Bharat Heavy Electricals Ltd vs Anil Goel, Liquidator Of Visa Power Ltd. ...

[Arising out of Order dated 13th December, 2019 passed by National Company Law Tribunal, Kolkata Bench, Kolkata in C.A.(IB) No.792/KB/2019 and C.A.(IB)No.684/KB/2019 in C.P.(IB) No.574/KB/2017]

IN THE MATTER OF: Before NCLT Before NCLAT

Bharat Heavy Electricals Appellant/ Appellant Ltd. Operational Creditor/ BHEL House, Applicant Siri Fort New Delhi - 110 049

Vs.

1. Mr. Anil Goel, Respondent No.1 Respondent No.1 The Liquidator of (Liquidator) "Visa Power Ltd." AAA Insolvency Professionals LLP E-10A, Kailash Colony Greater Kailash - I, New Delhi - 110048

2. Agrawal Structure Respondent No.2 Respondent No.2 Mills Pvt. Ltd. (Auction Purchaser) Govind Kunj, Near Krishna Talkies, Samta Colony, Raipur - 492001 Chhattisgarh

For Appellant: Mr. Punit Dutta Tyagi and Ms. Swastika Chakravarti, Advocates

For Respondents: Mr. Guarav Mitra, Mr. Nipun Gautam and Mr. Kanishk Khetan, Advocates for Respondent No. 1 2

Mr. Abhijeet Sinha and Mr. Kumarjit Banerjee, Advocates for Respondent No. 2.

JUDGEMENT

(10th August, 2020) A.I.S. Cheema, J. :

Case of Appellant

1. The Appellant - Bharat Heavy Electricals Limited (BHEL) has filed

this Appeal against Impugned Order dated 13th December, 2019 passed

by Adjudicating Authority (National Company Law Tribunal, Kolkata

Bench, Kolkata). The Order was passed in C.A.(IB)No.684/KB/2019 and

C.A.(IB) No.792/KB/2019 in C.P.(IB)No.574/KB/2017. These were

Appeal and Application filed by the Appellant. Present Appeal claims and

it is argued that the Adjudicating Authority although accepted that there

was improper valuation, inconsistencies and contradictions in valuation,

inconsistencies in the sale of plant and machinery so much so that

material sold was at variance as compared to what was advertised and

although Adjudicating Authority found undue urgency shown in auction

sale, still it upheld the auction sale and consequent removal of goods by

Respondent No.2 (auction purchaser) referring to Respondent No.2 as

bona fide purchaser. The Adjudicating Authority rejected the Appellant's

claim of having statutory lien and charge on the plant and machinery

supplied by the Appellant holding that no security interest has been

"created", as such.

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Appellant claimed to be Secured Creditor

2. It has been argued for the Appellant and the Appeal claims that in

February, 2010, Visa Power Limited - Corporate Debtor (now in

liquidation) had issued Notice inviting tender (NIT) inviting bids for

design, engineering, manufacturing, transportation, storage, erection,

testing and commissioning of 2 x 600 MW Coal based Thermal Power

Plant at Chhattisgarh. Appellant was awarded Letter of Award (LOA)

dated 28th June, 2010. The NIT is at Annexure - 2 (Page - 110) and Letter

of Award is at Annexure - 3 (Page - 210). The Appellant argues that as

per the Award, BHEL supplied 26,000 MT (approximately) of material and

erected 9,500 MT of material putting up plant and machinery before the

work came to be suspended as invoices remained unpaid. Appellant

initiated arbitration proceedings against Corporate Debtor in 2016 -

2017. It is stated that against the Corporate Debtor, CIRP got initiated on

22nd December, 2017 and Appellant filed Form 'B' (Annexure - 4 - Page

227) and claimed unpaid seller's lien under Sale of Goods Act and

statutory charge under Transfer of Property Act, 1882 on the plant and

machinery supplied and/or erected. It was filed on 13th January, 2018.

Subsequently, CIRP failed and on 11.10.2018, liquidation Order came to

be passed. Respondent No.1 - Mr. Anil Goel, who was earlier Resolution

Professional, came to be appointed as Liquidator. On 9th November,

2018, Appellant filed Form 'C' (Annexure - 5 - Page 254) claiming similar

lien/charge on the plant and machinery supplied and/or erected and to

be Secured Creditor. It is argued that the Liquidator passed Order dated

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31st December, 2018 (Annexure - 8 - Page 299) provisionally admitting

monetary claim of BHEL and classifying BHEL under Section 53(1)(f) of

the Insolvency and Bankruptcy Code, 2016 (IBC - in short). The

provisionally admitted claim was of Rs.290,01,85,395/- (out of

Rs.664,98,37,221/-). Claim of lien/charge of the Appellant was rejected

and the Appellant was treated as Unsecured Creditor. As such, the

Appellant filed Appeal to Adjudicating Authority having CA No.149/2019

and sought setting aside of the Order dated 31st December, 2018 and

that lien/charge of the Appellant should be accepted. It is claimed that in

the meanwhile, the Liquidator published Sale Notice advertisement

(Annexure 4 of Reply Diary No.17759) of auction of assets of the

Corporate Debtor divided in four blocks numbered as A, B, C and D. The

Notice of auction (Annexure - 9) dated 10th April, 2019 was published in

newspapers on 11th April, 2019. Copy of the Sale Notice dated 10th April,

2019 which was published in newspapers, is referred at Annexure - 9

(Page - 300). The Appellant claims [in Para - 7(h)] that in this Sale Notice,

none of the plant and machinery supplied and/or erected by the

Appellant, was part of the "Plant and Machinery". The assets picked up

for auction were divided in four heads - (A) Land and Building, (B) Plant

and Machinery, (C) Furniture and Fixtures, Office Equipment and

Computers at Raigarh, Chattisgarh location, and (D) Furniture and

Fixtures, Office Equipment and Computers at Kolkata location. (The

details are at Annexure - V of the Sale Notice (Annexure - 9 at Page -

340). Appellant claims that although such Notice dated 10th April, 2019

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was issued and published on 11.04.2019, the Liquidator suppressed this

fact from Appellant and Adjudicating Authority on 11th April, 2019 when

the matter came up for arguments of CA 149 of 2019.

Liquidator rushed through before deciding issue of lien/charge - claimed

3. On 10th May, 2019, Adjudicating Authority set aside (Annexure - 8)

the Order dated 31st December, 218 and remitted the matter back to the

Liquidator for passing a reasoned decision. Copy of the Order is at

Annexure - 12 (Page - 418). The Appeal claims that in spite of the matter

being remitted back to the Liquidator on 10.05.2019, to decide if the

Appellant had lien/charge and was a Secured Creditor, and give reasons

in support, still the Liquidator instead of deciding the claim of the

Appellant, went ahead and whereas in Sale Notice, none of the material

supplied by Appellant was part of "Plant and Machinery", in Letter of

Intent dated 04.05.2019 (Annexure - 11 - Page 409) surreptitiously Plant

and Machinery supplied and erected was included as Plant and

Machinery. In spite of Order dated 10.05.2019 of Adjudicating Authority,

the Liquidator rushed through and on 20th May, 2019, issued Certificate

of Sale in favour of Respondent No.2 (Annexure - 13 - Page 423). In the

Certificate of Sale, "plant and machinery" erected which was shown in

the Sale Notice as part of "land and building", was also sold off by way of

the Certificate. Appellant states that the Appellant did not know about

issue of such Sale Notice or auction process and when Respondent No.2

went to remove material from project site, Appellant immediately issued

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Notice to Liquidator and Respondent No.2 not to remove the material

from site. Copy of the Notice dated 28th May, 2019 is relied on (Annexure

- 14 - Page 430).

4. Appellant claims that although Liquidator had gone ahead to

confirm sale by issue of Certificate of Sale to Respondent No.2, he called

the Appellant for a sham hearing by sending e-mail on 27th May, 2019

(Annexure - 14) and subsequently, passed Order dated 3rd June, 2019

(Annexure - 16 - Page 455), now accepting monetary claim of Appellant

to extent of Rs.5,72,19,46,434/- rejecting the same to the extent of

Rs.92,78,90,786/-. The Liquidator again rejected the claim of lien and/or

charge and held that the Appellant was Unsecured Creditor.

Auction and Sale Challenged

5. The Appellant on 4th June, 2019 filed CA 684 of 2019 (Annexure -

15 - Page 435) and challenged the auction and sale carried out.

Appellant also filed CA 792 of 2019 (Annexure - 18) on 19th June, 2019

against Liquidator's Order dated 3rd June, 2019 rejecting claim of

lien/charge and Secured Creditor.

6. The Appeal claims that the Liquidator filed Reply to CA 684 of 2019

(Annexure - 19) claiming that the plant and machinery supplied by the

Appellant was lying inside the BHEL enclosure and the auction had

nothing to do with the material lying inside the BHEL enclosure.

Liquidator also claimed that only the plant and machinery lying outside

the enclosure had been auctioned. Appeal claims (Para - 7 w) that

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Respondent No.2 forcibly removed material which was not part of

Certificate of Sale, including goods lying inside "BHEL's enclosure" as

well as lying outside at other locations. Appellant claims that Appellant

sent Notices on 12.07.2019 (Annexure -20) and 26.07.2019 (Annexure -

21) requesting the Liquidator to sequester the plant and machinery so

that the auction purchaser may not remove the plant and machinery on

which the Appellant was claiming lien. It is argued that in spite of such

Notices, the Liquidator did not take necessary actions. The Appeal claims

that the Adjudicating Authority had (vide Annexure - 17 dated 12th June,

2019) directed that movement of "goods" would be subject to outcome of

proceedings. The Appellant had filed Appeal to this Tribunal having CA

(AT) (INS) No.802 of 2019 seeking stay to the operation and effect of

Certificate of Sale dated 20th May, 2019. This Tribunal had vide Order

(Annexure - 22) dated 7th August, 2019 directed the Liquidator not to

allow any person to remove the assets in question, even if it is sold and

yet not removed. According to the Appellant, the Liquidator had replied

the Notice dated 26th July, 2019 (Annexure - 21) sent by the Appellant by

his Reply dated 4th August, 2019 (Annexure - 23) claiming that the sale

did not include material lying in BHEL enclosure and that the sale did

not include material which was not valued. Appellant claims that the

Liquidator failed to ensure safety of the material supplied by the

Appellant and picked up by the Respondent No.2.

Company Appeal (AT) (Ins) No.22 of 2020 8

Valuation Challenged The Appeal refers to the Valuation Report of the two Surveyors who

have done the valuation during CIRP and the two Surveyors and Valuers

who did the valuation during liquidation and after referring to the

Reports, claims in Para - 7ee and ff as under:-

"

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ff. Some of the glaring mistakes and omissions, which were completely missed out by the Liquidator while accepting or rejecting the valuation reports to arrive at the reserve price of the assets for auction are as under:-

i. The plant and machinery lying un-erected at the project site has not been valued by Adroit, Mr. Ankit Goel and perhaps even by Mr. Partha Pratim.

ii. Whether the un-erected plant and machinery was valued by United at all is not clear. If at all it was valued, then approx. what quantity was considered for valuation cannot be found out from the report.

iii. Partially erected TG Structure, Boiler Tower and ESP has been considered under Land and Building by Mr. Ankit Goel and has been valued in area, whereas Adroit has valued the same Boiler Tower and ESP under Plant and Machinery. Like un-erected plant and machinery, Adroit has completely left out TG Structure and no valuation is done for the same.

iv. Mr. Partha has appeared to have valued the erected structures as part of plant & machinery however, there is a complete mismatch in quantity. Mr. Partha has appeared to have taken less quantity/weight into account as compare to Adroit.

v. It is not clear whether the erected structures were valued at all by United Surveyors.

Company Appeal (AT) (Ins) No.22 of 2020 10

vi. United Surveyors has without any basis depreciated the value of the plant and machinery by 91% and further considered the liquidation value by considering 50% of the depreciated value. This implies that United Surveyors has considered the useful life of the plant and machinery as 4 years, whereas the other valuers have considered the useful life as 44 years and 60 years respectively. This would imply that the depreciation should be in the range of 5-10% max.

vii. Depreciated value of the assets has been considered even where the depreciated value is lower than the scrap value. In such case, where the scrap value is higher, the scrap value should have been considered as the liquidation value.

viii. All reports have ignored the fact that as regards plant and machinery the scrap value was more than the liquidation value arrived at by the respective valuers."

7. The Appeal referring to the above Chart made by the Appellant

refers to various contents of the Valuation Reports to highlight that the

different Valuers approached the property available in different manners

and putting them in different categories and it was not clear what was

valued and what was left out. According to the Appellant, the Joint Plant

Committee Report dated 20th June, 2019 (Annexure - 33), which

Committee was constituted by Government of India, considered the scrap

value of the articles would be more than 325 times of the liquidation

value depending on the quantity of assets which have been sold to the

Auction Purchaser. Referring to the Annual Reports and Balance Sheets

(Annexure -34) of Pavani Construction Works Limited, who was second

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bidder in the auction sale, the Appeal points out that the said bidder was

not competent even to give security deposit. It refers to Pavani

Construction Works Limited as Dummy bidder. The Appeal claims that

Respondent No.2 lifted substantial quantities of loose plant and

machinery which had been supplied by the Appellant from project site.

Appellant filed CA 1483/KB/2019 seeking inventory of what was sold

and what was removed, etc. Appellant has filed photographs at Annexure

- 35 to show the partly but substantially complete structures and

material was on the site which according to the learned Counsel for

Appellant, was dismantled and taken away by Respondent No.2.

Per Appeal - The Anomalies/discrepancies in Auction found by Adjudicating Authority

8. The Appeal refers to the Impugned Judgement and Order and

referring to the Order, it is claimed that "the Adjudicating Authority

found the following anomalies/discrepancies in the auction process:-

(i) Auction sale without deciding the Appellant's 'security interest' by the liquidator is in violation of Section 52.

(ii) Liquidator has shown undue unexplained urgency in auction sale.

(iii) There are inconsistencies and contradictions in valuation reports procured/relied upon by the Liquidator.

(iv) Undisputedly, case of improper valuation is made out.

(v) Plant & machinery sold to the auction purchaser is different from what was valued for auction.

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(vi) Assets advertised under the head "land and building" were sold as part of "plant and machinery".

(vii) Items sold to the auction purchaser are undervalued.

(viii) As regards, 2nd bidder Pavani Construction it admitted that it's a shell company and has no credentials even for depositing the 10% EMD.

however, failed to appreciate that the auction purchaser is the only beneficiary of this unlawful and apparent collusive bidding process still upheld the auction sale and consequent removal of goods by Respondent No.2 holding auction purchaser a bonafide purchaser."

Case of Respondent No.1 - Liquidator

9. We are now making brief reference to the defence put up by the

Respondents.

Respondent No.1 - the Liquidator claims that he did receive Form

'B' from Appellant during CIRP and Form 'C' at the time of liquidation

process and the Appellant claimed to be Secured Operational Creditor.

The Respondent No.1 claims that as the security interest has not been

created by way of transaction, the Appellant could not rely on Sale of

Goods Act or Transfer of Property Act and claim to be secured creditor.

Respondent No.1 claims that the liquidation process is time bound

process and there was no stay to proceed with the auction process and

thus, the Liquidator is justifying issue of Sale Certificate even before

deciding the claim of the Appellant to be Secured Creditor, for which

Order had been passed by the Adjudicating Authority on 10th May, 2019.

Company Appeal (AT) (Ins) No.22 of 2020 13

He claims that auction process was discussed in Stakeholders Meeting

dated 13.03.2019 and 14.05.2019. According to the Liquidator, the

Adjudicating Authority did not attribute any motive to the Liquidator.

Liquidator claims that E-auction was only for the material lying outside

the enclosed portion of BHEL (Para - 19(ix). When the Adjudicating

Authority lifted stay, the Liquidator tread cautiously and when the

auction purchaser forcibly removed goods, the Liquidator filed complaint

on 19th December, 2019 to Police (Appeal Page - 942). According to the

Liquidator, he was bound to accept M/s. Pavani Construction Works

Private Limited as bidder for e-auction as it had deposited EMD and was

compliant of Section 29A of the Insolvency and Bankruptcy Code, 2016

(Code - in short). It is claimed that the Liquidator acted sincerely and

earnestly and had consulted the stakeholders in second and third

meeting dated 13th March, 2019 and 14th May, 2019. The figures and sale

at reserve price was approved by the stakeholders meeting. According to

the Liquidator, the Liquidator took reserve price to sell at higher than the

average of two Liquidation Valuation Reports. Reserve price was taken as

the average of two CIRP Valuation Reports. Average price of two IBBI

(Insolvency and Bankruptcy Board of India) registered valuers came at

Rs.14.93 Crores. However, the reserve price of Block (B) was fixed at

Rs.23.30 Crores. Liquidator claims that this was fixed pursuant to

directions of stakeholders. According to the Respondent No.1, the NIT

and LOA given to the Appellant did not provide for any written security

nor Appellant entered into any formal contract. The LOA mentioned

Company Appeal (AT) (Ins) No.22 of 2020 14

about payments secured by Letter of Credit but it was not followed up by

Appellant. The same was waived off which is an admitted position. Thus,

according to him, there was no security created and the Appellant was

not Secured Creditor. Thus, the Liquidator is defending his actions.

Defence of Respondent No.2

10. The Respondent No.2 - auction purchaser claims and argues that it

is bona fide purchaser who was successful in the auction sale conducted

by way of e-auction on 1st May, 2019 and was issued Sale Certificate on

20th May, 2019 after depositing entire consideration amount of Rs.27.61

Crores (including GST). It is claimed that the Appellant objected belatedly

on 3rd June, 2019. Respondent No.2 has argued regarding the claims

made by the Appellant regarding lien and charge. The Respondent No.2 is

also denying that the articles were undervalued. Respondent No.2 is

claiming that it was successful bidder and had right to pick up the

material from the project site.

The Findings of Adjudicating Authority

11. It would now be appropriate to refer in short, findings arrived at by

the Adjudicating Authority. We are referring to the same as there are

many findings which have been arrived at against the Respondents and

the findings have not been challenged by them in any Appeal. There are

many findings which are held in favour of the Appellant but the Appellant

claims that in spite of such findings, relief has not been given to the

Appellant.

Company Appeal (AT) (Ins) No.22 of 2020 15

The Relevant Provisions and findings of Adjudicating Authority

a) Impugned Order refers to the respective cases which were put up

and the arguments. Then in Para - 21, the Adjudicating Authority posed

the question whether Appellant is a Secured Creditor or Unsecured

Operational Creditor. Reference was made to provisions of Sections 45 to

48 of Sale of Goods Act, 1930 and Section 55(4)(b) of Transfer of Property

Act, 1882 and Adjudicating Authority deliberated if these provisions

could be said to be contrary to IBC or can be read harmoniously. Section

238 of IBC has been looked into. In Paragraphs - 22 to 28, the

Adjudicating Authority discussed various provisions of IBC, especially,

Section 3(13) which defines "Secured Creditor" and records that Secured

Creditor means a Creditor in favour of whom security interest is "created"

and laying stress on the word "created", Section 3(31) has been referred

which deals with "security interest" and the fact that the definition

provides that it has to be right, title or interest or a claim to property

"created in favour of" or "provided for" a Secured Creditor by a

"transaction". Referring to these and other definitions and provisions the

Adjudicating Authority found:-

"29) Thus, the word "created" used in Section 3(30) and 3(31) of IBC, 2016 is of paramount importance.

The term "create" has not been defined in the IBC, 2016, hence, we have to look for the dictionary meaning of the same. As per Concise Oxford English Dictionary 12th Edition this term means "Create"- v.1bring into existence". The term "create" can also be interpreted to mean to make something happen or to develop something. It may also amount to make someone to do something and to provide the condition in which something can happen or exist. It

Company Appeal (AT) (Ins) No.22 of 2020 16

also means to confer a right or to give rise to right or title or interest. Thus, there must be an action or process of creating meaning thereby that such creation is a result of an action by the parties consciously or explicitly. To explain it further, in our view, a security interest that arise due to operation of law or due to any event other than a deliberate act of creation or provision by the parties will not be covered the under definition of "secured creditor" as well as of "security interest" as given in IBC, 2016."

b) The Adjudicating Authority then went ahead to observe that IBC

provides for interest creating or providing for security interest and

observed that these provisions of Sale of Goods Act and Transfer of

Property Act relied on by the Appellant were inconsistent or contrary to

the specific provisions of IBC and hence not applicable.

Here itself, we may make observations that we would not hold

those provisions as inconsistent or contrary but we would hold that the

provisions and principles underlying the said provisions can be utilized

subject to specific creation or provision of security interest by the parties.

In short, if the benefit of lien/charge, etc. is to be taken, the same should

be a conscious creation between the Corporate Debtor and the person

claiming lien/charge.

The agreement between parties. Held Appellant not a Secured Creditor

c) The Adjudicating Authority then referred to the agreement between

the parties by way of NIT and Letter of Award and that the LOA did not

have any Clause relating to possessory lien or interest / right in the

material supplied and erected. Provision of Letter of Credit Clause had

Company Appeal (AT) (Ins) No.22 of 2020 17

been deleted subsequently. The Adjudicating Authority in Para - 35

concluded that the Appellant did not have any security interest and

consequently could not be considered as Secured Creditor. The

Adjudicating Authority then went on to discuss Regulation 21 of IBBI

(Liquidation Process) Regulation, 2016 which relates to "proving security

interest". Reference was made to the NIT and Clause 7 of General

Conditions of the Contract, between the parties which provided that the

"title of ownership of goods to be supplied shall pass on to the owner on

despatch Ex-works/F.O.B. Port of shipment." The Clause provides that

"until the work is completed in all respects and the plant is taken over by

the owner, the goods shall remain within the custody of the contractor."

Reference was also made to "work" which has been defined in Clause

2.1.38 in the General Conditions of Contract between the parties and

"goods" defined in Clause 2.1.19. Adjudicating Authority held in Para -

43 that considering the document of NIT, the goods supplied remained

within custody of the Contractor, i.e. the Appellant till the work is

completed and plant is taken over by the Corporate Debtor. It found that

the plant had not been taken over by the Corporate Debtor as the

contract got abandoned in between.

Cancellation of Auction/Restitution issues

d) In Para - 46 of the Impugned Order, Adjudicating Authority took up

CA 684 of 2019 which challenged the auction sale. It considered the

Chart (see Appeal Para - 7 ee referred supra) put up by the Appellant

and its objections to the valuations done. The arguments of the parties

Company Appeal (AT) (Ins) No.22 of 2020 18

were referred and also discussed the issue raised in CA 792 of 2019 and

posed the following questions:-

"66) We have considered the submissions made by the parties and have also perused the material on record of this CA as well as CA(IB)No.792/2019. This application raises following questions:-

(1) Whether liquidator has complied with the order of the Tribunal dated 10.05.2019 in CA/149/KNB/2019?

(2) Whether there exists a case for cancellation of auction?

Whether restitution as claimed by the applicant can be made and any mechanism is prescribed for enforcement of such claim in IBC, 2016?"

Adjudicating Authority held Liquidator should have decided claim of lien/charge before issue of Sale Certificate

e) The Adjudicating Authority then went on to discuss the above

questions and in Para - 81 observed as follows with regard to question

No.1:-

"81) In the present case, the liquidator treated the applicant as unsecured creditor in his provisional order dated 31.12.2018 against which an appeal in C.A.(IB) No.149/KB/2019 had been filed and final order was passed on 10.05.2019 whereby the provisional order of the liquidator dated 31.12.2018 had been set aside and the liquidator was directed to decide the claims made by applicant afresh. Thus, having regard to the sequence of events, the claim of lien/charge had to be decided prior to issue of sale certificate. On this basis, it can safely be concluded that the action of the liquidator in issuing sale certificate before deciding the claim of security interest of appellant is not correct because on that

Company Appeal (AT) (Ins) No.22 of 2020 19

date there was a possibility that there could be a security interest of the applicant and, if that would have become a reality, unless security interest was relinquished under section 52, such asset could not have formed part of liquidation estate at the very outset. We further hold that order of Tribunal has not been understood by the liquidator in it's true spirit."

Adjudicating Authority held - Inconsistencies in Sale of Plant and Machinery; confusion as to what is sold and what is not; Improper Valuation, etc.

f) With regard to the question No.2 as raised in Para - 66, the

Adjudicating Authority referred to the facts brought before it by the

Appellant and observed that the Appellant was aggrieved by the

functioning and approach of the Liquidator and had also doubted the

integrity of the Liquidator. The Adjudicating Authority deliberated (in

Para - 84) as to how the grievance of the Appellant could be addressed

within framework of IBC. Adjudicating Authority went ahead to discuss

other aspects like valuation (Para - 86); inconsistencies in sale of plant

and machinery (Para - 87) and the fact that there was confusion as

regards what is sold and what is not. Adjudicating Authority found that

the valuation had been challenged on all parameters and held in

Para - 86:-

"We find that there exist inconsistencies and contradictions in various documents produced before us, hence, a case of improper valuation is made out."

[Emphasis supplied]

Company Appeal (AT) (Ins) No.22 of 2020 20

It was further held:-

"87) We also find that inconsistencies exist in the sale of plant and machinery. It is noted that assets were divided into four blocks. The auction has been done of plant and machinery and furniture and fixtures. Some of the plant and machinery as advertised in auction notice were classified under the head "land and building" in the valuation reports. However, in the sale certificate these appear to have been sold as plant and machinery, although no bids were received for land and buildings. It is also observed that the steel structure on the land foundation has been sold on per sq. meter Civil structure basis as against being sold as scrap/plant and machinery.

88) We also find that section 25(2)(h) of IBC, 2016 prescribes norms for preparation of information memorandum and evaluation matrix having regard to the complexities involved in a particular case. Though, such requirement is not applicable in the course of liquidation process, unless corporate debtor or its business is being disposed of on going concern basis. Having said so, this does not mean that disposal of assets can be done without having any intelligent criteria being applied for eligibility of bidders. In the present case, as stated by the liquidator, the only criteria which has been fixed was that deposit of 10% of amount as earnest money deposit (EMD). In our view, when sale of such a huge plant at very large site is involved, the background of the bidder is very important and their past experience of participation in such kind of auction and completing the auction transaction in a smooth manner is of utmost importance. However, in the present case, this criteria has not been appeared to have been followed. The financials of the second bidder do not support the credential even for depositing of 10% EMD.

Company Appeal (AT) (Ins) No.22 of 2020 21

89) There appears to be claims and counter claims as regard to what has been valued and what has not been valued. There also exist dispute as to what has been sold or what has not been sold. There is also a claim by the applicant that goods belonging to the applicant had been wrongly lifted by the auction purchaser.

However, it has been refuted by auction purchaser as well as the liquidator."

[Emphasis supplied]

Legal Corollary to findings - denied by Adjudicating Authority

g) The Adjudicating Authority after making observations as above, in

Para - 90 referred to the claim of Appellant to cancel the auction and that

Appellant sought restitution, and that the Appellant had claimed return

of goods. It was then observed :-

"Although having regard to the above discussion, this should be an outcome but in the facts and circumstances of the case and applicable legal position, the moot question is can it really be done."

Posing such question, the Adjudicating Authority went on to note

that the contract was abandoned and machinery erected remained in

open for almost 7 years; the plant and machinery had already been

dismantled to substantial extent and cannot be got back to the form in

which it was supplied or erected and that it was physically impossible to

return the plant and machinery and thus, went on to observe that the

prayer of Appellant cannot be given effect to. It also observed that as the

Appellant was Unsecured Creditor, the higher sale proceeds, if any,

Company Appeal (AT) (Ins) No.22 of 2020 22

would not go to the Appellant as the claim of Secured Creditors would be

met first. It also observed that granting the prayer would result in

prolonged litigation which was not justified. It went on to observe that the

Appellant had waived the benefit of Letter of Credit and had on earlier

occasion, not sought stay to the auction and that the Appellant had failed

to seek relief in time. It also observed that the Respondent No.2 had paid

all the consideration and (without recording a finding as such observed

that) Respondent No.2 was bona fide purchaser. It went on to observe

that the settled judicial principle was that a bona fide purchaser cannot

be made to suffer. For such reasons, Adjudicating Authority concluded

that auction sale could not be cancelled.

h) The Adjudicating Authority then went on to discuss the question of

Restitution and made observations that disciplinary proceedings against

Resolution Professional can be taken only by IBBI and that there was

specific mechanism in Section 217 and 218 of IBC. Reference was made

to Section 220 also which provides for determination of unlawful gain

earned by a person and disgorgement and observed that there are

specific provisions in this regard and the proper forum to decide the

question was IBBI and not the Adjudicating Authority and (thus,

expressing helplessness), Adjudicating Authority observed that the claim

of Appellant for restitution was required to be rejected.

Company Appeal (AT) (Ins) No.22 of 2020 23

The Operative Order of Adjudicating Authority Adjudicating Authority then went on to consider what should be

done in the matter and in Para - 98 observed and directed:-

"98) Now, the question arise as to what is to be done in the present facts and circumstances with regard to the lifting of goods/materials, plant and equipment etc. which have been auctioned and sale certificate has been issued and not yet lifted. As sated earlier, it has been alleged that goods belonging to the applicant has also been lifted whereas the same has been denied by the liquidator.

Hence, to avoid any dispute in future the liquidator is directed to allow the lifting of goods after giving due notice of the same to the applicant who shall authorise its representative to oversee the lifting of material. The Auction purchaser is also directed to lift only that material which is cleared by applicant henceforth. The applicant is directed to accord it's approval without any delay. In any case, if approval is not done by the applicant of any such request within two days from the date of request made, the approval shall be deemed to have been granted."

With such findings and observations, the Impugned Order came to

be passed disposing of the CAs filed before it by the Appellant.

Such final operative Order created further problems and Appeal

Para 7-ll claims that Respondent No.2 commenced lifting material

without approval of Appellant or Liquidator (and another report to Police

dated 19.12.2019 by Liquidator got filed).

Company Appeal (AT) (Ins) No.22 of 2020 24

The Question before us and Reasons

12. The question before us is that considering the various facts and

findings recorded by the Adjudicating Authority whether the result of the

litigation as recorded by the Adjudicating Authority is correct. We

proceed to consider this, and other aspects.

The Auction in dispute

13. We first proceed to consider the auction which has taken place.

The Sale Notice Published

a) When CA 149/2019 against earlier Order of Liquidator rejecting

claim of Secured Creditor, was pending before Adjudicating Authority,

the Liquidator issued Sale Notice (Annexure - 9) dated 10th April, 2019

which was published in newspapers as can be seen from Annexure - 4

filed by the Liquidator as Reply (Diary No.17759). In this Sale Notice,

which was published on 11th April, 2019 and 12th April, 2019, what

appears is that the first two pages of Annexure - 9 were put in

newspaper. The Sale Notice required the bidders to refer the websites as

stated in the Public Notice for details of assets, online e-auction bid form,

etc. The Appellant has filed the complete Sale Notice as Pages - 300 -

353. It appears that for public information, such Sale Notice was made

available. In this Sale Notice, the properties to be e-auctioned were

divided into four blocks of block 'A' to 'D' as under:-

Company Appeal (AT) (Ins) No.22 of 2020 25

"

INR.

Asset Block Reserve EMD Incremental Price Amount Value Land & building A 80.96 Crore 8.96 Crore 10 Lacs at Village Deori, Dumarpali, Tehsil Raigarh, Chhattisgarh. Total 736.23 Acre land including 637.21 Acre Free hold land and 99.02 Acre Leasehold Land. Plant & Machinery B 23.30 Crore 2.33 Crore 5 Lacs at plant situated at Raigarh, Chhattisgarh Furniture & C 12 Lacs 1.20 Lacs 5,000 Fixtures, Office Equipment, Computers at Raigarh Chhattisgarh Furniture & D 6 Lacs 60,000 5,000 Fixtures, Office Equipment, Computers at Kolkata "

At Page - 306 (Annexure - 9), it is stated that the Asset Information

Sheet is Annexure - V, Para - C(3) of Annexure - 9 (Page - 309) states

that the e-auction would be conducted in the manner specified in this

auction process information document. Now, Annexure - V of the Sale

Notice published (Annexure - 9 at Page - 340) gives particulars of the

various movable and immovable properties of Block 'A' to 'D'. Relevant

for the present discussion are portions 'A' and 'B' which read as follows:-

Company Appeal (AT) (Ins) No.22 of 2020 26

Company Appeal (AT) (Ins) No.22 of 2020 27

Company Appeal (AT) (Ins) No.22 of 2020 28

In this Sale Notice, Block 'C' relates to Furniture, Fixtures, Office

Equipments and Computers at Raigarh, Chhattisgarh location. It is a

long list of various articles including computers and air conditioners.

Block 'D' relates to Furniture, Fixtures, Office Equipments and

Computers at Kolkata location.

The E-Auction Process Information Document

b) With such Sale Notice in public domain, reference now needs to be

made to another document (Annexure - 10 - Page 354) the title of which

is "E-auction Process Information Document" (Information Document - in

short). This document on the second page has "Notes" and Note 1 reads

that this document is issued "only for the interested bidders". Thus, with

Annexure - 9 being the Sale Notice in public domain, the interested

bidders would get this information document. Now we proceed to see

what this document says. With other things being similar, this document

in Annexure - V has material changes when compared with Annexure - V

of Sale Notice. We reproduce portion relating to Block 'A' and 'B' of

Annexure - V of Annexure 10 which is as under:-

Company Appeal (AT) (Ins) No.22 of 2020 29

Company Appeal (AT) (Ins) No.22 of 2020 30

Company Appeal (AT) (Ins) No.22 of 2020 31

Comparing Annexure - V of Sale Notice with Annexure - V of Information Document If both the above Annexure - V of Annexure - 9 and Annexure - 10

are compared, the major change which can be noticed, is that in the

"Description of Building" in Sale Notice (the structures embedded in

ground as photographs on record show) (1) Turbine Generator Structure,

(2) Boiler Tower and (3) ESP Electrostatic Precipitator - were included as

"Buildings" while in this Information Document, these properties were

shifted from the "Description of Building" category to category of "Plant

and Machinery" and removed from Block 'A' and added into Block 'B'. If

the two Annexure - V are seen, in Sale Notice, Annexure - V Block 'B'

had 46 items which even after the above change, did not convert into 49

but became 57 items in the information document. How? Keep searching.

In spite of such difference, in Information Document, the Reserve

Price still remained the same for Block 'B' as Rs.23.30 Crores.

Company Appeal (AT) (Ins) No.22 of 2020 32

Certificate of Sale issued not matching with Public Notice - Fundamental Defect

c) Now, if Annexure - 13 (Page 423) - the Certificate of Sale dated

20.05.2019 is seen, Schedule - 1 of the Certificate (Page - 427) shows

that above 3 installations which were part of building in Sale Notice, and

other items had been sold off to the Respondent No.2 as "Plant and

Machinery".

14. We have seen the Reply filed by Respondent No.1 (Diary No.17759).

The Liquidator appears to have taken a stand that in stakeholders

meeting, reserve price had been settled. For this, the Liquidator relies on

the stakeholders meeting dated 13th March, 2019. The Reply at Page - 64

has Minutes of that meeting. It can be seen that in this meeting, the

Liquidator referred to valuations received in CIRP from Adroit and United

Surveyors and the valuation which was conducted by Punjab National

Bank (PNB - in short) pre-CIRP, on 22.12.2017. He referred to the

Valuers appointed at the time of liquidation and recorded in the Minutes

that the Valuers had completed physical verification of assets located at

Raigarh, Chhattisgarh, Kolkata and Orissa and had provided "Draft

Reports of valuation" wherein "tentative values of assets were provided".

He compared those tentative values during valuation done in CIRP and

valuation done by PBN before CIRP and the Minutes state that the

stakeholders suggested to fix reserve price of land on the basis of value

arrived from valuation conducted by Punjab National Band and reserve

price of plant and machinery would be based on average realisable value

Company Appeal (AT) (Ins) No.22 of 2020 33

arrived during CIRP. Thus, in the Minutes, it was recorded that the

"Reserve Price for Land and Building" would be Rs.80.96 Crores and

Reserve Price for "Plant and Machinery" would be Rs.23.30 Crores. The

Minutes do not appear to be showing that any details of items regarding

"Plant and Machinery" were disclosed. It is not the case that

Stakeholders agreed to shifting of items from Category of "Building" to

"Plant and Machinery" after issue of Sale Notice (Annexure - 9). The

Liquidator has not argued nor explained before us as to why there is

such major difference between Annexure - V of Sale Notice compared

with Annexure - V of the information document. Clearly what was sold as

"Plant and Machinery" was different and much more than what was

advertised in the Sale Notice. How can Reserve Price for "Plant and

Machinery" remain same even after embedded huge "structures" were

shifted from Block 'A' to Block 'B' in that category? They could not have

and should not have been shifted. What was later taken away by the

Respondent No.2 was shocking and still worst. We will discuss that after

sometime. Here, we record that there is material difference between what

was advertised in Public Notice and what was put in the information

document and actually passed on by way of Sale Certificate. The above

factors in our view are themselves sufficient to set aside such auction

which must be said to be vitiated as there is fundamental defect in

putting up the articles for auction.

Company Appeal (AT) (Ins) No.22 of 2020 34

Liquidator failed to prescribe pre-bid Qualifications. - Defective Auction process

15. Apart from above, although it is claimed to be Auction, it could

hardly be said to be an Auction as the Adjudicating Authority considering

the Annual Returns of the second bidder - M/s. Pavani Construction

Works Private Limited (whose Annual Reports have been filed at

Annexure - 34) observed in Para - 88 of the Impugned Order that the

financials of the second bidder did not support the credentials even for

depositing of 10% EMD. The Respondents have not filed Appeal to

challenge such finding of Adjudicating Authority. At this stage, we refer

to the observations made by the Adjudicating Authority in Para - 88 of

the Impugned Order (reproduced supra), although Adjudicating Authority

observed that Section 25(2)(h) of IBC relating to preparation of

Information Memorandum and valuation matrix is not applicable to

liquidation process and expressed that this would not mean that disposal

of assets can be done without having any intelligent criteria being applied

for eligibility of bidders. We find that attention of Adjudicating Authority

was not drawn to Schedule - 1 of Liquidation Process Regulations which

relates to mode of sale and Sub-Clause (3) requires the liquidator to

prepare terms and conditions of sale, including reserve price, earnest

money deposited "as well as pre-bid qualifications" if any. Thus, the

Regulations required the Liquidator to prescribe pre-bid qualifications.

This does not appear to have been done in spite of value and volume of

material and thus, with practically one bidder, the auction appears to

Company Appeal (AT) (Ins) No.22 of 2020 35

have been completed of plant and machinery which was in Block 'B'.

When the credentials of second bidder did not support it to even deposit

10% EMD (which is returnable), even if it somehow on its own or on

behest of someone deposits the EMD, it does not make it genuine bidder.

Liquidator failed to prescribe pre-bid qualifications as per Regulations to

secure real competition and failed in his duty. This is yet another factor

hitting at the auction process which has been conducted. It was defective

Auction process with no genuine bidding.

Improper Valuations relied on

16. Coming to the valuation which was done, we have seen the four

Valuation Reports filed by the Appellant at Annexures - 29 to 32 on the

basis of which the Appellant prepared Chart and added comments in

Para - 7 'ee' and 'ff' of the Appeal which we have reproduced. The

criticism is not baseless.

17. Going through the Valuation Reports, although these are

documents by experts, it appears that the Valuers treated different items

differently. Someone picked/left some items in building category and

someone picked/left the same in plant and machinery category and vice

versa. No clear instructions appear to have been given to Valuers by

Liquidator (who was earlier RP even in CIRP) with regard to particulars

and categories of the assets. The Liquidator appointed Valuers during

liquidation but gave up on them midway after taking tentative valuation

and jumped to the valuation got done in CIRP. The higher figures of plant

Company Appeal (AT) (Ins) No.22 of 2020 36

and machinery recorded in the valuation done by Punjab National Bank

with regard to plant and machinery was not adopted although for land,

that Valuation Report was relied on. According to the Appellant in CIRP,

the Articles included in Block 'C' relating to Furniture, Fixtures, Office

Equipment, etc. were not valued but such big list of articles was given

reserve price of Rs.12 Lakhs in the Public Notice and was put up for sale

as scrap. What was the basis for such figure is also not clear. Section

18(1)(a) requires IRP to collect all information relating to the assets of

Corporate Debtor. Section 18(1)(f) requires IRP to take control and

custody of any asset over which Corporate Debtor has ownership rights.

Section 36 of IBC shows how Liquidation Estate is formed. There could

not be confusion relating to particulars of the assets. It does appear that

there was confusion in Valuation Reports even for categorisation of items

of assets in different Blocks and thus, the Reports were improper and not

comparable to arrive at liquidation value or to fix average for "Reserve

Price".

Conduct of Liquidator

18. In this context, we are taking further note of the conduct of the

Liquidator.

The Liquidator as RP had received claim of the Appellant in Form

'B' (Annexure - 4) on 13th January, 2018 where the Appellant claimed

unpaid sellers' lien over material supplied lying/stored at VPL's Project

Site and statutory charge on goods supplied that have been erected and

Company Appeal (AT) (Ins) No.22 of 2020 37

operational dues. We are not told what was done of this Form 'B' during

CIRP. At liquidation stage, Liquidator received Form 'C' (Annexure - 5)

dated 9.11.2018 with similar claims and operational dues. On 31st

December, 2018, Liquidator passed Order (Annexure - 9) provisionally

admitting claim of Appellant at Rs.290,01,85,395/- out of

Rs.664,98,37,221/- and by putting Appellant in order of priority under

Section 53(1)(f) of IBC, he rejected the claim of lien/charge or that the

Appellant was a secured creditor. Against this, the Appellant filed CA 149

of 2019 to Adjudicating Authority on 17th January, 2019. It was heard on

11th April, 2019 when it appears that fact of already issuing Public Notice

of sale was hidden from Appellant and Adjudicating Authority. (Now, of

course, Liquidator is arguing that Appellant did not timely seek stay to

the Auction.) On 10th May, 2019, Adjudicating Authority by Order

(Annexure - 12) set aside the Order of Liquidator directing him to pass

reasoned Order. Thus, the claim of Appellant at that point of time was

still open for decision by Respondent No.1, a quasi judicial authority

whether or not the Appellant was Secured Creditor entitled to benefits

under Section 52 of IBC. In spite of this, Liquidator hurriedly, for no

justifiable reasons, went ahead to issue Sale Certificate (Annexure - 13)

to Respondent No.2 on 20th May, 2019 without deciding claim of the

Appellant, making his subsequent action of hearing the Appellant on 29th

May, 2019 (as per his e-mail dated 27th May, 2019 - Annexure -14), a

mere formality. He again rejected the claim of the Appellant to be secured

Creditor for the material and the erected structures. Having already sold

Company Appeal (AT) (Ins) No.22 of 2020 38

off the material and structures, he could not have taken any other

decision on this count although for operational dues, now he admitted

the claim (vide Annexure - 16 - Order dated 3rd June, 2019) of

Rs.5,72,19,46,434/- out of Rs.664,98,37,221/-, a substantial increase

when compared with his earlier Order (Annexure - 8) dated 31st

December, 2018. The Liquidator then appears to have sat down to

convince the Adjudicating Authority that he did not defy its Order dated

10th May, 2019 (Annexure - 12) and was only required to record reasons

on remand. Because of this, the Adjudicating Authority made

observations as in Para - 81 of the Impugned Order (referred supra). He

did change the figures of operational dues substantially but he had

closed the doors on himself regarding claim of Secured Creditor by his

own conduct of hurriedly issuing Sale Certificate of the same material. It

is immaterial here as to what were/are the merits of lien/charge or being

Secured Creditor claimed by the Appellant. Material is that the Liquidator

- a semi-judicial statutory authority behaved in a manner one would not

expect such authority to behave.

Incidents post issue of Sale Certificate

19. Now we proceed to consider the manner in which further incidents

took place after the Respondent No.1 issued Sale Certificate dated

20.05.2019 to the Respondent No.2. On record, we have Notice dated 28th

May, 2019 (Annexure - 14 - Page 429 @ 430) issued by the Appellant to

both the Respondents sent by e-mail and courier reminding of its

pending claims and details of the developments in litigation and how

Company Appeal (AT) (Ins) No.22 of 2020 39

unknown persons claiming to be representatives of Respondent No.2 had

come to take away plant and machinery from project site claiming that

there was Sale Certificate, Schedule of which shows it included Plant and

Machinery over which lien/charge is claimed; and that large quantity of

Plant and Machinery is removed by them. Appellant claims to have then

filed CA 684 of 2019 (Annexure - 15) against the auction on 3rd June,

2019.

No proper system put in place by Liquidator On 12th June, 2019, by Order (Annexure - 17 - Page 463),

Adjudicating Authority directed that movement of goods, if any, would be

subject to the result of the Application. In spite of this, it does not appear

that Respondent No.1 put in place any mechanism for

handover/movement of goods and material from the concerned project

site. Appellant sent Notice dated 12.07.2019 (Annexure - 20 - Page 522),

inter alia, requesting the Liquidator to have process of identifying

sequestering the plant and machinery which are lying un-erected within

BHEL's enclosure or which have been erected outside or are lying un-

erected outside BHEL's enclosure. Appellant reminded Respondent No.1

of his fiduciary responsibility to ensure protection of assets against which

lien and charge was claimed. Appellant had sent yet another Notice to

both Respondents on 26.07.2019 also (Annexure - 21). Respondent No.1

appears to have sent the Reply (Annexure - 23 - Page 537) on 4th August,

2019 claiming that e-auction was conducted only for limited material

Company Appeal (AT) (Ins) No.22 of 2020 40

lying outside the enclosed portion of the BHEL at the site and that the

Sale Notice did not include:

1) material lying inside the BHEL enclosure,

2) all the material for which valuation was not done,

3) water pipes (partly underground and partly outside, running

approximately 36 kilometres),

4) Transmission Towers duly erected at various locations at the

site.

In Para - 7 of above Reply Notice, Respondent No.1 stated that

unauthorised lifting of material from the site is illegal and strict action

shall be taken against person/entity involved in such activity. It was

mentioned that "In case any of the material is unauthorizedly lifted from

the site, it is the duty of all to report such lifting to the concerned

authorities as well as to the undersigned." Thus he left it to others to

report if unauthorized lifting is there. On 7th August, 2019, this Tribunal

had in Company Appeal (AT) (Ins) No.802 of 2019 (Annexure - 22)

directed the Adjudicating Authority to decide the Appeal of Appellant on

an early date and in the meantime, Liquidator was directed not to allow

any person to remove the assets in question even if it is sold but if not yet

removed. On that date of 07.08.2019, Counsel for Respondent No.1 kept

opposing the Appellant, not telling us that on 05.08.2019, his

representative "visited the project site and found" Respondent No.2 had

Company Appeal (AT) (Ins) No.22 of 2020 41

already removed items worth Rs.20 Crores illegally and Respondent No.1

had filed Police Complaint dated 06.08.2019 (see Annexure - 7 - Diary

No.17759). So, after leaving the project site open for Respondent No.2

(since Sale Certificate dated 20.05.2019), the Representative visits on

05.08.2019 which means none responsible was posted. Else before

wrong/illegal lifting of such magnitude, Respondent No.1 would have

known.

Respondent No.1 lacked information and control The Respondent No.1 has filed Reply (Diary No.17759) and at Para

- 17 of Primary Objections, it is mentioned, "that it is unclear as to how

much material was actually delivered at the site of the Corporate Debtor

and only the key managerial personnel of the Corporate Debtor are privy

to the same details." In spite of provisions like Section 18(1)(a) and (f)

requiring Interim Resolution Professional to collect all information

relating to the assets, etc. of the Corporate Debtor and take control and

custody of assets for which the Corporate Debtor has ownership rights

and provisions like Section 35(1)(b) of IBC providing that the Liquidator

shall take into his custody or control all the assets, property, etc. of the

Corporate Debtor, we have the present Respondent No.1 stating that it

was unclear as to how much material was actually delivered at the site of

the Corporate Debtor. What prevented him from taking stock as per

records and physical availability? In Reply (Annexure - 23), Respondent

No.1 claimed that at the site, there was BHEL enclosure, where according

to him, illegally and unauthorizedly Guards had been posted by BHEL

Company Appeal (AT) (Ins) No.22 of 2020 42

and that material lying in that enclosure was not part of Sale Notice. But,

in the Reply before us in Para - 18, he has claimed that the possession of

the goods allegedly supplied by the Appellant was not with the Appellant

as the goods supplied were duly entered into the Fixed Asset Register of

Corporate Debtor. He does not appear taking firm stands.

20. Appellant has filed Annexure - 2 as true copy of Notice inviting

tender. At Appeal Page - 149 of this Annexure which is part of "General

Conditions of Contract", the Condition - 7 states as follows:-

"in the case of divisible contract, the title of ownership of goods to be supplied shall pass on to the owner on despatch Ex-works/F.O.B. Port of shipment. However, until the work is completed in all respects and the plant is taken over by the owner, the goods shall remain within the custody of the contractor".

It appears that between the parties, there was only this document of NIT

and Annexure - 3 - Letter of Award. If the above condition which is

Condition - 7 is seen, the title of ownership of goods would pass to the

Corporate Debtor on despatch Ex-works/F.O.B. Port of shipment. The

custody may have remained with the Appellant as the works did not get

completed and the plant was not commissioned. Under the provisions, at

CIRP stage itself Respondent No.1, (then as Resolution Professional) was

expected to decide Form B - dated 13.01.2018 and question of

lien/charge, which if rejected he should have taken possession of

material, ownership in which had been passed. When the ownership is of

Company Appeal (AT) (Ins) No.22 of 2020 43

the Corporate Debtor, it was responsibility of the Respondent No.1 -

Liquidator to take stock and possession of all the material. He does not

seem to have done anything with the dispute of lien/charge during CIRP

when Form 'B' was filed. This being so, Respondent No.1 cannot be heard

claiming that it was not clear how much material was actually delivered

at the site of Corporate Debtor.

21. The Appellant has claimed in the Appeal (Para 7 - w) that

Respondent No.2 forcibly removed material, which was not part of

Certificate of Sale including goods inside BHEL's enclosure as well as

lying outside, at other locations.

Incidents post Impugned Order

22. We have already reproduced the operative part of the Impugned

Order dated 13.12.2019 (Para - 98) which led to further inappropriate

actions at the spot. Annexure - 36 (colly) - Pages 920 - 969 includes

correspondence exchanged between the Appellant and Respondents

between 16.12.2019 and 26.12.2019. Going through the material, it

appears that Respondent No.2 in the face of resistance from Appellant

and Respondent No.2, went ahead to remove further goods/material from

the spot. We make reference to some of the correspondence.

There is e-mail dated 16th December, 2019 (Page - 920) sent by the

Liquidator to Appellant to depute authorized representative. On same day

evening at 19.13 hours, Respondent No.2 appears to have sent e-mail

(Page - 922) that Respondent No.2 has already mobilized their

Company Appeal (AT) (Ins) No.22 of 2020 44

transportation and lifting personnel at the site and await the personnel of

BHEL and Liquidator at the site. It shows the hurry of Respondent No.2.

The Appellant by e-mail dated 17th December, 2019 sent to Liquidator

sought Notice specifying the exact material proposed to be lifted. Another

Notice was sent to Respondent No.2 also.

Liquidator was asking Respondent No.2 to state what items picked up?? None responsible on spot.

Respondent No.1 sent e-mail dated 18th December, 2019 at 16.49

hours (Page - 932) to NCLT and parties which mentions that the

Liquidator had informed the auction purchaser from whom "we also

sought list of items picked up prior to stay and list of items to be picked

up from the buyer". The e-mail also mentions that auction purchaser had

illegally and forcefully entered the premises of Corporate Debtor with the

help of local Police and is trying to lift material and that in spite of

requests, the auction purchaser (Respondent No.2) is not listening; and

that the local Police scared the guards of the Liquidator. So, Respondent

No.1 had only some Guards on spot. It appears that on 19.12.2019, the

Liquidator filed complaint to SHO, Bhupdevpur, District Raigarh with

regard to such highhanded actions of Respondent No.2. Copy of the

complaint is at Page - 942 of the Appeal. The developments as appearing

from the record and the correspondence which we have noticed, makes it

clear that on project site, there were only Guards posted by the

Respondent No.1 and the Appellant who appears to have been on the

project site since before due to the contract, was holding on to what is

Company Appeal (AT) (Ins) No.22 of 2020 45

referred as "BHEL enclosure" having its own Guards. Even after his first

complaint to Police dated 06.08.2019 of illegal lifting to the extent of

Rs.20 Crores, it does not appear that Respondent No.1 had posted any

responsible person on site or laid down any procedure or ensured that,

on spot the auction purchaser is handed over only due articles which

were part of Sale Certificate after the Impugned Order. Conspectus of

above discussion and record is that it appears that Respondent No.2 had

a freehand and freewill at the project site to pick up and take away goods

and materials it wanted, even against resistance by some Guards (who

would naturally not know what is, or what is not part of the Sale

Certificate, under dispute).

Respondent No.2 picked up articles worth Rs.20 Crores which were not sold? - No system in place

23. What we have just mentioned above gets evident from yet another

document of Respondent No.1 himself. As mentioned, Respondent No.1

had on 6th August, 2019 filed a complaint [Annexure - 7 of his Reply

(Diary No.17759)]. This complaint was also to SHO, Bhupdevpur, District

Raigarh, Chhattisgarh in which initially the Respondent No.1 referred to

liquidation proceedings and his selling of plant and machinery "and other

assets" (?) of the Corporate Debtor through e-auction and then it is

mentioned:-

"Thereafter, the purchaser started dismantling and lifting of the material sold to them from the project site of the VISA Power Limited. However, on 05.08.2019 our representative visited the project site and found that the purchaser has also dismantled

Company Appeal (AT) (Ins) No.22 of 2020 46

and removed the following items, having value of approx. Rs.20 crores, without the permission of the Liquidator from the project site which were not sold to them and the same were not included in the aforesaid list of plant & machinery provided to the purchaser.

1. Transmission Towers (Total 26 nos.) -

about 19 towers are missing

2. Water Pipe Line (Length of approx. 35 KM) about 10 km of pipeline is missing.

Above mentioned movable properties has been removed by the purchaser without any authority and without the consent of the Liquidator. This is a case of illegal removal of above items and the purchaser has committed theft.

Based on the facts and circumstances stated to you, I would request you to lodge an FIR against the incident of theft and illegal removal of above mentioned assets from the premises of VISA Power Limited."

The above contents are shocking. Record shows that soon after the

Certificate of Sale dated 20th May, 2019 was issued, the Appellant was

raising grievances of what all was being lifted from the spot and

Respondent No.1 went on defending his actions before the Adjudicating

Authority, and even in Appeal before us. The above complaint sent to

Police shows that after the e-auction, the purchaser started dismantling

and lifting even material not sold to them from the spot and project site

of Corporate Debtor. It is stated in the Complaint that on 5th August,

2019, Representative of the Respondent No.1 "visited project site" and

found that the purchaser had dismantled and removed transmission

Company Appeal (AT) (Ins) No.22 of 2020 47

towers and water pipe line having value of approximately Rs.20 Crores (?)

without the permission of the Liquidator (?) and it was not sold to them.

It is surprising that when so much of material was at project site and

some was to be allowed to be lifted (and Appellant was making

grievances), no system was put into place for identifying, segregating and

permitting, lifting of goods/material. It is shocking to see that an auction

purchaser who was issued Certificate of Sale (Annexure - 13) with

description of Asset Schedule - 1 referring to plant and machinery and

Block 'B' for Rs.23.40 Crores, lifts further material worth Rs.20 Crores

from the spot and the Liquidator does not come to know about it in good

time? Definitely time must have been consumed for removing of

transmission towers and laid water pipe lines. This only indicates and we

repeat that there was no system put in place for protecting and managing

the huge and valuable property of the Corporate Debtor which was there

on the project site. When Liquidator sends an e-mail (see Page - 932)

stating that it has "sought list of items already picked up", it shows that

the Liquidator did not know as to what was/is being picked up. The

complaint to Police dated 6th August, 2019 shows that there was much

more to the project site than what was included by the Respondent No.1

in Sale Notice putting the properties of the Corporate Debtor in the

Blocks of A, B, C (and D). There is no explanation of Respondent No.1

why all goods/material at project site were not included in the sale and if

only part was included, why system to segregate and handover was not

put into place. It is surprising that when before Adjudicating Authority,

Company Appeal (AT) (Ins) No.22 of 2020 48

the Appellant claimed (see Para - 53 of Impugned Order) that the auction

purchaser had even lifted the material belonging to BHEL but no FIR or

other corrective actions were taken by Liquidator to prevent happening of

such event, the Respondent No.1 retaliated submitting to the

Adjudicating Authority that he had already filed FIR. At that stage, the

FIR was Annexure - 7 dated 6th August, 2019. If the Liquidator had

already filed such FIR, that Respondent No.2 had already lifted material

not sold to the extent of Rs.20 Crores, still Respondent No.1 does not

appear to have highlighted this to Adjudicating Authority and the

Adjudicating Authority also did not go into this Complaint/FIR and in the

result, Adjudicating Authority passed above operative Order leading to

further undesirable actions at the project site on the part of Respondent

No.2, which we have already discussed.

Criminal Actions took place at Project Site

24. A) We have seen Reply in Appeal (Diary No.17761) of Respondent

No.2 and heard its Counsel, Respondent No.2 claims to be bona fide

purchaser asserting that it was throughout represented to it that assets

forming part of auction sale process are unencumbered and upon

payment of full consideration it shall have absolute possession.

We do not agree. The issue of lien/charge was sub-judice and was

being agitated. If respondent No.2 did not enquire, it cannot claim to be

bona fide purchaser.

Company Appeal (AT) (Ins) No.22 of 2020 49

B) In Para - 40 of Reply, Respondent No.2 claims that after sale was

concluded and full money was received by Liquidator, "possession of the

factory premises made over to Respondent No.2 and the Sale Certificate

had been issued," then BHEL objected. In Para - 46, Respondent No.2

claims "the very fact that Respondent No.2 was allowed to remove some

material/plant and machinery from the project site will imply that the

possession was delivered to Respondent No.2 by the Liquidator.

Thus, although the Sale Certificate provided that the Liquidator

agrees "to put the purchaser in possession of the Asset" - Respondent

No.2 admittedly went around as if impliedly it got possession of the

factory premises and project site itself. In our view only because an

Auction Purchaser has a Certificate of Sale in pocket, of some (out of

many) articles/goods of Plant and Machinery scattered at the remote

project site , it is no license to take over the Factory Premises/ project site

claiming implied possession and walk away with things without the

Liquidator putting the " purchaser in possession of the Asset" as was

mentioned in the Sale Certificate. Documents show acts of scaring guards

took place. Such acts of the Respondent No. 2 must be said to be criminal

acts. The Reply has no denials to specific averments of the Appeal that

Respondent No.2 went on to remove/take away forcibly materials/goods

even which were not part of Sale Certificate. There are no explanations of

Respondent No.2 to Appeal and claim of Respondent No.1 of forcible

Company Appeal (AT) (Ins) No.22 of 2020 50

entries and removal of goods/material, leading to filing of 2 Police

Complaints, one of which alleged theft of articles worth Rs.20 Crores.

C) Reply of Respondent No.2 speaks poorly of Respondent No.1 and

picture emerging shows that once Sale Certificate was issued,

Respondent No.2 forcibly exercised possession at site itself and took away

goods/material even not part of Sale Certificate. Apparently, there were

much more articles/goods on project site than what was put as Blocks A

to C. Respondent No.1 tacitly let Respondent No.2 do whatever it wanted

on project site. This is not permissible.

25. The Liquidator has not brought before us any material to show as

to what happened to the two complaints dated 6th August, 2019 and 19th

December, 2019 which he had filed with the SHO. It appears to us that

on spot, criminal actions have taken place and they deserve to be

properly investigated.

Reasons of Adjudicating Authority not to grant relief not maintainable

26. We have already referred in short (see Para - 11(g) supra) the

reasons recorded by the Adjudicating Authority in Paragraphs - 91 to

101 as to why cancellation of auction and restitution cannot be ordered.

In the face of record as discussed above, and law, we do not find that the

reasons recorded by the Adjudicating Authority in Paragraphs 91 to 101

of the Impugned Order can be maintained. When there were Orders dated

12th June, 2019 (Annexure - 17) "that movement of goods would be

Company Appeal (AT) (Ins) No.22 of 2020 51

subject to outcome of proceedings", the outcome cannot change only

because there was movement of goods. Even if the plant and machinery

had been dismantled, that could not have been reason to deny the relief

of return of material. The other reason that the Applicant/Appellant was

only an Unsecured Creditor and higher proceeds would not go to the

Applicant - Appellant was no reason not to cancel the auction. Appellant

is admittedly Operational Creditor. Illegality in the process and illegal

loss to Corporate Debtor is bound to affect the beneficiaries down the line

of Section 53 of IBC. If the auction is illegal, without proper valuation

and there was also confusion with regard to what is lifted, declining to

take action would amount to rewarding the wrong done. The Appellant

had not pursued the provision of Letter of Credit, was also no reason to

refuse to cancel the auction. When the Appellant had from the initial

stage itself moved the Liquidator and the Adjudicating Authority with

regard to the auction sale which had come to Notice of Appellant and

sought reliefs, only because Appellant did not ask for stay of auction,

would be no reason not to cancel the auction sale even after noticing

material errors and illegalities in the process followed. The Liquidator had

fiduciary responsibility and had duty to avoid loss/further loss to

Corporate Debtor. The auction purchaser had paid the consideration

would also be no reason not to set aside the auction considering the

illegal factors we have found in this Appeal as well as what findings

Adjudicating Authority recorded in this regard. There was no material

before the Adjudicating Authority to refer to the Respondent No.2 as

Company Appeal (AT) (Ins) No.22 of 2020 52

"bona fide purchaser". The reference was made in the passing. When

Adjudicating Authority held that it was wrong on the part of Liquidator,

to first not decide question of lien/charge and Secured Creditor and

could not have issued Sale Certificate clearly dispute was pending

litigation. Respondent No.2 who did not check up, cannot claim to be

bona fide purchaser. Similarly, the Adjudicating Authority erred in not

giving any restitution. It expressed helplessness claiming that

disciplinary proceedings against a Resolution Professional can be taken

only by IBBI and that if somebody has unlawfully gained and restitution

is to be provided to the person who has suffered loss, the same also can

be done only by IBBI. Even if actions as stated in Chapter - VI relating to

Inspection and Investigation are to be taken by IBBI, Section 218 of IBC

provides that where the Board, on receipt of a complaint under section

217 or has reasonable grounds to believe that any insolvency

professional agency, etc. has contravened any of the provisions of the

Code or the Rules, it may direct an investigation. The Judgement and

Order of the Adjudicating Authority or this Appellate Tribunal can always

be basis for the IBBI to consider if there are "reasonable grounds" and

IBBI can definitely look into the same to consider if action under Chapter

- VI needs to be taken. We thus set aside reasons and findings recorded

in Paragraphs - 91 to 101 in Impugned Order. Reliefs as we grant should

have been granted.

Appellant cannot be treated as Secured Creditor under IBC

Company Appeal (AT) (Ins) No.22 of 2020 53

27. The Appellant in Form 'B' and Form 'C' claimed that it has unpaid

sellers' lien under the Sale of Goods Act on the material supplied which is

lying/stored at Corporate Debtor's project site and a statutory charge

under the Transfer of Property Act on the goods supplied that have since

been erected. The Liquidator rejected this claim and held that the

Appellant was not a Secured Creditor. The Adjudicating Authority also

looked into this aspect and in Paragraphs - 21 to 30 referred to the

provisions of IBC. It has also looked into the agreement between the

parties and the contractual provisions at Paragraphs - 31 to 34 of the

Impugned Order and held that the Appellant is not having security

interest and consequently, cannot be considered as a Secured Creditor.

We have gone through the reasonings. Although we do not hold that that

provisions of Sale of Goods Act and Transfer of Property Act are

inconsistent or contrary as such to IBC, we hold that considering the

provisions (as discussed in detail by the Adjudicating Authority) as found

in Section 3(30) which defines "Secured Creditor" and Sections 3(31),

3(33) read with Section 238 of IBC, if benefit is to be taken under the

provisions of IBC, it can be done if there was a contractual

arrangement/transaction creating security interest in favour of the

Creditor. It has to be a security interest which is "created" as such. IBC

is complete Code in itself. The Appellant is claiming to be Secured

Creditor on statutory basis. Admittedly, the Appellant is not relying on

any contractual provision, or transaction creating security interest to

claim benefits of lien/charge. Counsel for Appellant relied on "ICICI

Company Appeal (AT) (Ins) No.22 of 2020 54

Bank Vs. Sidco Leathers" - (2006) 10 SCC 452 where inter alia it was

considered that Section 529-A and Section 529 under the Companies

Act, 1956 were silent on the question of inter se priority between Secured

Creditors and Section 48 of Transfer of Property Act, 1882 applied. Reliance was also placed on "Central Bank of India vs. State of Kerala"

- (2009) 4 SCC 94 in which inter alia issue was State Legislators creating

first charge on the property of dealer/person liable to pay sales tax and

Section 34(1) of DRT Act and Section 35 of Securitisation Act, for

enforcing security interest were examined and observation was that non-

obstante clauses in said Central Acts could not render first charge

created by said State enactments inoperative. In our humble opinion, the

said Judgements do not help Appellant in interpretation and application

of IBC in the manner in which Appellant wants. We agree with the

Adjudicating Authority in this regard that the Appellant cannot be

treated as Secured Creditor.

28. For the above reasons, we pass the following Order:-

ORDER

1) The Appeal is allowed as follows.

2) The observations and findings and directions as

recorded by the Adjudicating Authority in Impugned

Order, in Paragraphs - 91 to 101 are quashed and

Company Appeal (AT) (Ins) No.22 of 2020 55

set aside. Rest of the Judgement we mostly agree

subject to our observations and findings recorded in

this Judgement.

3) Claim of the Appellant made in CA(IB)792/KB/2019

(in Annexure - 18) in CP(IB)574/KB/2017 before

Adjudicating Authority of having statutory lien and

statutory charge over material supplied lying/stored

at Corporate Debtor's project site and material

supplied which is/was erected and thus to be

Secured Creditor - is rejected.

4) Claim of the Appellant seeking setting aside of

auction dated 01.05.2019 in favour of Respondent

No.2 is accepted. Sale Notice (Annexure - 9) dated

10th April, 2019 and further process culminating into

auction dated 1st May, 2019 and issue of Certificate

of Sale dated 20th May, 2019 (Annexure - 13) in

favour of Respondent No.2, and subsequent lifting of

goods/material by Respondent No.2/its Directors or

on their behest are all set aside as illegal.

5) a) Respondent No.1 shall forthwith recover possession

from whoever is in possession and Respondent No.2,

and its Directors are liable and directed to return

Company Appeal (AT) (Ins) No.22 of 2020 56

back at their costs, within 15 days, to the project

site, All the material/goods (including

goods/material which was made part of Certificate of

Sale which we set aside) picked up and transported

by Respondent No.2/its Directors or on their behest,

purporting to act as successful auction purchaser.

b) SHO, Bhupdevpur, District Raigarh,

Chhattisgarh shall assist Respondent No.1 -

Liquidator to pursue the Complaints dated 6th

August, 2019 and 19th December, 2019 filed by him

and register them as FIR (if yet not so registered) and

investigate the same.

c) Respondent No.1 - Liquidator is directed to

personally, on the basis of record and actuals,

immediately take stock of material/goods as were on

the Project Site at Raigarh and which have been

taken away/missing and may file further report to

Police for material taken away/missing. Criminal

acts as may have been committed purporting to act

on the basis of Certificate of Sale, may be reported.

Liquidator will place Report before Adjudicating

Authority to whom we remit back this matter.

Respondent No.1 will report inventory of all the plant

Company Appeal (AT) (Ins) No.22 of 2020 57

and machinery and goods which (i) were on the spot,

and (ii) which have been removed/missing and (iii)

which are still now available.

d) Adjudicating Authority is requested to give

further necessary directions/Orders from time to

time to Respondent No.1 - Liquidator to ensure

further actions to recover goods/material

removed/taken away by Respondent No.2/its

Directors or on their behest.

e) Respondent No.1 is directed to report the

Adjudicating Authority particulars with regard to all

goods/material taken away/missing/damaged and

Respondent No.2 and its Directors shall be liable to

pay for the same.

f) Respondent No.1 shall after taking such and

other steps as may be directed by Adjudicating

Authority, on recovery of the goods/material of the

Corporate Debtor, put them to re-auction. The

earlier Valuation Reports shall be ignored from

consideration and Liquidator shall call for fresh

valuation reports from 2 new registered valuers as

per procedure, duly giving them necessary

information and copy of this Judgment and after

Company Appeal (AT) (Ins) No.22 of 2020 58

taking fresh Valuation Reports the assets of the

Corporate Debtor shall be put to re - auction

following due process and procedure. Thereafter,

Respondent No.1 will report to Adjudicating

Authority calculations and costs and expenses and

loss and damage, etc. caused to the goods/material

and what, if any, amount of consideration paid by

Respondent No.2 is payable back to Respondent

No.2, or deserves to be forfeited for illegal lifting,

damage/loss, etc. of material/goods.

6) Any material/goods belonging to the Appellant,

(i.e. (1) material/goods other than on which

Appellant has been claiming lien/charge; and/or

(2) goods/material, other than goods/material

supplied by Appellant which was entered in Fixed

Asset Register or other records (by whatever name

called) and Balance Sheets of the Corporate Debtor)

- be returned to the Appellant.

7) Copy of Judgement of the Adjudicating Authority and

this Judgement may be sent to IBBI which may

consider if actions, if any, are required to be initiated

under Chapter - VI of IBC. If Respondent No.1 -

Liquidator, extends full cooperation in carrying out

Company Appeal (AT) (Ins) No.22 of 2020 59

the Orders which we are passing, especially, to get

back goods/material of Corporate Debtor and re-

auction, IBBI may consider the same as mitigating

factor, in favour of Respondent No.1 in action (if any)

under Chapter - VI of IBC.

8) If it appears to Adjudicating Authority that Respondent

No.1 is not cooperating, it would be at liberty to

replace him with another person as Liquidator.

9) Appellant will be entitled to be treated under Section

53(1)(f) of IBC for its monitory claim admitted by

Respondent No.1 vide Order (Annexure - 16) dated

3rd June, 2019.

10) C.A. (IB) 684/KB/2019 in C.P.(IB) No.574/KB/2017

is restored to file of Adjudicating Authority for taking

steps as per this Judgement and Order. Matter is

remitted back to Adjudicating Authority with

directions as above. The Adjudicating Authority will

be at liberty to pass any further suitable

directions/Orders keeping above directions/

objectives in view. Parties will be at liberty to move

Adjudicating Authority for any guidance/directions/

Orders in above context and the same will be decided

by Adjudicating Authority.

Company Appeal (AT) (Ins) No.22 of 2020 60

11) The Respondent No.2 shall pay costs of Appeal

quantified as Rs.5 Lakhs to the Appellant.

12) Copies of this Judgement be sent also to SHO,

Bhupdevpur, and to Superintendent of Police,

District Raigarh, Chhattisgarh for suitable action.

[Justice A.I.S. Cheema] Member (Judicial)

[Justice Anant Bijay Singh] Member (Judicial)

[Kanthi Narahari] Member (Technical rs

Company Appeal (AT) (Ins) No.22 of 2020