Asset Reconstruction Company India ... vs Fathima Abdul Khadar & Anr

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)

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