Kotak Mahindra Bank Limited vs Liquidator Rs Ajit Singh And Co ...

National Company Law Appellate Tribunal Principal Bench, New Delhi COMPANY APPEAL (AT) (INSOLVENCY) No. 1130 of 2020 (Arising out of Order dated 20th November, 2020 passed by National Company Law Tribunal, New Delhi, Principal Bench, in CA - 3955(PB)/2020 in C.P. (IB) No.- 1499 (PB)/2019).

IN THE MATTER OF:

Kotak Mahindra Bank Limited Registered Office at: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400051.

Also At: 1/11, 1st Floor, East Patel Nagar, New Delhi - 110008. ...Appellant

Versus

Rohit Sehgal Insolvency Professional & Liquidator of R.S. Ajit Singh and Co. (Automotives) Private Limited Address: A-604, Sujjan Vihar, Sector-43, Gurugram - 122001. ...Respondent

For Appellant: Mr. Chinmoy P. Sharma, Sr. Advocate with Mr. Rajive R. Raj, Advocates. For Respondent: Ms. Vishakha Gupta, Advocate. Mr. Rohit Sehgal (Liquidator).

JUDGEMENT

[Per; Shreesha Merla, Member (T)]

1. Challenge in this Appeal filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as the 'Code'), is against the

Impugned Order dated 20.11.2020 passed by the Learned Adjudicating

Authority (National Company Law Tribunal, New Delhi, Principal Bench), in

CA - 3955(PB)/2020 in C.P. (IB) No.- 1499 (PB)/2019 filed by 'M/s. Kotak

Mahindra Bank' seeking a direction to the Liquidator for release of money realized on the sale of vehicles which were stated to be hypothecated to the

Appellant Bank, was dismissed by the Adjudicating Authority.

2. Facts in brief are that the Company under Liquidation/M/s. R.S. Ajit

Singh and Company (Automotive Private Limited), was the dealer of Volvo &

Eicher Commercial Vehicles, to whom the Appellant Bank had extended

Dealer Finance Specialty vide sanctioned letter dated 28.09.2015. The

'Corporate Debtor' was having a tie-up with various manufacturers including

Tata Motors, Eicher Vehicles and several 'Financial Creditor'/Banks namely

SBI, ICICI Bank Limited, Reliance Capital and Tata Capital Financial Services

were financing the 'Corporate Debtor Company' for procuring vehicles from

the manufacturers. The Dealership of Volvo Eicher Commercial Vehicle

Limited ('VECVL') was cancelled in 2019. While so, pursuant to an Application

filed under Section 9 of the Code, CIRP was initiated against the 'Corporate

Debtor Company' vide Order dated 31.07.2019. During the CIRP period, the

Committee of Creditors ('CoC') took a decision to sell the unsold vehicles back

to the respective manufacturers to avoid depreciation and also for

'Maximization of Value of the Assets'. The RP during the CIRP period sold

some vehicles and during the Liquidation Period sold the balance vehicles. At

this juncture, the Appellant Bank filed I.A. No. 3955 of 2020 seeking a

direction to distribute the Sale Proceeds of the vehicles and sought to realize

its Security Interest in the manner specified under Section 52 of the Code.

3. Learned Sr. Counsel for the Appellant contended that owing to the

phasing out of the vehicles BS-IV compliant with effect from 01.04.2020, the

CoC during its Meeting dated 08.01.2020 decided that the inventory of 57

vehicles were to be sold prior to this cutoff date. Accordingly, 57 vehicles were

-2- Company Appeal (AT) (Insolvency) No. 1130 of 2020 sold for an amount of Rs.6,91,53,381/-. After the sale of the assets was

completed, a Liquidation Order was passed on 26.06.2020, subsequent to

which, the Appellant has filed Form 'D' on 24.07.2020 which clearly mentions

that the Appellant had chosen 'not to relinquish its Security Interest'.

4. Learned Sr. Counsel further submitted that the manufacturer VECVL

through email dated 11.06.2019 set out the details of 12 vehicles identified

on basis of the Chassis No. which were charged to the Appellant. After the

Liquidation Order was passed and the Form 'D' was submitted by the

Appellant, the Appellant vide communication dated 19.08.2020 provided the

Liquidator with details of the 12 vehicles. It is argued that the Appellant had

categorically chosen not to relinquish its Security Interest over the 12 vehicles

which were easily identified based on the Chassis Nos. and claimed an

amount of Rs.1,62,42,003.20/-. It is argued that the Hon'ble Tribunal had

erroneously taken a view that the Appellant had not indicated its intention to

enforce Security Interest while CIRP was in process and also that participation

of the Appellant in the CIRP Process amounted to waiver of its right to enforce

the Security Interest. It is contended that this is a fundamental error as few

vehicles were sold after the Liquidation Order and few during the CIRP Process

and that the provision to relinquish the Security Interest is not available

during the CIRP and the same is available only during the Liquidation Process

and hence the Adjudicating Authority has wrongly observed that the sale of

assets formed a part of the Liquidation Estate.

5. Learned Counsel for the Respondent submitted that the proceeds from

the sale of the vehicles have already been distributed between the Secured

Financial Creditors in proportion of their 'debt' and even the Appellant has

-3- Company Appeal (AT) (Insolvency) No. 1130 of 2020 received their share of proceeds on 01.03.2021. It is the case of the

Respondent that having once deemed to have relinquished its charge and

consented to the sale thereof, the Appellant is estopped from collecting any

charge over the asset which had already been sold.

6. It is the further case of the Respondent that the Appellant had never

been able to prove its Security Interest for specific vehicles through a

Certificate of Charge, and therefore the Liquidator cannot take it into account

as per Section 77 of the Companies Act, 2013, and also in accordance with

Section 51 of the Motor Vehicles Act, 1988. Learned Counsel for the

Respondent placed reliance on the ratio of the Hon'ble Supreme Court in

'Pegasus Assets Reconstruction (P) Ltd.' Vs. 'Haryana Concast Ltd.',

(2016) 4 SCC 47, to buttress his argument that 'Section 13(9) of the

Securitisation and Reconstruction of Financial Assets and Enforcement of

Securities Interest Act, 2022 (SARFAESI Act) provides that in the case of

financing of a financial asset by more than one Secured Creditor, no Secured

Creditor shall be entitled to exercise any or all of the rights conferred on him

unless exercise of such right is agreed upon by the Secured Creditors

representing not less than sixty per cent in value of the amount outstanding as

on a record date and such action shall be binding on all the Secured Creditors.

In the instant case, no other Secured Financial Creditor expect the Appellant

who holds 10.69% of the total amount of the Secured Financial Debt has sought

realization of its Security Interest against the Sale Proceeds'.

7. Learned Counsel for the Liquidator submitted that in the third CoC

Meeting held on 19.07.2019 it was decided to sell the available stock of

inventory of the 'Corporate Debtor Company' back to VECVL and at no point

-4- Company Appeal (AT) (Insolvency) No. 1130 of 2020 of time, had the Appellant raised any objection with respect to sale of assets

purportedly charged to it. In the fourth and fifth CoC Meetings, the Liquidator

has shared the data with respect to the number of vehicles sold details of

receivables and the actual amount received by the 'Corporate Debtor'. At this

point of time also the Appellant did not convey its part of any vehicle. While

so, in the sixth CoC Meeting, it was decided by 96.61% Votes to initiate the

Liquidation Process, which was approved by the Adjudicating Authority vide

Order dated 26.06.2020. It is contended that it was only after the initiation of

the Liquidation Proceedings, that the Appellant submitted a list of vehicles

supposedly charged to it. The email dated 14.06.2019 from VECVL does not

specify the listed vehicles financed to the Appellant. The Appellant sought to

realize their security under Section 52 of the Code vide a representation dated

19.08.2020 which was rejected by the Liquidator.

8. It is the main case of the Appellant that in their Claim, Form 'D' filed in

accordance with Regulation 18 of Insolvency and Bankruptcy Board of India

(Regulation Process), Regulations, 2016 has categorically mentioned 'no

against the Column VIII and hence the money realized from the sale of security

during CIRP, with the consent of Secured Creditors, cannot become part of the

Liquidation Stage and cannot be distributed in terms of Section 53 of the Code'.

It is also contended that the Appellant had produced all evidence to prove

their security and the same is also duly registered with RoC.

9. The documentary evidence on record establishes that the Appellant had

entered into a Deed of Hypothecation with the 'Corporate Debtor' on

28.01.2019, pursuant to which the charge was registered with the RoC, which

describes the charge to be on all vehicle inventory and receivables thereof.

-5-

Company Appeal (AT) (Insolvency) No. 1130 of 2020 Annexure R-2 is a Certificate of Registration of Charge which is reproduced

as hereunder:

10. It is the case of the Respondent that there is a discrepancy between the

description of Charge in the Hypothecation Deed of the Appellant and Form

CHG-I filed under the RoC. There is no list of vehicles mentioned in that CHG-

I. The record also shows that the 'Corporate Debtor' utilized the inventory

financing facilities provided by different Financial Institutions and none of the

Secured Financial Creditors having charge on the inventory of vehicles

-6- Company Appeal (AT) (Insolvency) No. 1130 of 2020 financed exhibited the list of vehicles mentioned in their CHG-I. Item III in the

Minutes of the third CoC Meeting records as follows:

"COORDINATION AND INTERACTION WITH THE VECV FOR SALE OF VEHICLE

The Chairman apprised the members of the COC that he has been constantly in contact with VECV for the sale of vehicles of the Corporate Debtor. The chairman shared the data as to numbers of vehicles that have been sold till 08.01.2020 and the details of the receivables and the actual amount received by the Corporate Debtor as on 08.01.2020, for the same which is excluding GST.

The members of the COC took a note of the same."

11. The Appellant had attended this Meeting but has never raised any

objections. The Adjudicating Authority has approved the Liquidation of the

Company vide Order dated 26.06.2020. The contention of the Learned

Counsel for the Appellant that in Form 'D', the Appellant had clearly indicated

its option not to relinquish the Security Interest of the 12 vehicles and

therefore is entitled to be disbursement of money received from their sale,

cannot be accepted as the Appellant submitted the list of vehicles supposedly

charged to it after the initiation of Liquidation Proceedings. As per Section

52(2) of the Code, a Secured Creditor who wishes to realize its Security

Interest, must identify such asset over which it enjoys the Security Interest.

For better understanding of the case, the said Section 52 is being reproduced

as hereunder:

"52. Second creditor in liquidation proceedings.--

(1) A secured creditor in the liquidation proceedings may--

-7- Company Appeal (AT) (Insolvency) No. 1130 of 2020

(a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or

(b) realise its security interest in the manner specified in this section.

(2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised.

(3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either--

(a) by the records of such security interest maintained by an information utility; or

(b) by such other means as may be specified by the Board.

(4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it.

(5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing of the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force.

(6) The Adjudicating Authority, on the receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in accordance with law for the time being in force.

(7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds

-8- Company Appeal (AT) (Insolvency) No. 1130 of 2020 which is in excess of the debts due to the secured creditor, the secured creditor shall--

(a) account to the liquidator for such surplus; and

(b) tender to the liquidator any surplus funds received from the enforcement of such secured assets.

(8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate.

(9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause (e) of sub-section (1) of section 53."

12. We find force in the contention of the Learned Counsel for the

Liquidator that in the Books of Account of the 'Corporate Debtor' there is no

clarity regarding the particulars of each vehicles and the details of its

financing and at any given point of time, there would be finance facilities being

utilized from different Financial Institutions and the same was being repaid

when the receipts came from the actual buyer of the vehicles and hence the

Secured Financial Creditors is construed to have a joint charge over the Sale

Proceeds as they have collectively relinquished the Security Interest as there

is no discernible way to determine the specific inventory financed by them

individually.

13. Now we address to the contention of the Learned Sr. Counsel that

having categorically mentioned 'No' in Form 'D', the Sale Proceeds cannot

become part of the Liquidation Estate. It is seen from the record that the proof

-9- Company Appeal (AT) (Insolvency) No. 1130 of 2020 of Claim in Form-'D' is dated 24.07.2020, whereas the Order of Liquidation

was passed, much prior to that on 26.06.2020 and there were no vehicles in

existence as on 26.06.2020. Having regard to the fact that, the 'Corporate

Debtor' had given its unequivocal assent in the CoC Meetings with respect to

sale of vehicles during the CIRP Process without any objection, and has not

chosen to realize the Security Interest in accordance with Section 52 of the

Code, either through the records of Information Utility or RoC and specifically

keeping in view that the subject vehicles are already sold and the proceeds

from the sale of the vehicles have already been distributed between the Secured

Financial Creditors in proportion to their 'debt', and the Appellant has already

received its share of the proceeds on 01.03.2021 after providing an Affidavit of

undertaking dated 23.02.2021, we are of the earnest view that the Appellant

is estopped from claiming any part over the asset which has already been sold

and therefore we are of the considered view that the Adjudicating Authority

has rightly observed the Sale Proceeds ought to be distributed as provided for

under Section 53 of the Code.

14. For all the aforenoted reasons, this Appeal fails and is accordingly

dismissed. No order as to costs.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical) NEW DELHI 25th August, 2022 Himanshu

-10- Company Appeal (AT) (Insolvency) No. 1130 of 2020