National Company Law Appellate Tribunal
Asset Reconstruction Company India ... vs Fathima Abdul Khadar & Anr on 1 June, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
(APPELLATE JURISDICTION)
TA No.224/2021 (Comp. App. (AT) No. 175 of 2020/TR)
(Under Section 61 of the Insolvency and Bankruptcy Code, 2016)
(Arising out of the `Common Order' dated 13.11.2019
in MA/815/2019 & MA/816/2019 in CP/552 & 553/IB/2017, passed by
the National Company Law Tribunal, Division Bench - II, Chennai
Bench)
In the matter of:
Asset Reconstruction Company (India) Limited
Registered Office at: The Ruby, 10th Floor,
29, Senapati Bapat Marg, Dadar (W),
Mumbai 400028. ..... Appellant
v.
1. Fathima Abdul Khadar
Successful `Resolution Applicant' of
M/s. Paragon Steels Private Limited
and
M/s. S M M Steels Re-Rolling Mills Private Limited,
Mundeth House, Kalady,
Ernakulam, Kerala - 683574. ..... Respondent No. 1
2. R. Venkatakrishnan
Resolution Professional,
Rangas, ¼, Fourth Main Road,
R.A. Puram, Chennai - 600 028. ..... Respondent No. 2
Present:
For Appellant : Mr. Dinkar Singh, Advocate.
For Respondents : Mr. P.H. Arvindh Pandian, Sr. Advocate
For Mr. M. Roshan Atiq, Advocate.
TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR)
Page 1 of 10
JUDGEMENT
[Per; Ms. Shreesha Merla, Member (Technical)]:
1. Aggrieved by the `Common Impugned Order' dated 13.11.2019, passed by the `Adjudicating Authority' (National Company Law Tribunal, Division Bench - II, Chennai), in MA/815/2019 & MA/816/2019 in CP/552 & 553/IB/2017, the `Financial Creditor'/ARCIL preferred this Appeal.
2. MA/816/2019 was filed by ARCIL against the `Corporate Debtor' for Liquidation under Section 33(3) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'The Code'), on the ground that the `Resolution Applicant' has failed to pay the Resolution Plan amount fully.
The `Resolution Applicant' had subsequently filed MA/815/2019 on the ground that the entire amount was paid and that it is the duty of the Resolution Professional ('RP') to provide the `Power Connection' to 3 units of the `Corporate Debtor' by Kerala State Electricity Board ('KSEB') within 48 hours from the date of transfer of the `Corporate Debtor' to the `Resolution Applicant' i.e., on 05.10.2018, but whereas the `Power Connection' was not given, on account of which, the `Resolution Applicant' was made to pay an additional amount of Rs.40,43,001/- to KSEB for the bills raised for the month of October 2018, though the connection was given on 28.10.2018, for one unit and 03.11.2018 for the TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 2 of 10 remaining two units. To ensure that the Company should function smoothly, the `Resolution Applicant' had paid that amount to the KSEB, though it was the duty of the RP to ensure that the `Power Connection' was given within 48 hours from the date of transfer i.e., 05.10.2018.
3. It was submitted by the RP before the `Adjudicating Authority' that the Resolution Plan does not include this amount of Rs.40 Lakhs but was paid by the `Resolution Applicant' to keep the Company as a `going concern'.
4. The `Adjudicating Authority' disposed of both the Applications with the following observations:
"4. Since the Financial Creditor is the sole member of the CoC, ultimately whatever amount that comes to the company, that will pass on to the Financial Creditor herein, therefore, we are of the view that instead of asking this applicant to pay the interest portion and thereafter collect the money from the Corporate Debtor towards the bill already paid, we hereby set off the bill already paid by the resolution applicant from the interest portion payable to the Financial Creditor as per the agreement subsequently entered into between the Financial Creditor and the Resolution Applicant.
5. As to interest portion is concerned, the Resolution Applicant having admittedly paid Rs.14,07,641/- to the Financial Creditor after deduction of the bill already paid and for the remaining balance of Rs.19,24,678/- the Resolution Applicant is hereby directed to pay the TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 3 of 10 said balance to the Escrow Account of the Corporate Debtor within one week hereof.
In view of this order, the Financial Creditor counsel having said that they would return the original Title Deeds of the Corporate Debtor immediately after receipt of the balance amount aforementioned, the Financial Creditor is also hereby directed to act accordingly.
6. Since MA/816/2019 filed by the Financial Creditor has become infructuous, the MA/815/2019 & MA/816/2019 are accordingly disposed of."
5. Learned Counsel appearing for the `Financial Creditor'/ARCIL contended that the `Adjudicating Authority' was not justified in rewriting the Terms of Agreement dated 16.05.2019, subsequently executed between the `Appellant' and the first Respondent, by issuing directions, vide `Impugned Order' dated 13.11.2019, to the `Appellant' herein to set off the `electricity bill' of Rs.40,43,001/- paid by the `Resolution Applicant' to KSEB, when the possession of the assets of the `Corporate Debtor' was handed over to the first Respondent from the interest portion, as per the Agreement dated 16.05.2019. Learned Counsel submitted that the `Corporate Debtor' was admitted into Corporate Insolvency Resolution Process ('CIRP') on 15.09.2017 and a publication was made by the RP on 24.09.2017 and that M/s. Paragon Steels Private Limited had an outstanding payment of Rs.2,60,47,669/- as on 15.09.2017 and TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 4 of 10 M/s. S M M Steels Re-Rolling Mills Private Limited had an outstanding payment of Rs.64,78,601/- payable to KSEB. These outstanding dues payable as on 05.10.2017 were paid by the RP to keep the `Corporate Debtor Company' as a `going concern'. While so, on 28.06.2018, the CoC approved the Resolution Plan submitted by the first Respondent with 100% voting. On 24.07.2018, the Plan was approved by the `Adjudicating Authority' and the details of the payment to be made by the `Resolution Applicant' is Rs.43,40,00,000/-.
6. Subsequently, on 05.10.2018, the CoC comprising of the `Appellant' as a sole Member, vide an Agreement agreed for `extension of time' for making payments to the `Appellant' as detailed in the `Resolution Applicant'. It was inter alia agreed that the outstanding dues to the KSEB to restore the `Electricity Connection' till the date of Agreement i.e., 05.10.2018 shall be made by the first Respondent from the sum of Rs.4.34 Crs./- already remitted by the first Respondent within 48 hours of the execution of the Agreement dated 05.10.2018.
7. It is an admitted fact that on 06.10.2018, the second Respondent in terms of the Agreement dated 05.10.2018 made the entire payment towards the outstanding dues upto 05.10.2018, owed by the `Corporate Debtor' to KSEB for the period upto 05.10.2018. On the same date, the RP made payment of Rs.16,87,883/- after adjusting a sum of TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 5 of 10 Rs.4,78,610/- which was filed on 15.09.2019 towards the pre-CIRP, in respect of M/s. S M M Steels Re-Rolling Mills Private Limited. It is seen from the record that on 02.04.2019, the `Appellant' had filed an Application under Section 33 of the Code seeking a direction to initiate Liquidation against the `Corporate Debtor' as the Successful Resolution Applicant ('SRA') had committed breach in making payment to the `Appellant', contrary to the terms agreed under the Agreement dated 05.10.2018. On 16.05.2018, the first Respondent vide email dated 15.05.2019, requested the `Appellant' to agree for deferment of the last tranche of payment subject to the payment of interest @ 9% p.a. effective from 29.03.2019. It is seen from the record that the `Appellant' vide email dated 16.05.2019 had agreed for this deferment subject to payment of interest @ 9% p.a. On 18.06.2019, the `Adjudicating Authority' had disposed of the Application MA 352/2019 keeping in view, the revised terms agreed between the parties on 16.05.2019. It is the case of the `Appellant' that the SRA did not honour its commitment and committed default in making the payment towards the last tranche payable on 30.07.2019, as per the revised Agreement dated 16.05.2019. Therefore, the `Appellant' had filed another Application MA 816/2019 seeking initiation of Liquidation. Subsequently, the SRA filed an Application seeking a direction to the `Appellant' herein to release the original TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 6 of 10 documents pertaining to the assets of the `Corporate Debtor' in favour of South Indian Bank and to accept the `full and final' payment from the same Bank towards implementation of the Plan after deducting the cost incurred by the `Resolution Applicant' towards keeping the Company as a `going concern'.
8. It is not in dispute that the following three tranches of payment was made by the `Resolution Applicant' on 16.05.2019, 15.06.2019, 16.09.2019, 21.09.2019 and 04.10.2019, totaling to Rs.24,20,07,641/-. It is the case of the `Appellant' that the SRA paid the interest not as per the terms of the mutual Agreement dated 16.05.2019. The `Appellant' submits that the `principal amount' of Rs.24,06,00,000/- and the interest as per the agreed Agreement is Rs.75,24,000/- and the total amount payable is Rs.24,81,24,000/- whereas the SRA has actually paid only Rs.24,20,07,647/- by 04.10.2019 and therefore there is admittedly a less payment of Rs.67,56,359/- as on 04.10.2019, but the `Adjudicating Authority' without appreciating this fact has set off the `electricity bill' of Rs.40,43,001/- paid by the `Resolution Applicant' from the interest portion which was payable to the `Appellant'/`Financial Creditor'.
9. It is the case of the `Appellant' that the `Adjudicating Authority' had erroneously imposed liability upon the `Appellant' as if the `Appellant' had committed breach of the terms of Agreement dated TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 7 of 10 05.10.2018 by setting off the `electricity bill', whereas it was the SRA which has committed breach of the terms of the Agreement, by not paying the entire amount on time. Hence, it is the prayer of the `Appellant' that the `Impugned Order' is liable to be set aside.
10. It is the case of the Counsel appearing for the SRA that the `Corporate Debtor' was to be handed over as a `going concern' without any liability to the `Resolution Applicant', as per the terms of the Resolution Plan, but the `electricity bills' which were `due and payable' were handed over to the `Corporate Debtor' only on 05.10.2018 and it was only on account of keeping the Company functioning and to avoid disconnection of electricity that the SRA has paid the amount of Rs.43,40,001/- and therefore, the `Adjudicating Authority' was justified in setting off this amount from the interest portion payable to the `Financial Creditor'.
11. The RP has categorically admitted that this amount which was paid towards the `electricity bill' was not a part of the Resolution Plan and that the `Resolution Applicant' had paid this amount of Rs.40 Lakhs for the month of October 2018, only to avoid disconnection of the `Power Supply'. It is an admitted fact that this `electricity bill' is for the period when the power was not consumed by the `Resolution Applicant'. It is TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 8 of 10 also not in dispute that the `Appellant'/`Sole Financial Creditor' had received the entire balance payment without any objection.
12. We are also conscious of the fact that the Resolution Plan has been implemented. The `Adjudicating Authority' has categorically recorded in the `Impugned Order' that the `Appellant' herein had undertaken to return the original `Title Deeds' after receipt of the balance amount, but have not done so. It is also a matter of the record that the SRA has paid the balance amount of Rs.19,24,678/-. The `electricity bills' clearly reflect that the arrears as on 30.09.2018, is for the period which was prior to the `Resolution Applicant' having taken over the Company and, therefore, we do not see any substantial grounds in interfering with the directions given by the `Adjudicating Authority' that the amount paid by the `Resolution Applicant' towards the `electricity bills', though not a part of the Resolution Plan, be set off from the interest portion of the `Sole Financial Creditor'. It is also pertinent to note that the `electricity dues' which are for the month of September 2018, fall within the domain of the `Appellant' as per the Agreement dated 05.10.2018 and that the SRA has also paid interest @ 9% p.a. for the delayed payments as per the terms agreed vide the subsequent Agreement dated 16.05.2019.
13. At the cost of repetition, the `electricity dues' upto the transfer date are the liability of the `Appellant' and we do not see any substantial TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 9 of 10 grounds to interfere with the well-reasoned `Order' of the `Adjudicating Authority'. This Tribunal is of the earnest view that the subject `Title Deeds' are to be handed over to the SRA within a week from the date of this `Order'.
14. For all aforenoted reasons, this Appeal fails and is accordingly `dismissed'. No costs.
[Justice M. Venugopal] Member (Judicial) [Ms. Shreesha Merla] Member (Technical) 01/06/2023 HA / TM TA No.224/2021 (Comp. App. (AT) No. 175/2020/TR) Page 10 of 10