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Liquidator Not To Get Influenced By the Findings of MERC: NCLT

Nikhil Mogha

| Updated: Dec 03, 2022 | Category: Legal Law

Liquidator Not To Get Influenced By the Findings of MERC: NCLT

The NCLT Hyderabad Bench in the case of Punjab National Bank v. Lanco Vidarbha Thermal Power Ltd (2022) has rejected the findings of the liquidator while stating that the relevant provisions of the Insolvency & Bankruptcy Code are not properly discussed at the time of rejecting the contentions of the applicant. It was also ordered to the liquidator not to get influenced by the findings of MERC or Maharashtra Electricity Regulatory Commission which is prohibited expressly under the order of adjudicating authority. The present article will discuss in detail the facts of the case, the grounds and submission of both the parties and the decision thereon.

Facts of the case

The facts of the case are:

1. The applicant is a MERC or Maharashtra Government Company & a deemed distribution licensee in the State of Maharashtra under Section 13 r/w Section 14 of the Electricity Act 2003[1].

2. The applicant has entered into a Power Purchase Agreement (PPA) with the corporate debtor wherein it was agreed that it is the obligation of the corporate debtor to supply 680 MWs of electricity to the applicant within the stipulated time to meet the SCOD or Scheduled Commercial Operation Date.

3. As per the agreement, the corporate debtor failed to provide the Fuel Supply Agreements and Environmental Clearance to the applicant in time and also failed to submit the additional bank guarantee.

4. Failure in fulfilling the obligations led the applicant to encash the bank guarantee of Rs 51 Crores and consequently, a claim was made through a letter for compensating the liquidated damages caused to the applicant.

5. In response, the corporate debtor sent the termination notice, which was rejected by the applicant and therefore, the corporate debtor was called upon to perform its obligations under the agreement.

6. Being aggrieved by the non-fulfilment of obligations and non-payment of damages, the applicant filed the case before the MERC, which was held against the applicant.

7. Being aggrieved by the order of the MERC, the applicant prefers an appeal before the Appellate Tribunal for Electricity (APTEL) under Section 111 of EA 2003 in which the appellate tribunal has set aside the order of the MERC and ordered the corporate debtor to refrain from taking any coercive action against the applicant.

8. During the process of hearing, the adjudicating authority accepted the CIRP petition and appointed the respondent as Interim Resolution professional. In the said case, the adjudicating authority has passed the liquidation order and appointed the respondent as liquidator of the corporate debtor.

9. In response to the liquidation order, the respondent called upon the corporate debtor’s creditors to submit their claims. Subsequently, the applicant filed its claim as an operational creditor for the amount of Rs 752.28 crores including interest which was rejected by the liquidator by placing reliance on the order of the MERC.

10. Being aggrieved by the rejection of the liquidator the applicant file an application before the adjudicating authority which has ordered the liquidator not to get influenced by the findings of MERC while deciding the claim.

11. Irrespective of the express order of the adjudicating authority for the liquidator not to get influenced by the order of the MERC, the liquidator has again rejected the claim of the applicant by taking into consideration the order of the MERC.

12. Being aggrieved by the rejection of the claim by the liquidator, the applicant filed the present case before the NCLT Hyderabad.

Submissions of the Appellant

The submissions of the appellant are:

1. The order passed by the respondent is preconceived & pre-determined and is misconceived in law and fact.

2. It is the order of the adjudicating authority for the liquidator not to get influenced by the findings of the MERC. Moreover, wherever the independent analysis of the applicant claim is made, there is a reflection of the arguments purported by the corporate debtor before the MERC. Therefore, the order shall be set aside and the claim of the applicant shall be admitted as a contingent claim which is pending the outcome of the appellate proceedings before the APTEL.

3. The respondent has given an order which is beyond his scope of jurisdiction and overrides the jurisdiction of the APTEL in deciding the case of the applicant on merits.

4. There is no bar in admitting the claim as a contingent claim in the liquidation process of the corporate debtor. It is averred that contingent claims are allowed and have a separate category of claims under CIRP, irrespective of the express provision for the same. Henceforth, the admission and recognition of such a claim cannot be disputed by the respondent merely on the pretext that there are no express provisions under the IBC 2016.

5. The respondent has also accepted the contingent claim of one of the creditors; therefore, this fact cannot be denied by the liquidator.

Submissions of the Respondent

The submission of the respondent is as follows:

1. It is averred that due to pre-occupation, the liquidator is not able to comply with the order of the adjudicating authority and sought an extension of time for verification & determination of the claim submitted by the appellant.

2. It is averred that the appellant’s claim has not been crystallised by any court or tribunal as the claim against the corporate debtor is still pending before adjudicating authority. Therefore, it is not under the liquidator’s powers to adjudicate such claims, which require detailed fact-finding, evidence, and the application of judicial mind.

3. It is contended that the liquidated damages cannot form part of the contingent claim under Section 3(6) of the IBC.

4. It is averred that the respondent has followed the provisions of the code and the liquidation regulations while passing the order.

5. It is denied that the respondent has overstepped his jurisdiction and override the jurisdiction of the APTEL.

6. The order of the adjudicating authority that the liquidator not to get influenced again by the findings of the MERC is not in accordance with the law.

Issue of the case

Whether the order of the liquidator rejecting the claim of the assessee aligns with the directions of the adjudicating authority?

Observations of the Tribunal

The tribunal, while looking at the order of the adjudicating authority wherein the liquidator is ordered to reconsider the claim of the applicant, has observed that the liquidator has again, irrespective of the specific direction by the authority to dispose of the matter fresh and strict instructions for the liquidator not to get influenced by the findings of the MERC, the liquidator has still relied on the order of MERC. Therefore, the liquidator has breached the direction of the adjudicating authority.

It is also further observed by the tribunal that the contentions of the liquidator that “it would not be proper for it to sit over an order passed by the judicial authority “is not only wrong but also contemptuous as the liquidator chose to do an act “liquidator not to get influenced by the findings of the MERC” which is expressly prohibited by the authority under the order.

It is observed that even the findings of the liquidator that the claim of the applicant is contingent claim is unacceptable as the relevant provisions of the IBC are not discussed by the liquidator. Even the circular relied on the applicant is totally ignored by the respondent. The manner of disposing of the applicant’s claim is in itself a fact that determines the disregard of the order of the adjudicating authority, that is, the liquidator to not get influenced by the findings of the MERC while deciding the case.

Decision of the Tribunal

The tribunal has therefore held that the order of the respondent violates the directions of the adjudicating authority, which is the liquidator not to get influenced by the order of MERC while deciding the matter again. Henceforth, the order of the liquidator and the communication of it has been set aside and the matter is sent back for fresh adjudication of the claim uninfluenced by the findings in the order of the MERC.

Conclusion

The tribunal has observed that the liquidator has erred in declaring that the applicant’s claim is not tenable against the corporate debtor. The tribunal relied on the order of the adjudicating authority and averred that the liquidator should have to consider the claims of the applicant against the corporate debtor even though the same is pending before the court or tribunal. The tribunal observes that if the determination of the claim is not precise due to any contingency, the liquidator is still required to make the best estimate of the amount of the claim by relying on the best available information. Henceforth, it is clarified that the liquidator not to get influenced by the findings of the MERC while deciding the case.

Lanco-Vidarbha

Read Our Article: Voluntary Liquidation of a Company under IBC

Nikhil Mogha

An Advocate by profession, Nikhil Mogha holds experience in the field of Business and Securities law. He has done his Masters of Law in Corporate Law from Guru Gobind Singh Indraprastha University, New Delhi. He is also versed with the drafting and research work in the field of Company Law, Banking Laws and Contract Laws.

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