Hero Fincorp Limited vs Liquidator Of Tag Offshore Ltd

Hero Fincorp Ltd. ... Appellant Having its corporate office at 34, Basant Lok, Vasant Vihar, New Delhi-110057.

Versus

Liquidator of TAG Offshore Ltd. .... Respondent Having its address at Duff & Phelps India Private Ltd., 14th Floor, Raheja Tower Bandra Kurla Complex, Bandra (East), Mumbai-400051.

Present:

For Appellant: Mr. Shantanu Singh, Advocate

For Respondent: Mr. Amir Arsiwala and Mr. Dhrupad Vaghani, Ms. Nidhi Shah, Ms. Naveli Reshamwalla, Mr. Ajiz M, Advocates.

ORDER

(Date: 29.04.2022) (Virtual Mode)

[Per.: Dr. Alok Srivastava, Member (Technical)]

This appeal has been filed by the Appellant, a financial

creditor of the Corporate Debtor/TAG Offshore Limited, under

section 61 of the Insolvency and Bankruptcy Code, 2016

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 1 of 16 (hereinafter called 'IBC') assailing the judgment of the Adjudicating

Authority (National Company Law Tribunal, Mumbai Bench) in MA

No. 3656 of 2019 filed under section 60(5) of the IBC in CP No.

54/I&BC/NCLT/MAH/2019.

2. In brief, the Appellant's case is that after order for liquidation

of the Corporate Debtor dated 26.9.2019, the erstwhile resolution

professional Sudeep Bhattacharya was appointed as liquidator.

During the liquidation process, the liquidator vide e-mail dated

2.10.2019 intimated the Appellant/Hero Fincorp Limited (in short

'Hero Fincorp') which had charge of vessel Tag 22, that two vessels,

namely Tag 6 and Tag 22, which are assets in the liquidation estate,

have come close to each other and may make contact which might

result in potential damage to the vessels. This email was also sent

to United Bank of India, which had the charge of vessel Tag 6. The

liquidator also mentioned in the email that he has reached out to a

salvage company, namely K.E. Salvage for securing the two vessels

for their protection and preservation and asked it to provide an

estimate for the proposed job. The Appellant has further submitted

that vide e-mail dated 3.10.2019 it communicated to the liquidator

its willingness to contribute funds for securing the vessel Tag 22 and

also requested for starting the job of securing the vessels. After

completion of the securing operation, K.E. Salvage submitted tax

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 2 of 16 invoice dated 9.10.2019 amounting to Rs. 14,75,000 (Rupees

Fourteen Lakhs Seventy Five Thousand only) for shifting and re-

anchoring the two vessels during the period starting from 3rd to 5th

October 2019. On being requested to provide details of the job

undertaken, K.E. Salvage provided relevant details vide e-mail

10.12.2019.

3. The Appellant has further submitted that it issued a notice

dated 9.10.2019 to the liquidator indicating its intention to exit from

the liquidation process and realise its charge in Tag 22 since it had

obtained the statutory remedy for enforcement of mortgage for the

vessel by invoking the Admiralty Jurisdiction of the Hon'ble Bombay

High Court and Hon'ble Andhra Pradesh High Court before the

initiation of CIRP of the Corporate Debtor/TAG Offshore Limited.

After issuing the notice and on not receiving any response from the

liquidator, the Appellant preferred MA No. 3656 of 2019 in CP No.

54/I&BC/NCLT/MAH/2019 on 13.11.2019 seeking directions from

the Adjudicating Authority to allow the Appellant to exit the

liquidation process and keep the vessel Tag 22 out of liquidation

estate and also for including the expenses incurred in securing the

two vessels, Tag 22 and Tag 6, as part of the CIRP and liquidation

expenses. The Appellant has stated that subsequently the

Adjudicating Authority passed orders in MA No. 3656 of 2019 on

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 3 of 16 6.2.2020 holding that the expenses incurred for securing the vessel

Tag 22 cannot be treated as liquidation process expenses and the

Appellant should bear the entire expenses incurred by the liquidator

in protecting the charge of the Appellant. In addition, the

Adjudicating Authority also allowed the Appellant to keep its charge

of Tag 22 out of the liquidation estate as requested under section 52

of the IBC subject to clearance of proportionate CIRP costs and

payment of expenses incurred by the liquidator in securing the

vessel Tag 22. On being aggrieved by the said order the Appellant

has preferred this Appeal.

4. We heard the arguments submitted by the Ld. Counsels for

the parties and also perused the record.

5. The Ld. Counsel for Appellant has argued that the

responsibility for securing the vessel Tag 22, which was part of the

liquidation estate, was the responsibility of the liquidator and,

therefore, expenses for preventing any damage due to possible

collision between the vessels was upon the liquidator, and hence the

expenses incurred should be part of the overall liquidation process

costs. He has further argued that the liquidator had issued an email

dated 2.10.2019 for securing the two vessels Tag 6 and Tag 22 to

the Appellant and United Bank of India and the Appellant had

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 4 of 16 requested the liquidator to undertake the securing operation since

it had no technical expertise or knowledge of shipping activities and

also agreed to contribute its share in the expenses so incurred. He

has further argued that the Appellant indicated its intention to exit

from the liquidation process vide notice dated 9.10. 2019 in view of

the fact that it had obtained statutory remedy for enforcement of the

mortgage for the vessel under its charge by invoking the Admiralty

Jurisdiction of the Hon'ble Bombay High Court and the Hon'ble

Andhra Pradesh High Court but the said notice did not elicit any

response from the liquidator.

6. The Learned Counsel for Appellant has further contended that

it was therefore constrained to prefer MA No. 3656 of 2019 seeking

directions of the Adjudicating Authority for permission to exit from

the liquidation process and keep vessel Tag 22 out of the liquidation

estate, and also for including the expenses incurred in securing the

two vessels for their preservation and protection in the liquidation

expenses. His argument is that since the said expenses were

incurred after the liquidation commencement date, it cannot form

part of the CIRP expenses and therefore it should be included in the

liquidation process expenses. The Learned Counsel for Appellant

has also argued that when the Appellant is proceeding by not

relinquishing its security in its charge of Tag 22 which is a

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 5 of 16 proceeding in rem, the liquidation costs cannot be imposed on the

Appellant and there is no provision in the IBC to impose specific

costs upon the Appellant for preserving and protecting the assets in

the liquidation state which is actually the responsibility of the

liquidator. He has also argued that the Adjudicating Authority has

held in the last sentence of the Impugned Order that the Applicant

needs to bear the whole of the expenses incurred by the liquidator

for protecting its charge, which is not proper and he should be

saddled with only 50% of the expenses incurred.

7. The Learned Counsel for Respondent/Appellant has also

argued that the Mumbai Port Trust and K.E. Salvage have already

claimed these dues as Sheriff's expenses in Admiralty proceedings

going on before the Hon'ble Bombay High Court, and hence the

Appellant cannot be insisted upon to pay these expenses under IBC.

The Learned Counsel for Appellant has further contended that the

money realized after auction/sale of its charge Tag 22 is deposited

in Hon'ble Bombay High Court and any expenses to be taken out of

the auction/sale proceeds can take place only after the orders of

Hon'ble Bombay High Court, and in such an event it is the

responsibility of the Appellant to pay these expenses that have

already been incurred in its behalf.

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 6 of 16

8. The Learned Counsel for the Liquidator has argued that the

Appellant did not file its claim under the Insolvency and Bankruptcy

Board of India (Liquidation Process) Regulations, 2016 (in short

Liquidation Process Regulations) wherein Regulation 16 and

Regulation 18 require a financial creditor to submit its claim on or

before the last date mentioned in the public announcement and the

proof of the claim in Form D of Schedule II. He has referred to

paragraphs 4 and 8 of the Impugned Order to argue that the

Appellant is pursuing a statutory remedy available to it as a

mortgagee under the Admiralty (Jurisdiction and Settlement of

Maritime Claims) Act, 2017 prior to commencement of CIRP of the

corporate debtor, wherein vessel Tag 22 which is under its charge

was 'arrested' on the order dated 18.3.2019 of the Hon'ble Bombay

High Court and its auction/sale was also ordered on 23.4.2019 and,

therefore, the expenses incurred for securing the specific charge Tag

22 of the Appellant have to be borne by the Appellant. The Learned

Counsel for Appellant has adverted to para 8 of the Impugned Order

to claim that the Appellant had, through e-mail dated 4.10.2019,

agreed to reimburse 50% of the total expenses and this fact is not

disputed by the Appellant and, therefore, such expenses should not

form part of CIRP or liquidation process expenses.

9. The Learned Counsel for Respondent/Liquidator has urged

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 7 of 16 that, in accordance with the order given by the Adjudicating

Authority in MA No. 3656 of 2019, the Appellant should not be

allowed to exit from the liquidation process until it clears its

proportionate CIRP costs and also pays the expenses incurred by

the liquidator in securing its charge vessel Tag 22.

10. The provisions in the Liquidation Process Regulations that

are relevant to this case are as follows: -

"16. Submission of claim - (1) A person, who claims to be a stakeholder, shall submit its claim, or update its claim submitted during the corporate insolvency resolution process, including interest, if any, on or before the last date mentioned in the public announcement.

(2) A person shall prove its claim for debt or dues to him, including interest, if any, as on the liquidation commencement date.

18. Claims by financial creditors. - (1) a person claiming to be a financial creditor of the corporate debtor shall submit proof of claim to the liquidator in electronic means in Form D of Schedule II.

(2) The existence of debt due to the financial creditor may be proved on the basis of -

(a) the records available in an information utility, if any; or

(b) other relevant documents which adequately establish the debt, including any or all of the following; -

(i) a financial contract supported by financial statements as evidence of the debt;

(ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor;

(iii) financial statements showing that the debt has not been repaid; and Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 8 of 16

(iv) an order of a Court or tribunal that has adjudicated upon the non-payment of a debt, if any.

11. The relevant provisions of IBC are as follows: -

21-A Presumption of security interest

xx xx xx

(2) Where a secured creditor proceeds to realize its security interest, it shall pay

(a) as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53, as it would have shared in case it had relinquished the security interest, to the liquidator within ninety days from the liquidation commencement date;

xx xx xx

53. Distribution of assets. -

xx xx xx

(3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction.

Explanation. - For the purpose of this section-

(i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and

(ii) (ii) the term "workmen's dues" shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013 (18 of 2013).

12. It is noted that the liquidator, who is responsible for

preservation and protection of the assets in the liquidation estate, Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 9 of 16 exchanged email communications starting with an e-mail dated

2.10.2019 (emails attached at pp.45-48 of the appeal paperbook) to

both Appellant/Hero Fincorp and United Bank of India, under

whose charges the vessels Tag 22 and Tag 6 were held respectively,

that the two vessels have come close to each other and may come

into contact leading to potential damage, whereupon vide e-mail

dated 3.10.2019 (attached at pg. 45 of the appeal paperbook) the

Appellant communicated its unreserved willingness to contribute

funding needed for securing Tag 22 and also requested the

liquidator to undertake the securing operation. Again, vide e-mail

dated 4.10.2019, the Appellant expressed its willingness to

contribute 50% of the funds required for securing the two vessels

Tag 22 and Tag 6. The order portion in the Impugned Order is as

follows:-

"The application be and the same is allowed in part. The applicant may opt out of the liquidation estate u/s 52 of the Code subject to clearance of proportionate CIRP costs and payment of the expenses incurred by the liquidator in securing m.v. TAG 22 in order to prevent the collision. No costs."

(emphasis supplied)

Thus, it is clear that proportionate CIRP cost and payment of

expenses incurred by the liquidator in securing m.v. Tag-22 has

been ordered by the Adjudicating Authority which has to be paid by

the Appellant.

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 10 of 16

13. The Adjudicating Authority has noticed in para 4 of the

Impugned Order that the Appellant filed Commercial and Admiralty

Suit before the Hon'ble Bombay High Court for invoking the

admiralty jurisdiction and realising its security interest. Relevant

part of the Impugned Order is as follows: -

"4. .......... The statutory remedy available to vessel mortgagee (applicant) has already been invoked under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 prior to the commencement of CIRP of the Corporate Debtor. Commercial admiralty Suit (L) 51 of 2019 was filed before the Hon'ble Bombay High Court wherein one of the vessels i.e. m.v. TAG 22 was arrested by an order dated 18.03.2019 and its auction/sale was ordered on 23.04.2019. The applicant has also filed Commercial Admiralty Suit 2 of 2019 before the Hon'ble High court of Andhra Pradesh and the other vessel i.e. m.v. TAG 21 was arrested by an order dated 28.03.2019. Through this letter, it was also stated that the vessels m.v. TAG 21 and m.v. Tag 22 are under exclusive charge of the applicant and appropriate statutory remedies were also adopted to redeem the charge."

14. Thus, the Appellant had invoked Admiralty Jurisdiction under

the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act,

2017 vide Commercial and Admiralty Suit No. (L- 51 of 2019), Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 11 of 16 whereupon an order for 'arrest' of the vessel was given by the Hon'ble

Bombay High Court on 18.3.2019 and its auction/sale was ordered

on 23.4.2019. The CIRP of the Corporate Debtor/Tag Offshore

Limited was initiated vide order dated 24.4.2019 of the Adjudicating

Authority, which was more than one month after the Appellant had

invoked the Admiralty Jurisdiction of the Hon'ble Bombay High

Court for securing and realizing its charge in the vessel Tag 22.

15. It is also noted by us that the actions relating to protection

and preservation of two vessels Tag 22 and Tag 6 were taken by the

liquidator during the period 3rd to 5th October, 2019, as is clear from

the e-mails exchanged between the charge holders of two vessels,

namely United Bank of India and Hero Fincorp and the liquidator

(emails attached at pp. 45-48 of appeal paperbook) and also from

the tax invoice submitted by K.E. Salvage (attached at pg. 49 of the

appeal paperbook). Therefore, the action relating to securing the

two vessels was taken much after the Appellant had obtained order

from the Bombay High Court under its Admiralty Jurisdiction on

18.3.2019 and 23.4.2019 and therefore the vessel Tag 22 had

become the 'asset' of the Appellant. Thus, it is clear the any action

taken thereafter for securing the vessel Tag 22 was undertaken by

the liquidator with the explicit consent of the Appellant/Hero

Fincorp in pursuance of Hero Fincorp's interest in protecting and

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 12 of 16 preserving its asset Tag 22, and the action being taken for

liquidation of the Corporate Debtor is under the provisions of the

IBC. Moreover, the security interest of the Appellant in its charge

vessel Tag 22 is being realised under section 52(1)(b) of the IBC.

Therefore, we do not think it is relevant in this case that the

liquidator's vendor K.E. Salvage should await orders of the Hon'ble

Bombay High Court for payment of its claim from the sale proceeds

of vessel Tag 22. We are of the clear opinion that the payment of

salvaging operation should be made without awaiting the orders

under the Admiralty Jurisdiction, as it is the responsibility of the

Appellant, on whose request the securing operation for Tag 22 was

undertaken by the liquidator.

16. Regulations 16 and 18 of the Liquidation Process Regulations

enjoin upon the creditors to file their claim before the liquidator in

a prescribed time period. In the present case, the financial creditor

Hero Fincorp Limited did not file its claim before the liquidator

ostensibly because it wanted to realise its security interest in the

vessel Tag 22. Later, after it was able to secure its charge in vessel

Tag 22, the Appellant sent notice on 9.10.2019 to the liquidator

regarding its intention to keep its charge of Tag 22 out of the

liquidation estate and process. The Appellant obtained orders for

auction/sale of vessel Tag 22 on 23.4.2019, which was much before

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 13 of 16 the initiation of CIRP of the Corporate Debtor and order for its

liquidation was passed by the Adjudicating Authority on 26.9.2019.

Therefore, even though the Appellant gave notice for keeping its

charge of the Vessel Tag 22 out of the liquidation process on a later

date, it had already initiated process for statutory remedy available

to it as mortgagee before Hon'ble Bombay High Court under the

Admiralty (Jurisdiction and Settlement of Maritime Claims) Act,

2017 in March, 2019 (vide Admiralty Suit (L) 51 of 2019).

17. It is noted that after receiving the Impugned Order on

6.2.2020, the Appellant waited for almost seven months before filing

this appeal on 17.9.2020. We also note that the Appellant has

already taken action in pursuance of the Impugned Order by opting

out of the liquidation process and keeping vessel Tag 22 out of the

liquidation assets.

18. We thus find that the liquidator took action after receiving

consent from the Appellant for preservation and protection of vessel

Tag 22 during 3rd - 5th October, 2019 much after the Appellant had

invoked Admiralty Jurisdiction of Hon'ble Bombay High Court to

realise its security charge in vessel Tag 22. Subsequently, when

invoice received from K.E. Salvage Company was sent for payment

to the Appellant by the liquidator, the Appellant went for litigation

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 14 of 16 against making payment of said invoice. We do not consider this

action of the Appellant logical and in accordance with the actions

taken by it to realise its charge in Tag 22. We, therefore, do not find

any error in the Impugned Order regarding payment to be made by

the Appellant, of its proportionate share in the expenses incurred in

securing vessel Tag 22 alongwith securing vessel Tag 6.

19. We are also of the view that even after the salvage operation

undertaken during 3rd - 5th October, 2019, the Appellant has not

only refused to pay the cost of securing and protecting the vessel

Tag 22 and has engaged the liquidator in protracted litigation. We

note that the action taken by the liquidator in protecting and

preserving Tag 22 was for the benefit of the Appellant and the

litigation undertaken by the Appellant caused expenditure which

has ultimately cut into the value of the liquidation estate, thereby

affecting the financial interest of the creditors/stakeholders. We,

therefore, order that the Appellant shall pay a cost of Rs. One Lakh

as litigation expenses to the liquidator, which shall go into the

liquidation estate. Both, the proportional share of the Appellant in

securing the two vessels Tag 22 and Tag 6 and the litigation cost

shall be paid by the Appellant within 15 days of this judgment.

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 15 of 16

20. In view of the discussion in above paragraphs, the appeal is

found to be devoid of any merit and is, therefore, dismissed with the

directions as above.

(Justice Ashok Bhushan) Chairperson

(Dr. Alok Srivastava) Member (Technical)

(Ms. Shreesha Merla) Member (Technical

New Delhi 29th April, 2022

/aks/

Company Appeal (AT) (Insolvency) No. 908 of 2020 Page 16 of 16