Orbit Lifescience Pvt. Ltd vs Raj Ralhan

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT) (Insolvency) No. 846 of 2019

[Arising out of an order dated 26th July, 2019 passed by NCLT, Chandigarh Bench, Chandigarh in CA No. 171/2019 in CP(IB) No. 102/Chd/CHD/2018

IN THE MATTER OF:

Orbit Lifescience Private Limited 7th Floor, Mehta Mahal, 15 Mathew Road, Opera House, Mumbai- 400 004 .. Appellant

Versus

Raj Ralhan, (RP of the CD) PwC Professional Services LLP, Building 10, 17th Floor, Tower C DLF Cyber City, Gurgaon - 122 002 .. Respondent

Present:

For Appellant: Mr. Rajiv Ranjan, Sr. Advocate along with Mr. Anirudh, Advocates For Respondent: Mr. Sumesh Dhawan and Ms. Vatsala Kak, Advocates

Judgement (4th February, 2020)

A.I.S. Cheema, J:

This Appeal has been filed by Orbit Lifescience Private Limited

which had moved Application CA No. 171 of 2019 claiming to be

Intervener in Insolvency proceeding - CP(IB) No. 102/Chd/CHD/2018.

Appellant sought release of raw material/stock lying at the plant of

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 1 of 10 Corporate Debtor as belonging to it and sought further directions The

original proceedings were initiated by Operational Creditor M/s Weather

Makers Pvt. Ltd. against the Corporate Debtor M/s Parabolic Drugs Ltd.

who filed an Application under Section 9 of Insolvency and Bankruptcy

Code, 2016 (in short 'IBC') dated 23.08.2018. The Application filed by

Appellant was disposed of by the Adjudicating Authority (National

Company Law Tribunal, Chandigarh Bench), Chandigarh passing the

following operative order dated 26.07.2019:

...

"21. In the light of the discussion made above, next is

the applicability of Section 18(1)(f). This issue is now settled

by our order dated 26.04.2019 (supra). Following the ratio

laid down and considering the evidence on record as well

as the pleadings of the respective parties, we hereby hold

that the explanation annexed to Section 18(1) is to be

applied. The impugned asset shall not be treated as a

property of the Corporate Debtor. The asset in question

being owned by a third party but in possession of the R.P.,

that too due to a Contractual Arrangement, must not be

retained but to be returned. So we hereby hold that the stock

in question, being undisputedly perishable, is to be returned

to the Intervener urgently. Side by side, we hold that the

Intervener is required to reimburse to the Resolution

Professional the Pre-CIRP cost incurred amounting to ₹ 2.30

Crores(apx.) being an expenditure agreed upon as per

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 2 of 10 Clause 11.2 of the said Agreement. On one hand the said

payment be transferred by the Intervener to the account of

the Corporate Debtor, on the other hand, the Resolution

Professional is hereby directed that the delivery of stock be

executed by handing over to intervener or its representative.

Expenditure of transportation etc., if any, be borne by the

Intervener. It appears that there should not be any

misunderstanding among the parties about the impugned

stock, because the same is claimed to have been earmarked

by the stock auditor.

Before we part with, it is advisable to direct

Resolution Professional to further take into account the

position of stock and if possible segregate between pre and

post moratorium. If the expenditure has nexus with pre-

moratorium, the same is to be excluded out of the CIRP cost.

The adjustment/set-off is to be made only for those

expenditure which has relation to the stock supplied pre

commencement of CIRP. "

...

[Emphasis supplied]

2. The present Appeal has been filed by the Appellant mainly seeking

following reliefs:

..

(a) Notwithstanding any other issues concerning the

alleged pending dues or otherwise, and considering

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 3 of 10 the perishable nature of the Raw Materials/Stock,

pass appropriate orders for the immediate release of

the Raw Materials/Stock lying with the Corporate

Debtor;

(b) Pass appropriate orders to set aside the RP's claim for

the alleged dues;

(c) Pass appropriate orders directing the RP to accept the

difference amount in Debtor's Account and add the

same to the admitted claim of the Appellant;

(d) Pass appropriate orders directing the RP to

compensate the Appellant for the damages incurred by

the Appellant on account of delay caused by the R.P.

till date of release of goods which in turn has

deteriorated the conditions of the Raw

Materials/Stock."

[Emphasis supplied]

3. In short, the case of the Appellant is that on 01.05.2018 a Bailment

Agreement was executed between the Appellant and the Corporate

Debtor. In view of the Bailment Agreement, the Appellant was to deliver

Raw Material/Stock to the Corporate Debtor for converting the same into

finished products. The Corporate Insolvency Resolution Process (in short

'CIRP') was initiated on 23.08.2018 and on 15.11.2018 the Appellant filed

Form-B (Annexure-E, page-108) with the Resolution Professional. The

Appellant claims that out of the claim filed by the Appellant, Resolution

Professional rejected claim of approximately Rs. 8 Crores, due to

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 4 of 10 shortcomings of the Accounts Team of the Corporate Debtor. According

to the Appellant, as per the Bailment Agreement (Annexure-B page 52),

Appellant had delivered Raw Materials/Stocks to the Corporate Debtor

before CIRP started. The said stock is perishable in nature with Expiry

Date. When CIRP started, the Appellant requested IRP for permission to

remove the said Raw Materials/Stocks as the same were exclusively

owned by the Appellant and moratorium did not apply to the same stocks.

It was denied and consequently Intervention Application was required to

be filed for immediate release of goods and to direct Resolution

Professional to release admitted dues.

4. It is stated that in Form-B, the Appellant claimed Rs.

16,06,33,009/-. The statement of the Appellant was published as

Operational Creditor on the website of the Corporate Debtor and the

Appellant realised that only a part of the claim had been admitted by the

Resolution Professional. According to the Appellant the bifurcation of the

claim submitted and the amount admitted are as follows:

Sr. Type of Amount of Comments Admitted Difference No. Claim Claim Amount (In Rs.) Amount (in Rs.) (in Rs.)

1. Debtor's 11,01,32,696/- (hereinafter 8,08,40,571/- 2.92,92,125/-

Account referred to as the "Account Claim) 2. Raw 5,05,00,313/- (hereinafter 3,53,64,529/- 1,51,35,784/- Materia referred to (this much worth (the value of ls/ as the of Raw these raw Stocks "Stock Materials/Stocks materials/stocks Claim") already retrieved) still lying with Corporate Debtor)

TOTAL 16,06,33,009/- 11,62,05,100/- 4,44,27,909/-

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 5 of 10

5. The Appellant claims that reasons for rejecting the difference

amount was due to Books of Entries of the Corporate Debtor and he was

told that Debtor's account was missing from the Books of the Corporate

Debtor. The Appellant claimed that in spite of efforts put in by the

Appellant, the Resolution Professional did not agree to release the claim.

The Appellant applied to the Resolution Professional to recover Raw

Materials which were lying at the Plant of the Corporate Debtor but he

could not get back the Stocks and the Committee of Creditors (in short

'CoC') did not accord permission to remove Raw Materials/Stocks lying

with the Corporate Debtor. CoC on 05.01.2019 passed resolution to

appoint Stock Auditor for conducting stock audit and verify the stocks.

The Appellant claimed that the stocks lying had expiry date after which

it would lose value. According to the Appellant, the Adjudicating

Authority in the Impugned Order raised following two issues as under:

b) "The Hon'ble Tribunal may be pleased to pass an

order directing the Corporate Debtor/RP/COC to

release the Intervener's raw material/stock lying at

the Corporate Debtor's plant immediately.

c) The Hon'ble Tribunal may be pleased to pass an

order directing the Corporate Debtor/RP/COC to

accept the Difference Amount and add the same to the

admitted claim amount of the Intervener."

6. The Appellant is submitting that although the Impugned Order is

in favour of the Appellant with regard to the issue mentioned in "b", the

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 6 of 10 issue referred as "c" was not decided and the conditions put in

paragraph-21 of the Impugned Order should not have been put.

7. The Resolution Professional has filed reply and it is argued by the

Resolution Professional that in terms of clause 11(2) of the Agreement

dated 01.05.2018, the Appellant had agreed to pay all monthly expenses

to run the plant i.e., power, salary, consumable and other routine items.

The Resolution Professional has claimed that as per Books of Accounts

of the Corporate Debtor between May, 2018 to August, 2018, the

Appellant paid an amount of Rs. 1,34,60,644/- towards the expenses

payable in terms of the Agreement but that balance amount of Rs.

2,22,39,356/- alongwith an amount of Rs. 31,86,651/- paid from cash

flows of the Corporate Debtor towards salary expenses in the month of

September in terms of the Agreement is still pending to be cleared by the

Appellant. Resolution Professional states that the issue of dues payable

by the Appellant was taken up in the first meeting of CoC on 27.09.2018

and CoC was informed that non-payment of dues by the Appellant to the

Corporate Debtor was adversely affecting the liquidity of funds. It is also

stated that the CoC in Fourth Meeting dated 05.01.2019 objected to the

request of the Appellant for returning of goods on the ground that as per

the Agreement, the Appellant was required to pay the running expenses

(including electricity dues) which it failed to honour and in view of the

same the Appellant should not be permitted to take stock lying with the

Corporate Debtor.

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 7 of 10

8. It is the further defence of the Resolution Professional that CoC was

informed on 07.03.2019 that aggregate amount of Rs. 2,54,26,007/- as

due till September, 2018 which was yet not paid by the Appellant towards

the operational expenses incurred on account of manufacturing of goods

belonging to the Appellant for the period starting from 01.05.2018 till

30.08.2018 along with an amount of Rs. 31,86,651/- paid from the cash

flows of the Corporate Debtors towards salary expenses for the month of

September in terms of the Agreement. As per Resolution Professional,

CoC resolved that the Appellant should clear the outstanding dues of the

Corporate Debtor in terms of the Agreement dated 01.05.2018 before the

issue of return of goods belonging to the Appellant could be taken up.

9. The Resolution Professional has further taken a stand as per

Section 170 of the Indian Contract Act, 1872, that the Corporate Debtor

has right to retain the Raw Materials provided for converting the Raw

Materials into finished product as the Appellant has not cleared the

pending dues. It is further argued by the Resolution Professional that the

Appellant did not press the difference amount before the Adjudicating

Authority and it was only now that the same is being pressed. From the

claim submitted in Form-B, the Resolution Professional could verify the

claim of Rs. 8,08,40,571/- in terms of the supporting documents and

Books of Account of the Corporate Debtor.

10. At the time of argument before us for the Resolution Professional it

has been further submitted that the Appellant never came to the

Resolution Professional after the Impugned Order was passed and now

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 8 of 10 the Resolution Plan has been approved and thus there cannot be any

order which would de-rail further developments.

11. We have gone through the matter and heard learned Counsel for

both the sides. We have carefully gone through Impugned Order and we

notice that the Adjudicating Authority has painstakingly discussed in full

the cases put up by the parties and after due analysis of the provisions

of Sections 14 and 18 found that there were goods owned by the Appellant

lying at the plant of the Corporate Debtor but at the same it also found

that there were dues payable by the Appellant. There was some

overlapping as the Appellant appears to have acted in terms of the

Agreement dated 01.05.2018 between 22.06.2018 to 04.10.2018. It must

be remembered that Section 9 Application was admitted on 23.08.2018

and thus there were occasions which were required to be taken note with

regard to pro or post moratorium. In view of this, the Adjudicating

Authority passed orders as noted in paragraph -21 which has been

reproduced above. We do not find that the Appellant can find fault with

the Resolution Professional if the claim as made by the Appellant did not

get support from the Books of Accounts of the Corporate Debtor. At the

time of argument, learned Counsel for the Resolution Professional

submitted that as there were dues payable by the Appellant, the

Corporate Debtor could exercise lien on the goods which were available

with the Corporate Debtor and thus, according to the learned Counsel,

the Adjudicating Authority rightly protected the interest of the Appellant

as well as Corporate Debtor by directing that while returning the goods,

Company Appeal(AT)(Insolvency) No. 846 of 2019 Page 9 of 10 side by side the dues payable by the Appellant should come to the

Corporate Debtor. Having gone through records and Impugned Order, we

do not find any fault with the directions of the Adjudicating Authority as

recorded in paragraph-21 of the Impugned Order. The actions taken by

the Resolution Professional were placed before the CoC and even CoC had

found that the Appellant should clear the outstanding dues of the

Corporate Debtor before goods could be returned. We do not find any

reason to interfere with the decisions taken by the Resolution

Professional, CoC and the Adjudicating Authority to protect the interest

of the Corporate Debtor while considering the interest of the Appellant.

12. There is no substance in the Appeal. Appeal is dismissed. No order

as to cost.

[Justice A.I.S. Cheema] Member (Judicial)

(Kanthi Narahari) Member(Technical)

(V P Singh) Member(Technical)

Akc

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