Indian Oil Corporation Ltd vs Ashish Arjun Kumar Rathi

(Arising out of Order dated 26.08.2019) passed by the National Company Law Tribunal, Chennai Bench in MA/791/2019 in CP/665/IB/CB/2017)

IN THE MATTER OF:

Indian Oil Corporation Ltd. No. 3-6-436 to 438 IInd and IIIrd Floor, Naspur House Himayat Nagar, Hyderabad - 500029. ...Appellant

Versus

Mr. Ashish Arjun Kumar Rathi, Liquidator of SBQ Steels Pvt. Ltd., C/o BDO India LLP 5th Floor, Main Building Guna Complex, New No. 443 and 445 (Old No. 304 and 305), Mount Road, Teynampet, Chennai - 600018. ...Respondent

Present:

For the Appellant: Mr. Neeraj Malhotra, Senior Advocate with Mrs. Priya Puri and Mr. Yati Sharma, Advocates

For the Respondent: Mr. Tushar Bhushan and Mr. Pawan Bhushan, Advocates

J U D G M E N T

VENUGOPAL M.J.

The Appellant/Operational Creditor (Applicant) has preferred the instant

Company Appeal (AT) (ins)No. 1116 of 2019 being aggrieved against the order dated

Company Appeal (AT)(INS) No.1116 of 2019 1 26.08.2019 in M.A No. 791/2019 in CP/665/IB/2017 passed by the Adjudicating

Authority ('National Company Law Tribunal') Chennai.

2. The Adjudicating Authority ('National Company Law Tribunal') Chennai while

passing the impugned order dated 26.08.2019 at para 8 to 11 had observed the

following :

"8. Now the point for determination

is as to whether this Applicant is

entitled to claim which is claimed as

damages and compensation for Rs.

2.35 Crores and interest portion for Rs.

2.90 Crores.

9. The Corporate Debtor has never

agreed to pay towards these two

components rejected by the Liquidator,

whereby we are of the view that this

Applicant is not entitled to claim

anything that has not been crystallized

in the agreement and that has not been

agreed between the parties, therefore,

we are of the view that this Liquidator

has rightly rejected those two claims.

10. As to the second point i.e. not

mentioning about the reasons for Company Appeal (AT)(INS) No.1116 of 2019 2 rejection of those two claims, it is true

that the Liquidator has not given

reasons in detail, but that does not

mean reasons are not given.

Moreover, if the claim of the Applicant is

ascertainable, then only the question of

considering it as claim will arise. In this

case, as to the above two components

of claims raised by the Applicant, they

are rejected on the ground no covenant

has been arrived at over these two

claims. When claim itself not claimable,

for the sake of giving reasons in detail,

that procedure is required to be

repeated. For the Applicant has failed

to place any material reflecting that this

Corporate Debtor is obliged to pay on

these two counts, we are of the view

that not giving any reasons in detail

cannot become a ground for

invalidating the claim already

considered and rejected by the

Liquidator.

Company Appeal (AT)(INS) No.1116 of 2019 3

11. Though the Liquidator has not

clearly mentioned in many words as to

why he has rejected those two claims,

with regard to the component of

investment made in storage facility, he

has mentioned that it is not admissible

based on the information available, as

to interest portion, it has been

categorically mentioned that since there

is no binding agreement between the

parties obligating the Corporate Debtor

company to pay interest, we believe

that reason is more than sufficient for

rejecting the interest component."

and finally dismissed the Miscellaneous Application.

3. The Learned counsel for the Appellant contends that the present appeal is

filed against the impugned order passed by the 'Adjudicating Authority' in two

claims without ascribing any reasons as contemplated under Section 40 of the I&B

Code.

2. It is the stand of the Appellant/Applicant that it entered into an

agreement dated 08.02.2010 with SBQ Steels Limited (Company)

towards supply of furnace oil for a period of 15 years and that the

Company Appeal (AT)(INS) No.1116 of 2019 4 Company had agreed to procure a minimum quantity 10,00- MT of

furnace oil per annum from the 2nd years onwards till 6th year from the

date of upliftment failing which the Company had agreed to compensate

the Appellant at the rate of Rs.2000/- MT of furnace oil. In fact, the

Appellant took on lease a portion of the land from the Company

measuring 1760 sq. mts. for putting up fuel storage facility for a period

of 15 years on an 'Annual Rent' of Rs. 1,000/-. That apart, the

Appellant had installed 70KL horizontal tank and two 286KL vertical

tanks for storage at a cost of Rs. 3,09,17,932.71/-.

4. The Learned counsel for the Appellant comes out with a plea that since the

Company had failed to perform its obligations as per Agreement, the Appellant was

perforced to initiate 'Arbitration proceedings' against the company. Furthermore,

the Insolvency proceedings were initiated against the Company and a 'moratorium'

was issued. Moreover, Form-B as regards the proof of claim was submitted by the

Appellant before the 'Interim Resolution Professional'.

5. It comes to be known that the Company was ordered to be liquidated on

30.01.2019 and that the Appellant submitted its claim to the Liquidator under

Form-C. The Appellant had furnished a Surveyors Report together with its claim

and that the relevant portion of said Report runs as under:

"Storage Tanks:

Storage Tanks - 2Nos at SBQ STEEL

Company Appeal (AT)(INS) No.1116 of 2019 5 Description As per Bills provided by IQCL in the Month of October Year 2010 Value in Rs. (Approx.)

1.MS Steel 7 Mts Dia X CRVT-2 nos of 286 KL Capacity 7.5 Mtr Ht for FO Service Pipe line works etc. with connected Pipe lines

6. The contention of the Appellant is that the 'Liquidator' had rejected the claim

of Appellant amounting to Rs. 2,35,00,000/- towards investment made in the

storage facility and Rs.2,90,00,000/- in respect of interest. As a matter of fact, the

Appellant's claims to the tune of Rs. 9,87,93,000/- was admitted by the Liquidator

as per email dated 23.04.2019 and more importantly, no reasons were assigned for

rejecting the claims on 'Investments' made and for 'payment of Interest'.

7. The submission of the Learned counsel of the Appellant is that the 'Liquidator'

had not clearly mentioned in so many words as to why he had rejected the two

claims and as per section 40 (1) proviso of the I&B Code, the Liquidator is required

to assign reasons for rejection of any claims.

8. The Learned counsel for the Appellant takes a plea that a Liquidator/quasi-

Judicial Authority is bound to pass a reasoned order, because of the fact when the

value of claims admitted under Section 40 of the Code, the 'Determination' is a

'decision' being arrived at, which in turn can be a subject matter of 'Appeal' before

an 'Adjudicating Authority' in terms of Section 42 of the I&B Code.

Company Appeal (AT)(INS) No.1116 of 2019 6

9. The Learned counsel for the Appellant points out that Section 3(6)(a) of the

Code deals with 'claim' meaning a right to payment, whether or not such right is

reduced to Judgment, Fixed, Disputed, undisputed, Legal, equitable, secured or

unsecured and relies upon the decision of Hon'ble Supreme Court Sovintorg (India)

V. State Bank of India AIR 1999 SC 2963 wherein it is held that 'interest can also

be awarded on equitable grounds'.

10. The Learned counsel for the Appellant refers to the order passed by the

Adjudicating Authority (NCLT), Mumbai in MA 550 of 2018 in

CP1696/I&BC/MB/MAH/2017 IDFC Bank Ltd. Vs. Monnet Power Company

Limited wherein it is observed as under:

"It is also not in dispute that the

Claimant i.e. BHEL itself is under

obligation to pay the interest to the

Financial Institutions from whom the

finances have been arranged. Under

the present circumstances it was

implied that the delay in payment

shall bear the Interest Burden. It was

logically argued that in the absence of

any express condition agreed upon

between the parties that no interest

would be charged even if payment is

Company Appeal (AT)(INS) No.1116 of 2019 7 defaulted, the claim along with

Interest is legally permissible." and

the aforesaid order was affirmed by

the Appellate Tribunal in Company

Appeal (AT) (Ins) 743 of 2018 dated

26.02.2019 Mr. Navneet Kumar

Gupta Vs. BHEL Company.

11. Repelling the contentions of the Appellant, it is submission of Learned

counsel for the Respondent that the Appeal filed by the Appellant is not

maintainable against the Respondent on the ground that the claim of the Appellant

is hit by Limitation. Although, the Appellant submitted that a claim of

Rs.15,13,00,000/- in Form 'C' dated 12.03.2010 against the provisions of the

Agreement for supply of 'Furnace oil', dated 08.02.2010 executed between the

Appellant and the Corporate Debtor, for want of information pertaining to the proof

of such claim pertaining to interest of damage clause, the Respondent's office duly

accepted a sum of Rs. 9,88,00,000/- through email dated 23.04.2019.

12. In short, it is the submission of the Learned counsel for the Respondent that

the claim of the Appellant was partly accepted by the Respondent on 23.04.2019

and in respect of the claim of Rs. 2,35,00,000/- the same is not to be accepted

because of the pending 'Arbitration Proceedings' were pending. Therefore, when an

amount is in dispute/disputed then, an Operational Creditor is not entitled to

receive such claim during 'Liquidation'. Apart from this, in the year 2014, the

Company Appeal (AT)(INS) No.1116 of 2019 8 Operational Creditor invoked the 'Arbitration Proceedings' and till the year 2017 the

same was not over and no order was passed in respect of the same, till date. As

such, it is contended that the 'Corporate Debtor' was actually disputing the said

amount claimed by the 'Operational Creditor' and that the pendency of 'Arbitration'

is enough to exhibit 'Dispute', in which event, a 'Liquidator' is necessarily to reject

the claim of an 'Operational Creditor'.

13. The learned counsel for the Respondent contends that there exists no clause

towards 'Interest' in the 'Agreement' between the 'Corporate Debtor' and the

'Appellant' and hence, the rejection of claim by the 'Liquidator' is a tenable one.

14. While winding up, the Learned counsel for Respondent points out that at best

the claim can be remitted to the 'Liquidator' to assign/reiterate the reasons for such

rejection. Also, that the claim of the Appellant during CIRP was rejected and a

detailed meeting took place between the Appellant and the Resolution Professional's

team on 19.06.2018 and in reality, the reasons for rejection of their claim were also

discussed during the said meeting.

15. At the outset it is to be pointed out that the 'Liquidator' of SBQ Steels Ltd. in

his e-mail sent on 23.4.2019 addressed to Virender Rao JM, Subbiah, E, Raunaq

Arvind, Bagade; Sathish Babu U.N; Rao, Lakshmana on the subject of 'SBQ /

Liquidation/ intimation of rejection of claims' had stated the following:-

"Dear Sir/Madam Ref: Claim submitted in Form C dated 12.3.2019 in relation to Indian Oil Corporation Limited

Company Appeal (AT)(INS) No.1116 of 2019 9 We wish to inform you that an amount of Rs. 9,88,00,000/- has been admitted. See below the table for detailed breakdown:

Description of Claim Amount Admitted Remark claim Amount Outstanding 9,87,93,000 9,87,93,000 balance as per claim Investment 2,35,00,000 - Not admissible made in storage facility Rent on Fuel 7,000 7,000 handling capacity Interest 2,90,00.00 As per contractual agreement there is no provision for interest. Hence not considered

The claim has been reviewed and verified based on the information made

available through the date of admission i.e. April 18, 2019. Accordingly,

any changes/revisions in circumstances or information newly made

available after this date could affect the amount of claim admitted."

16. A mere running of the eye of the contents of aforesaid e-mail dated 23.4.2019

sent by the 'Liquidator' shows that in regard to 'Investment made in storage facility',

the claim amount of Rs. 2,35,00,000 was described as 'not admissible'. In fact, a

sum of Rs. 9,87,93,000/- was admitted by the liquidator, and no reason was

assigned for the inadmissibility of the amount claimed. In so far as the interest

claimed for Rs.2,90,000/- is concerned, the 'Liquidator' had mentioned in the e-

Company Appeal (AT)(INS) No.1116 of 2019 10 mail as per contractual agreement there was no provision for interest and hence it

was not considered.

17. As a matter of fact, ascribing reasons are the 'heart and soul' of a reasoned

order/ judgement. It is relevantly pointed out that in the impugned order of the

Adjudicating Authority, the said Authority at paragraph 9 and among other things

observed that the Appellant (Applicant) is not entitled to claim anything that has

not been crystallised in the Agreement and that has not been agreed between the

parties and opined that the 'Liquidator' had rightly rejected these two claims. But

the Adjudicating Authority at para 10 of the impugned order had proceeded to

observe that the 'Liquidator' had not assigned reasons in detail for rejection of the

two claims in the subject matter in issue, but that was not to mean reasons were

not furnished and resultantly came to the conclusion that when the claim itself

was not claimable, for the sake of giving reasons in detail that procedure was

required to be repeated and continuing further, not giving any reasons in detail

could not be a ground for invalidating the claim already considered and rejected by

'Liquidator'.

18. It is to be borne in mind that in the erstwhile Insolvency period where the

claim of creditor arose from the contract which provided interest, the interest could

be claimed only upto the date of winding up of the order as per decision 'Esmail

Esoof Moolla v. Chartered Bank, (1931) 1 Comp Cas 235'.

19. It is to be pointed out that as per Section 40 of the I&B Code, the 'Liquidator'

is to determine the claims admitted under this section in such manner as may be

Company Appeal (AT)(INS) No.1116 of 2019 11 prescribed by the Insolvency & Bankruptcy Board of India. Not assigning reasons

and that too in a rejection order relating to a claim is not a 'prudent and reasonable

course of action', as opined by this Tribunal.

20. On a careful consideration of respective contentions, on going through the

impugned order of the Adjudicating Authority and keeping in mind of the contents

of the e-mail table sent on 23.04.2019, this Tribunal comes to a resultant

conclusion that the 'Liquidator' had not assigned detailed reasoning in respect of

the non-admissibility of the claim relating to investment made in storage facility for

Rs.2,35,00,000/- and in respect of 'Interest' merely stated that as per contractual

agreement there was no provision for an interest and hence not considered, are

incorrect and legally untenable in the eye of law. The very observations of the

Adjudicating Authority in the impugned order that the 'Liquidator' had not given

reasons in detail but that does not mean that reasons are not given etc., will go to

show that the same is not a valid and correct one. In this regard, as per Section 40

of the Code a 'Liquidator' being an 'Authority' decides the matter in a quasi-judicial

manner and his decision is open to challenge u/s 42 of the I&B Code. An

unreasoned order may be just and valid from the point of view of an authority who

passes the same. But to the affected, the said order is not a 'valid one'. A 'Reasoned

order' will have an appearance of 'Justice'. A decision by judicial or quasi-judicial

Authority not informed of reasons provides room for arbitrariness and such decision

cannot be supported. In terms of the ingredients of Section 40 of the 'I&B' Code,

reasons are to be spelt out for rejecting the claims, which in the present case was

not followed by the 'Liquidator'. An 'Adjudicating Authority' can interfere when a Company Appeal (AT)(INS) No.1116 of 2019 12 'Liquidator' had not exercised its discretion in a bonafide manner or he had

proposed a thing which no reasonable person would act. A 'Liquidator' as an Officer

of the 'Adjudicating Authority'/ Tribunal is expected to perform his duties fairly,

justly and honorably in dealing with the claims of persons. It cannot be forgotten

that 'Interest' due on damages sought for violation of contract gives rise to a legal

right to claim payment. It also qualifies as an 'actionable claim'. Apart from that,

considering the fact that the Appellant stakes a claim for interest which can be

awarded on equitable grounds and further it had submitted a surveyor's report

along with the claim and the said report is based on bills provided by the Appellant

and there being rejection of these claims, this Tribunal without any haziness holds

that the impugned order of the Adjudicating Authority in MA/791/2019 in

CP/665/IB/2017 is liable to be set aside to secure the ends of justice and

accordingly the same is set aside by this Tribunal because of the fact that the tenor

and spirit of Section 40 of the I&B Code was not adhered to at the time of passing

the impugned order. Consequently, the Appeal succeeds.

21. In fine, the present Appeal is allowed. The impugned order dated 26.08.2019

passed by the Adjudicating Authority in MA/791/2019 in CP/665/IB/2017 is set

aside. No costs. The Adjudicating Authority (NCLT), Chennai is directed to restore

MA/791/2019 in CP/665/IB/2017 to its file and to pass fresh order on merits, after

providing enough opportunities to the respective side to raise all factual and legal

pleas, besides placing reliance upon the citations/ decisions, of course

uninfluenced and untramalled with any of the observations made by this Tribunal

in this Appeal. I.A. No.3307/ 2019 seeking exemption to file certified copy of the Company Appeal (AT)(INS) No.1116 of 2019 13 impugned order passed by the Adjudicating Authority stands disposed of with a

direction being issued to the Appellant to file the certified copy of the impugned

order within three weeks from today.

[Justice Bansi Lal Bhat] Acting Chairperson

[Justice Venugopal M.] Member (Judicial)

[Shreesha Merla] Member (Technical)

NEW DELHI

22nd May, 2020

ss

Company Appeal (AT)(INS) No.1116 of 2019 14