd. - [2023] 147 taxmann.com 557 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Rakesh Kumar Jain, Judicial Member & Dr Alok Srivastava, Technical Member
  • Vipul Agarwal & Parth S., Jr. Standing Counsel for the Appellant.
  • Ms. Prachi Johri & Vatsalya Kumar, Advs. for the Respondent.

Facts of the Case

In the instant case, the Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor and a Resolution Professional (RP) was appointed. Since no claim was received from any financial creditor, the Committee of Creditors (CoC) was constituted with operational creditors only.

Later, the RP filed an application before the adjudicating authority i.e., NCLT seeking directions for the appellant (i.e. operational creditors) to pay CIRP dues and expenses in proportion to their voting share in CoC. The NCLT by the impugned order, directed the appellants to deposit the amount immediately.

Consequently, the appellants challenged the NCLT’s order on the ground that the appellants holding a total voting share of 96.75% could not attend the 7th CoC meeting, and the decision taken in the said meeting regarding fixing of the CIRP costs and their allocation for payment was not made in compliance with section 21 of IBC. Further, it was also noted that the appellants had chosen not to be present in the CoC meeting.

NCLAT Held

The NCLAT observed that since the appellants holding 96.75% shares in the corporate debtor chose not to participate in the CoC meeting, any decision taken in the said meeting would not have been taken with more than 51% voting share. Therefore, compliance with section 21(8) of the IBC would have been impossible.

The NCLAT held that since the appellants had refused to participate in the CoC meeting thereby causing a stalemate, RP was correct in approaching the NCLT for seeking necessary directions for the appellants to pay the CIRP costs. Therefore, there was no error in the impugned order passed by the NCLT.

List of Cases Reviewed

• • AS Technosoft (P.) Ltd. v. Indianroots Shopping Ltd. [2023] 147 taxmann.com 556 (NCLT – New Delhi) (Para 21) [ See Annex]

List of Cases Referred to

• • Committee of Creditors v. B. Santosh Babu [2020] 118 taxmann.com 146 (NCLAT – New Delhi) (para 13)
  • K. Sashidhar v. Indian Overseas Bank [2019] 102 taxmann.com 139/152 SCL 312/213 Comp Case 356 (SC)/[2019] 12 SCC 150 (para 13).