Iffco Tokio General Insurance Co. Ltd vs Cox & Kings Ltd

National Company Law Appellate Tribunal Principal Bench, New Delhi COMPANY APPEAL (AT) (INSOLVENCY) No. 208 of 2022 (Arising out of Order dated 16th December, 2021 passed by National Company Law Tribunal, Court 3, Mumbai Bench, in I.A. 513/2020 in C.P. (IB) No.- 2640/2019).

IN THE MATTER OF:

M/s. IFFCO Tokio General Insurance Co. Ltd. A Public Limited Company incorporated under the provisions of Companies Act, 1956.

Having its Registered Address at IFFCO Sadan, C1 Distt. Center, Saket, New Delhi - 110017 & Corporate Office at IFFCO Tower, Plot No. 03, Sector 29, Gurugram, Haryana - 122001. ...Appellant

Versus

1. M/s. Cox and Kings Ltd. A Public listed Company incorporated under the provisions of Companies Act, 1956.

Having its Registered Address at Unit No. 313, 3rd Floor, Turf Estate, Mahalaxmi, Mumbai- 400 011. ...Respondent No. 1

2. Rattan India Finance Pvt. Ltd. A Public listed Company incorporated under the provisions of Companies Act, 1956.

Having its Registered Address at 5th Floor, Tower-B, Worldmark-1, Aerocity, New Delhi- 110037 ...Respondent No. 2

For Appellant: Mr. Abhijeet Sinha, Mr. Nihal Saikh and Mr. Rohan Kaushal, Advocates.

For Respondent No. 1: Mr. Pulkitesh Tiwari, Mr. Nausher Kohli, Mr. Bency Ramakrishnan and Mr. Akash Menon, Advocates for R-1. JUDGEMENT

[Per; Shreesha Merla, Member (T)]

1. Challenge in this Appeal is to the Impugned Order dated 16.12.2021

passed by the Learned Adjudicating Authority (National Company Law

Tribunal, Court 3, Mumbai Bench), whereby MA No. 513 of 2020 filed by the

Appellant in C.P. (IB) No.-2640/2019 was dismissed. The said MA was filed

seeking a direction to the Insolvency Resolution Professional ('IRP') to treat

the Applicant's Claim as 'Assets in Trust' in accordance with Section 18(1)(f)

of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'The

Code').

2. Succinctly put, the facts in brief are that the International Air Transport

Association (hereinafter referred to as 'IATA'), had obtained an Insurance

Policy from M/s. IFFCO Tokio General Insurance Company Limited

(hereinafter referred to as 'IFFCO Tokio'), for covering any default committed

by its Agents, one such Agent being M/s. Cox and Kings Limited (hereinafter

referred to as the 'Corporate Debtor'). It is stated that due to the default

committed by the 'Corporate Debtor', IATA submitted the Insurance Claim to

IFFCO Tokio for an amount of Rs.83 Crores/- covered under the policy. IFFCO

Tokio made the payment to IATA on 01.11.2019 and settled the claim amount.

Vide letter dated 01.11.2019, i.e., on the same day, IFFCO Tokio was

subrogated and sought to recover the 'Claim' amount. It is averred by the

Applicant that as per Clause 7.2 of the Agreement, the said outstanding

amount of Rs. 83 Crores/- be classified as 'Asset in Trust' as defined under

Section 18(f) of the Code. The Learned Adjudicating Authority dismissed the

I.A. holding as follows:

-2-

Company Appeal (AT) (Insolvency) No. 208 of 2022 "....3(11) "debt" means a liability or obligation in respect of claim which is due from any person and includes a financial debt and operational debt;

Further, since the purpose of the Agreement was to provide Air Passenger Transport on the services of the 'Carrier's of IATA as per Clause 3.1 of the Agreement, the claim of IFFCO Tokio would come under Section 5(21) of the Code which defines Operational Debt as "a claim in respect of the provisions of goods or services ....... "

7. The Bench also notes that the Applicant, i.e. IFFCO Tokio, has already filed its claim as an Operational Creditor. The essence of the underlying Agreement was to provide air services and, therefore, subsequent to commencement of Corporate Insolvency Resolution Process, as per Clause 7.2 of the Agreement, the monies owned to the 'Carrier' has become an 'Operational debt' under Section 5(21) of the Code.

8. In view of the above, the Bench 'rejects' the claim of the Applicant that money due from the Corporate Debtor is held as an asset held in trust u/s 18(f) of the Code. Therefore, this Application deserves to be dismissed."

3. Submissions of the Learned Counsel appearing on behalf of the

Appellant:

• It is submitted that IATA entered into a Passenger Sales Agency

Agreement (hereinafter referred to as 'The Agreement') on 20.08.2010

with the 'Corporate Debtor' as per the terms of which, the 'Corporate

Debtor' was authorised to sell Air Passenger Transportation on the

services of IATA and on the services of other Air 'Carrier's as authorised

by IATA. Each IATA Member was referred to as a 'Carrier' which

appointed the 'Agent' and is represented by the Director General of IATA

acting for and on behalf of such IATA Members. On commencing of the

services by the 'Corporate Debtor' under the Agreement, various

invoices were issued by IATA from time to time. As the 'Corporate

-3- Company Appeal (AT) (Insolvency) No. 208 of 2022 Debtor' failed to remit the dues commencing from 03.06.2019, IATA

terminated the Agreement vide letter dated 24.09.2019, with immediate

effect.

• By virtue of the Insurance Policy obtained by IATA covering the period

01.07.2018 to 30.06.2019 for any default committed by its Agents, on

the default committed by the 'Corporate Debtor', IATA had submitted

the 'Claim' amount of Rs.83,16,80,230/-, which was settled by IFFCO

Tokio. IATA submitted a letter of subrogation dated 01.11.2019 to the

Appellant, authorising the Appellant to prosecute the 'Corporate Debtor'

for recovering the outstanding dues.

• The Appellant on coming to know that Mr. Alok Kumar Agarwal was

appointed as the IRP, mistakenly filed its 'Claim' before the IRP as an

'Operational Creditor' on 06.11.2019.

• Learned Counsel placed reliance on Clause 7.2 of the Agreement in

support of the Appellant's case that the amount collected under the

Agreement is to be held in trust and these monies are not the assets of

the 'Corporate Debtor'. Therefore, they cannot form part of the assets of

the 'Corporate Debtor' for the purpose of Liquidation as per the

mechanism under the Code and are required to be paid over to the party

for whom they are being held under trust. The relevant portion of the

Clause is extracted as hereunder:

"7.2. all monies collected by the Agent for transportation and ancillary services sold under the Agreement including applicable remuneration which the Agent is entitled to claim thereunder, are the property of the 'Carrier' and must be held by the Agent in trust for the 'Carrier' or on behalf of the 'Carrier' until satisfactorily accounted for the 'Carrier' and settlement

-4- Company Appeal (AT) (Insolvency) No. 208 of 2022 made."

• As per Clause 3 of the Agreement, the 'Corporate Debtor' was

authorised to sell the Air Passenger Transportation on behalf of the

'Carrier' i.e., each IATA Member which is represented by the Director

General of IATA acting for and on behalf of such IATA Members, and

subsequently the 'Corporate Debtor' was required to collect the money

on behalf of the 'Carrier' and these collected amounts were to be kept

in trust by the 'Corporate Debtor' as per Clause 7.2 of the Agreement.

Therefore, vide letter dated 07.01.2020, the Appellant requested the IRP

to consider the Appellant's claim as 'Assets held in Trust' are not as

claim of 'Operational Creditor', but did not receive any response for the

said letter and hence filed MA No.513/2020.

• The Learned Counsel drew our attention to Section 18(1)(f) of the Code

which reads as hereunder:

"18. Duties of interim resolution professional.--The interim resolution professional shall perform the following duties, namely:--

(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including--

(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;

(ii) assets that may or may not be in possession of the corporate debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

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(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;

(vi) assets subject to the determination of ownership by a court or authority;"

• It is strenuously contended that the explanation of Section 18 specifies

that assets owed by third party in possession of the 'Corporate Debtor'

held under trust or under contractual arrangements including

bailment, which provides for an exception to the assets which the IRP

cannot take action. It is submitted that neither the RP nor the

Liquidator can have control over the assets which are owed by third-

party and in possession of the 'Corporate Debtor'.

• The Learned Counsel placed reliance on the following Judgements in

support of his case:

o 'Weather Makers Pvt. Ltd.' Vs. 'Parabolic Drugs Ltd.', [CA

206/2019] in CP 1028/CHD/2018]

o 'Bharti Airtel Ltd. and Ors.' Vs. 'Vijaykum V. Iyer', [MA 230/2019

in CP No. 302/IBC/NCLT/MB/MAH/2018 and MA 219/2019 in

CP No. 298/IBC/NCLT/MB/MAH/2018], Para 22.2 has observed

as follows:

"22.2 The above view is also to be examined in the light of few other provisions of the Code which are in operation during Corporate Insolvency Resolution Process. One of such Section is 18(1)(f) of The Insolvency Code wherein it is prescribed the duties of IP and one of them is to take control and custody of any asset over which the Corporate Debtor has ownership rights as recorded in the Balance Sheet of the Corporate Debtor, whether that asset may or may not be in possession of the Corporate Debtor. So the general rule is that the IP is supposed to take control over all the assets of a Corporate Debtor

-6- Company Appeal (AT) (Insolvency) No. 208 of 2022 having ownership rights. This is only one part of the coin and naturally the other part of the coin ought not to be ignored. Both the facets of a coin are equally important. Rather, one face coin is of no value. Likewise, a Balance Sheet is incomplete if not demonstrating assets as well as liabilities. Likewise, an account cannot be settled without accounting the credit entry as well as the debit entry. Therefore, an exception is carved out in Section 18(1)(f) that certain assets shall not be included while taking action U/s.18(1)(f) of The Code. The Explanation below section 18 reads as follows:-

(a) "assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment,

(b) assets of any Indian or foreign subsidiary of the corporate debtor; and

(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator."

The purpose of insertion of this explanation is obvious that assets of any nature must not be forced to put under control of the Resolution Professional. An asset owned by a Third party in possession of a Corporate Debtor held under trust or under contractual arrangement shall not be affected by Sub-Section (f).

Therefore, the Resolution Professional can take control/ custody over an asset belonging to or in possession of the Corporate Debtor but the exception is that if an asset, although in possession of the Corporate Debtor but held under trust or under contractual arrangement shall not be taken over by the Resolution Professional. This provision of the Code is squarely applicable on the present situation that a sum of 2112 Crores, although said to be under ownership of the Corporate Debtor, but the right is arising out of a contractual arrangement. Unpaid invoices are nothing but in the nature of a contractual obligation emerging from the services provided. The unpaid invoices are the asset of the Operational Creditor i.e., Artel Entities, although not in direct control/ possession of the Corporate Debtor but out of the ambits of Section 18(1)(f),

-7- Company Appeal (AT) (Insolvency) No. 208 of 2022 being an asset under contractual obligation of payment by the Corporate Debtor to the Operational Creditor. Interestingly, the language of Explanation (a) and the language of Section 14(1)(d) are very much identical. On co-joint reading of these two sections a message is conveyed that if an asset is in possession of the Corporate Debtor then in spite of the applicability of "Moratorium", if that asset came into existence out of a contractual obligation then set-off or adjustment is required to be allowed so that the Resolution Professional be not entitled to take control over such an asset. In the recent past a problem was posed to NCLT, Chandigarh Bench in the case of Weather Makers Pvt. Ltd. V/s.

Parabolic Drugs Ltd. [CA 206/2019 in CP 102/CHD/2018], order dated 26.04.2019, that a perishable stock is supplied to the Corporate Debtor hence in possession of the Resolution Professional, who has denied to return the said stock back to the claimant on the ground of commencement of "Moratorium" but the NCLT Bench, Chandigarh has taken a view that an adjustment has to be allowed because the said stock was under 'contractual arrangement' in possession of the Corporate Debtor, therefore, out of the ambits of 'Moratorium' so that the said stock be returned to its actual owner. Therefore, a conclusion can be drawn that even during CIRP a question of set-off or netting off or adjustment can be raised either by the Creditor or by the Debtor which is permissible and to be adjudicated upon."

(Emphasis Supplied)

o 'M/s. Embassy Property Developments Pvt. Ltd.' Vs. 'State of

Karnataka & Ors.', [(2020) 13 SCC 308], in Para 40 it is

observed as follows:

40. If NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(1)(vi) would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority. In fact an asset owned by a third party, but which is in the

-8- Company Appeal (AT) (Insolvency) No. 208 of 2022 possession of the corporate debtor under contractual arrangements, is specifically kept out of the definition of the term "assets" under the Explanation to Section 18. This assumes significance in view of the language used in Sections 18 and 25 in contrast to the language employed in Section 20. Section 18 speaks about the duties of the interim resolution professional and Section 25 speaks about the duties of resolution professional. These two provisions use the word "assets" while Section 20(1) uses the word "property" together with the word "value", Sections 18 and 25 do not use the expression "property'. Another important aspect is that under Section 25(2)(b) of the IBC, 2016, the resolution professional is obliged to represent and act on behalf of the corporate debtor with third parties and exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. Sections 25(1) and 25(2) (b) reads as follows:

"25. Duties of resolution professional.(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.

(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions:

(a) * * *

(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-

judicial and arbitration proceedings;"

This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5).

o In 'Sarvandnya Industries Pvt. Ltd.' Vs. 'Khandoba

Prasanna Sakhar Karkhana Ltd. & Anr.', [2019 SCC OnLine

-9- Company Appeal (AT) (Insolvency) No. 208 of 2022 NCLAT 1302], the Hon'ble Apex Court in Paras 6-8 has observed

as hereunder:

"6. Learned Resolution Professional present also states that the machinery is owned by the appellant and it is stated that before CIRP proceedings started the machinery was attached by Janata Sahkari Bank Limited invoking "The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002" and thus, although the machinery is the owned by appellant it is in legal possession of the Janata Sahkari Bank Limited though physically machinery is in the premises of the Corporate Debtor.

7. Both sides agree that as per explanation below Section 18 of Insolvency and Bankruptcy Code, 2016, the plant is owned by appellant and thus does not belong to the Corporate Debtor and is thus owned by third party, i.e. The Appellant.

8. As such we direct that the possession of the plant machinery shall be restored to the appellant through Janata Sahkari Bank Limited, Pune. The respondents will act accordingly. The appeal is accordingly disposed of. The claim of the Janata Sahkari Bank Limited with regard to the legal possession of the plant is left open and not disturbed, for the bank to take appropriate action under the provisions of law."

• It is contended that the Adjudicating Authority has erroneously relied

upon Clause 7.4 of the Agreement which stipulates that it can be

invoked only after the Company goes into Liquidation. Liquidation

Process commenced on 16.12.2021 and hence Clause 7.4 could not

have been relied upon. Clause 7.4 is a general provision which shall not

prevail over Clause 7.2 of the Agreement which is a specific provision.

Learned Counsel placed reliance on the Judgement of the Hon'ble

Supreme Court in 'J.K. Cotton Spinning and Weaving Mills Co. Ltd.'

Vs. 'State of Uttar Pradesh & Ors.', [AIR 1961 SC 1170] and Hon'ble

-10- Company Appeal (AT) (Insolvency) No. 208 of 2022 Delhi High Court in 'Harish Kumar Sikka' Vs. 'Union of India',

[2007 SCC OnLine Del 1339] to buttress his argument that 'in cases

of conflict between a specific provision and a general provision the

specific provision prevails over the general provision and the general

provision applies only to such case which are not covered by the special

provision'.

• The 'Corporate Debtor' is liable to return the money collected by them

on behalf of IATA in trust. It is settled law that even if there is no

separate trust account and the funds are mixed with other funds of

money, equal amount of money shall be handed over to the Appellant.

It is specifically submitted that the RP/liquidator has never disputed

that the Appellant is entitled to the said amount as the 'Claim' filed by

the Appellant in Form 'B' (proof of Claim) has been unconditionally

accepted by the Resolution Professional. As the money collected by the

'Corporate Debtor' does not form part of the asset but is merely held in

trust, it is submitted that the RP/Liquidator cannot take

control/custody of the Appellant's claim amount of

Rs.83,16,80,230/-.

4. Submissions of the Learned Counsel appearing on behalf of the

Respondents:

• It is strenuously contended by the Learned Counsel for the first

Respondent, that the Appellant was not a party to the Passenger Sales

Agency Agreement and, therefore, does not have the locus to file this

Appeal and hence this Appeal is not maintainable. The parties to the

Agreement were the 'Corporate Debtor' and individual Airline 'Carriers'

-11- Company Appeal (AT) (Insolvency) No. 208 of 2022 who are Members of the IATA. Rights under Clause 7.2, 7.4 of the

Agreement are available only to 'Carrier's i.e., the individual Airlines

and not the IATA.

• The claim of the Appellant qualifies as 'debt' under Section 3(11) of the

Code and hence the Adjudicating Authority has rightly relied upon

Clause 7.4 of the Agreement. The liability incurred by the Company in

terms of Clauses 7.1 and 7.4 of the Agreement are only in the nature of

the 'debt' owed by the Company to the Appellant and falls squarely

within the definition of debt under Section 3(11) of the Code.

• The reliefs claimed by the Appellant are in violation of Section 14(1)(b)

and Section 14(1)(d) of the Moratorium which restrict transferring

alienating or disposing of by the 'Corporate Debtor' any of assets or any

legal right or beneficial interest therein. Further any payments made to

the Appellant would also be in violation of the security interest/charge

held by the 'Financial Creditors' of the Company over its Movable Assets

including cash and Bank balance. If any dues were made to the

Appellant, it would be contrary to the scheme of Code as it would enable

the Appellant to take advantage over all the existing 'Secured Financial

Creditors' and 'Operational Creditors'.

• The Insolvency and Bankruptcy Board of India Regulation for Corporate

Persons 2016 (CIRP Regulations) do not contain any specific exclusion

against applicability of Section 14 vis-a-vis third party asset. However,

such an exclusion has been expressly provided for in Rule 10 of the

Insolvency and Bankruptcy (Insolvency and Regulation Proceedings of

Financial Service Providers and Application to the Adjudicating

-12- Company Appeal (AT) (Insolvency) No. 208 of 2022 Authority) Rules, 2019 (FSP Rules). In the event the intent of the

Legislature was to provide such an exception to 'Corporate Debtor'

undergoing CIRP, a similar provision would have been inserted in the

CIRP Regulations as well. The relevant portions of the FSP Rules are

being reproduced as hereunder:

"...10. Assets of third parties, etc. - (1) For removal of doubts, it is clarified that the provisions of clause (b) of rule 5 and Section 14 shall not apply to any third-party assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties."

• It is contended that the Appellant has failed to establish any Security

Interest over the amount of Rs.83 Crores/- and has also not established

its 'Claim' of ownership over the same and hence the interpretation of

the Appellant to the explanation to Section 18 of the Code, is erroneous.

• It is submitted that in terms of the Insurance Policy issued by the

Appellant, in an operation having Reported Sales as their payment

model, the full billing amount was settled to the Participants (i.e., the

IATA Members) irrespective of funds collected by the Agent (i.e., the

'Corporate Debtor'). Any shortfall is covered by a credit or overdraft

facility provided by a clearing bank through a hinge account. Any

recovery of shortfall from Agent (i.e., the 'Corporate Debtor') will

immediately follow after the Settlement. In the present case, the

payment of approximately Rs.83 Crores/- made by the Appellant to

IATA is basis the sales reported by the 'Corporate Debtor' and not the

actual funds received by the 'Corporate Debtor'. Therefore, the

Appellant's assertion that an amount of approximately Rs.83 Crores/-

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Company Appeal (AT) (Insolvency) No. 208 of 2022 was actually received by the 'Corporate Debtor' and was being held in

trust by it for the Appellant/IATA has no factual basis.

• The Appellant filed a claim as an 'Operational Creditor' and

subsequently sought to argue that the monies are held in trust and

moreover the Appellant in IATA did not take any action to recover the

assets allegedly held in trust prior to the initiation of the CIRP. The

Company initiated proceedings to invoke a Bank Guarantee provided

by the Company. It is further submitted that Clause 7 of the Agreement

does not lead to any creation of trust. It is merely a Contract of Agency

and declaration or settlement of any trust is nowhere envisaged under

the Agreement. Therefore, a valid trust has never been created under

the provisions of Indian Trust Act, 1882.

Assessment:

5. The main case of the Appellant is that the entire amount of

Rs.83,16,80,230/- payable to the Appellant on the premises that the amount

collected by the 'Corporate Debtor' on behalf of the 'Carrier'/IATA, in whose

place, the Appellant has been subrogated, constitutes, 'Asset held in Trust' in

terms of explanation A to Section 18 (f) of the Code. It is the main case of the

Appellant that as per Section 18(f) of the Code, the IRP can take control and

custody of the assets over which the 'Corporate Debtor' has Ownership Rights

as recorded in the Balance Sheet. The explanation to Section 18(1)(f) provides

that an asset owed by a third party in possession of the 'Corporate Debtor',

held under trust, or contractual arrangement including bailment, cannot be

taken into custody. Therefore, the moot question which arises in this Appeal

is whether the amount collected by the 'Corporate Debtor' on behalf of the

-14- Company Appeal (AT) (Insolvency) No. 208 of 2022 'Carrier' is essentially 'goods held in trust' which can be recovered by the

Appellant herein who stood subrogated.

6. The parties have placed reliance on Clauses 7.2 and 7.4 of the

Agreement which read as follows:

"7.2. all monies collected by the Agent for transportation and ancillary services sold under the Agreement including applicable remuneration which the Agent is entitled to claim thereunder, are the property of the 'Carrier' and must be held by the Agent in trust for the 'Carrier' or on behalf of the 'Carrier' until satisfactorily accounted for the 'Carrier' and settlement made;

7.4. in the event that the Agent becomes the subject of bankruptcy proceedings, is placed in receivership or judicial administration, goes into liquidation or becomes subject to a similar legal process affecting the normal operation of the Agent, notwithstanding the normal remittance procedures under this Agreement, all monies due to the 'Carrier' or held on behalf of the 'Carrier' in connection with this Agreement shall become immediately due and payable."

7. Clause 7.4 is invoked when the Agent becomes the subject of

Bankruptcy Proceedings, or becomes subject to a similar legal process.

Resultantly, any amount due and payable under Clause 7.2 becomes payable

from the CIRP date. In the present case, the CIRP commenced on 22.10.2019

and Clause 7.4 of the Agreement becomes operable from the said date due to

which all amounts collected by the 'Corporate Debtor' on behalf of the 'Carrier'

is crystallised as a 'debt' 'due and payable' to IATA as on 22.10.2019. The

phrase 'notwithstanding the normal remittance procedure under this

Agreement' indicates that Clause 7.4 of the Agreement overrides Clause 7.2

and therefore we are of the view that the contention of the Learned Counsel

for the Appellant that Clause 7.4 of the Agreement is 'unworkable' as on the

date of passing of the Impugned Order i.e., 16.12.2021, is unsustainable.

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Company Appeal (AT) (Insolvency) No. 208 of 2022

8. Clause 7.2 of the Agreement does not declare 'any trust property' with

any certainty as the subject matter of the trust is defined as 'all monies

collected by the Agent from Transportation and Ancillary Services sold under

this Agreement'. We find force in the contention of the Learned Counsel for

the first Respondent that as the 'Corporate Debtor' did not maintain any

separate Bank Account for receiving remittances under Clause 7.2 of the

Agreement, these remittances in the usual Bank Account of the 'Corporate

Debtor' was used for transaction with all third parties and not only per se in

respect of transactions under the Agreement. It is relevant to note that there

was no prior demarcation as to which of the amounts were received under the

terms of the Agreement and which amount was received on account of other

transactions of the 'Corporate Debtor'.

9. Having regard to the facts and circumstances of the attendant case on

hand, in the absence of any separate trust account and specifically in the

absence of any specific segregation/demarcation of the amount collected by

the 'Corporate Debtor' under the terms of the Agreement, we are of the

considered view that no trust can be said to have come into the existence in

favour of the 'Carrier' in the present case as the goods that are said to be held

in trust is the 'Money'/amounts collected by the 'Corporate Debtor'. There is

no documentary evidence on record to establish that any steps were taken for

creation of any separate trust account by the parties to the Agreement.

Further, we are also conscious of the fact that the Appellant or the 'Carrier'

did not take any action to recover the assets which they are claiming today

prior to the initiation of the CIRP i.e., prior to 21.10.2019. We hold that Clause

7.4 is a non-obstante Clause and operates 'notwithstanding the normal

-16- Company Appeal (AT) (Insolvency) No. 208 of 2022 remittance procedures under this Agreement', thereby superseding/overruling

the provisions of Clause 7.2. A perusal of the Agreement also shows that

'Carrier' means each individual IATA Member and not the IATA itself.

Therefore, it cannot be construed that a trust could have been created by IATA

itself under Clause 7.2 of the Agreement as it cannot be presumed that all

individual IATA Members have intended to create this 'trust' under this

Clause. At the cost of repetition, the contention of the Appellant Counsel that

Clause 7.4 of the Agreement was 'unworkable', is untenable.

10. Further any payments made to the Appellant would be in violation of

the Moratorium imposed in terms of Section 14(1)(b) and Section 14(1)(d) of

the Code which restrict transferring, encumbering, alienating or disposing of

by the 'Corporate Debtor' any of its assets or any Legal Right or Beneficiary

Interest therein. Any payments to the Appellant would be in contravention of

the Security Interest held by the 'Financial Creditors' of the Company over its

Movable Assets, including cash and Bank balance. It could be safely said that

the amount held by the 'Corporate Debtor' on behalf of the Appellant form a

part of the cash and Bank balance and therefore no amount can be paid

during moratorium as it would give an undue advantage to the Appellant over

and above the other Creditors.

11. Clause 9 of the Agreement refers to 'Remuneration' which reads as

follows:

"For the sale of air transportation and ancillary services by the Agent under this Agreement the Carrier shall remunerate the Agent in a manner and amount as may be stated from time to time and communicated to the Agent by the Carrier. Such remuneration shall constitute full compensation for the services rendered to the Carrier."

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Company Appeal (AT) (Insolvency) No. 208 of 2022

12. This Clause indicates that the 'Corporate Debtor' was providing the

service of 'Sale of Air Transportation and Ancillary Services' to IATA for which

the 'Corporate Debtor' was entitled to be remunerated by IATA. Therefore, it

can be safely construed that the amount owed by the 'Corporate Debtor' to

IATA/Appellant is an 'Operational Debt'. The 'Corporate Debtor' was providing

services to the IATA and being a service provider to other customers also, all

claims are required to be filed before the IRP in their capacity as 'Operational

Creditor'. Section 3(11) of the Code defines 'debt' as follows:

"3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;"

13. At the cost of repetition, merely because Clause 7.2 of the Agreement

states that the property of the 'Carrier' must be held by the Agent in trust over

the 'Carrier' does not lead to an understanding that the money in fact is to be

held by the Company in trust for the 'Carrier'/IATA. If this is to be strictly

interpreted, and if that was the truest intention of the parties, a separate trust

account would have been opened to earmark the amounts received by the

'Corporate Debtor' in terms of Clause 7.2 of the Agreement, which in the

instant case is admittedly not done. This provision in the Clause is only for

defining the accountability of the 'Corporate Debtor'/Agent to the

'Carrier'/IATA for the amounts received or collected on behalf of the latter and

prevent any misuse of such amounts. Therefore, we are of the considered view

that the explanation to Section 18(f) of the Code is not applicable and hence

the Judgements relied upon by the Learned Counsel for the Appellant are not

relevant to the facts of this case. There should be harmonious interpretation

of both the Clauses and we hold that the Adjudicating Authority has rightly

-18- Company Appeal (AT) (Insolvency) No. 208 of 2022 relied on Clause 7.4 of the Agreement which states that from the moment the

'Corporate Debtor' goes into Insolvency, the money held by it on behalf of the

'Carrier' would be crystallized as a 'debt' which is 'due and payable' by the

'Corporate Debtor' and classified the Claim of the Appellant to be an

'Operational Debt' under Section 5(21) of the Code. It is also relevant to

mention that Moratorium under Section 14(1)(b) was imposed on 22.10.2019

and recovery of any such money which is in possession of the 'Corporate

Debtor is prohibited.

14. Hence, this Appeal fails and is accordingly dismissed. No Order as to

costs.

[Justice Ashok Bhushan] Chairperson

[Ms. Shreesha Merla] Member (Technical) NEW DELHI 26th August, 2022 Himanshu

-19- Company Appeal (AT) (Insolvency) No. 208 of 2022