Punjab National Bank vs State Bank Of India & Anr
- CitationCompany Appeal(AT) (Insolvency) No. 1484 of 2019
Ratio decidendi
The rule this decision rests on
Where a stock of goods subject to a pledge in favour of one creditor has been sold during the corporate insolvency resolution process on the decision of the Committee of Creditors, the pledgee's claim to the security is not extinguished by the sale; the pledgee's rights in the security are preserved and transferred to the sale proceeds, to be considered by the Resolution Professional, the Committee of Creditors, and the Adjudicating Authority when a resolution plan is placed before them or, if liquidation arises, at that stage. Where the Adjudicating Authority has permitted the Resolution Professional to utilise the sale proceeds for the day-to-day functioning of the corporate debtor, including payment of supplier bills, salaries and wages, and corporate insolvency resolution process costs, such use is not illegal merely because a secured creditor holding a pledge over the sold goods objects, provided the pledgee's rights to the value of the pledged stock are kept open for later consideration.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
Branch Office amongst others at: MID-Corporate Branch, H-1A/11, Sector-63, NOIDA Uttar Pradesh- 201 301 ...Appellant Vs 1. State Bank of India Financial Sam Brnach, New Delhi (Branch Code-04109), Creditor/ 12th Floor, Jawahar Vyaapaar Bhawan, Respondent 1, Tolstoy Marg, No. 1 New Delhi.
2. Mr. Anil Kohli, Resolution Resolution Professional, Professional For Kannu Aditya (India) Limited 409, 4th Floor, ....Respondents Ansal Bhawan, K.G. Marg, New Delhi - 110 001 Present: For Appellant: Ms. Swathi. V and Mr. Hashmat Nabi, Advocates For Respondents: Mr. Abhishek Anand, Ms. Honey Satpal, Mr. Viren Sharma, Advocates for RP Mr. Ankur Mitta, Ms. Meera Murali and Ms. Aishwarya, Pandey, Advocates for Respondent No. 1/SBI
ORDER
03.03.2020 Heard Advocate Ms. Swati. V for the Appellant- Punjab
National Bank and Advocate Mr. Abhishek Anand, on behalf of Respondent No.
2, Resolution Professional and Advocate Ms. Aishwarya Pandey for Respondent
No. 1-State Bank of India.
Company Appeal (AT)(Insolvency) No. 1484 of 2019 Page 1 of 4
2. Corporate Insolvency Resolution Process (in short 'CIRP') is pending with
regard to the Corporate Debtor- M/s Kannu Aditya (India) Limited. It is stated
that there was stock of rice lying in the godown of Corporate Debtor. The
Appellant claims that the Corporate Debtor had pledged the stock in favour of
the Appellant-Punjab National Bank by a document of pledge (Annexure-A5,
page 91) dated 29.09.2015 and because of this, the Appellant was holding a
security in this regard.
3. Against this the learned Counsel for the Respondent No. 1-State Bank of
India has pointed out that before above document of pledge, the Corporate
Debtor had hypothecated its stock in favour of the State Bank of India in
consortium by Joint Deed of Hypothecation dated 04.05.2013 (diary No. 18624-
pages 71 at 76). It is stated that another Working Capital Consortium Agreement
was also executed by the Corporate Debtor on 04.05.2013 and thus the same
stocks were hypothecated with the consortium including State Bank of India.
4. There is no dispute between the parties regarding the fact that that during
pendency of CIRP, the Committee of Creditors (in short 'CoC') had considered
the dispute being made by State Bank of India which is holding 97.16% voting
right and the Appellant- Punjab National Bank which is holding 2.84% voting
right and it was decided that stock being rice, being perishable commodity,
should be sold.
5. Learned Counsel for the Appellant states that in the CoC meeting even this
proposal was opposed by the Appellant but the majority in the CoC prevailed.
Company Appeal (AT)(Insolvency) No. 1484 of 2019 Page 2 of 4 Minutes in this regard are being shown by the learned Counsel for the Resolution
Professional at Annexure-R-18 (diary no. 18814, Page-241).
6. Learned Counsel for the Resolution Profession states that CoC had further
decided as under:
..
"It was further decided that though the resolution may be
approved but since PNB is in minority and considering their
objections, the RP may move an application before the
Hon'ble NCLT for appropriate directions regarding the
utilization of sale proceeds in order to ensure protection of
the interest of all members of the CoC."
..
7. In view of such decision of the CoC, the Resolution Professional moved CA
No. 1692(PB)/2019 before the Adjudicating Authority seeking permission to
utilize the amount realized from the sale of stock for the purpose of CIRP costs.
8. Learned Counsel for the Appellant submits that the pledged stock being
the only security, Punjab National Bank had from the Corporate Debtor, the
stocks should not have been sold and the money cannot be utilised by the
Resolution Professional for conducting CIRP.
9. We have gone through the Impugned Order and find that learned
Adjudicating Authority, after hearing the parties, has accepted the prayer of IRP
to utilise the sale proceeds and operate bank account of the Corporate Debtor
for the purpose of day to day functioning of the Corporate Debtor including
Company Appeal (AT)(Insolvency) No. 1484 of 2019 Page 3 of 4 payment of current bill of supplier, salaries and wages of the employees and
workmen. It would also include CIR Process cost.
10. The stock already having been sold, there is no illegality if the Resolution
Professional uses the money available from the sale of the stock for the purpose
CIRP. The rights and benefits in law claimed by the Appellant of having security
by way of pledge and the value of the stock which was pledged are kept open for
consideration of the CoC when the Resolution Plan is available before it, and/or
in case situation of liquidation arises.
11. The claim as above of Appellant shall be kept in consideration by
RP/CoC/Adjudicating Authority while dealing with the Resolution Plan, if any,
and/or in case of liquidation.
12. The Appeal is disposed of accordingly. No cost.
[Justice A.I.S. Cheema] Member (Judicial)
[Justice Anant Bijay Singh] Member (Judicial)
(Kanthi Narahari) Member(Technical) Akc/Mn
Company Appeal (AT)(Insolvency) No. 1484 of 2019 Page 4 of 4
This page reproduces a public judgment and a summary of it. It is research material, not legal advice, and it is no substitute for advice from an advocate on your own facts.
Research this judgment with Miss Lucy
Ask what it holds, what has followed it, and what it means for your matter — in plain English, with the citations.
Try Miss Lucy free