Regional P.F. Commissioner vs T.V. Balasubramanian (Rp) (Sholingur ...

Regional Provident Fund Commissioner EPFO Regional Office Chennai Through Asst. P.F. Commissioner Delhi (Legal) 28, Wazirpur Industrial Area Delhi - 110052 ...Appellant

Versus

T.V. Balasubramanian Resolution Professional Representing Corporate Debtor Sholingur Textiles Limited KRD Gee Gee Crystal, No. 91-92 7th Floor, Dr. R.K. Salai Chennai - 600004 ...Respondent

Present:

For Appellant : Mr Manish Dhir, Advocate For Respondent : Ms Namitha Mathews and Mr Pulkit Malhotra, Advocates

[Per; V. P. Singh, Member (T)]

This Appeal emanates from the Order dated 11th October 2019 passed

by the Adjudicating Authority, Chennai Bench in MA No. 830 of 2019 in

Company Petition No. CP/1037/(I.B.)/2018. The Parties are represented by

their original status in the company petition for the sake of convenience.

2. Brief facts of the case are as follows:

Company Appeal (AT) (Insolvency) No. 1521 of 2019 1 of 7

3. The Financial Creditor, Edelweiss Asset Reconstruction Company Ltd

had filed a company petition under Section 7 of the IBC. The Adjudicating

Authority admitted the petition and appointed the Resolution Professional,

who has filed M.A No.830/2019 to cancel the encumbrance, which was

created by the impugned Order of attachment, registered by the EPFO

Vellore.

4. The Corporate Debtor filed MA No. 830 of 2019 through Resolution

Professional of the Corporate Debtor to cancel the encumbrance which had

been created by way of attachment

5. The notice of the said application was issued vide Order dated

05.09.2019. The EPFO filed its Reply on 11.10.2019 with the Registry of

NCLT, Chennai. The Adjudicating Authority vide the impugned Order dated

11.10.2019 heard MA 830 of 2019 and disposed of the application even

without considering the Reply of the Recovery Officer of EPFO, the

Appellant. (Rupees Fifty-Three Crore Eighty Lacs Twenty One Thousand

three Hundred Seventy-Six and thirty-one paisa only).

6. The Resolution Professional has filed its counter-affidavit on behalf of

the Corporate Debtor, wherein it is stated that creation of the charge of the

security interest effected by the Appellant by registering the deed is in

contravention of the Moratorium as contemplated under Section 74(2) read

with Section 14(1) of the Code. Further, the same would result in defeating

the interest of the creditors, if the Appellant herein crystallises security

interest to his advantage and take the benefit of Section 52 of the Code and

thus, violate the distribution under Section 53 in the event of the liquidation

Company Appeal (AT) (Insolvency) No. 1521 of 2019 2 of 7 of the Corporate Debtor. The aforesaid deed registered on dated 28th March

2019 was made during the CIRP is contrary to the Moratorium declared by

the Adjudicating Authority, is in gross violation of Section 14(1) of the Code.

7. It is stated by the Respondent that the Learned Adjudicating Authority

while passing the impugned Order duly considered the immovable

properties belonging to the Corporate Debtor, which were attached and

under the legal custody of Recovery Officer, EPFO and only upon such

information proceeded and passed the impugned Order.

8. We have heard the arguments of the learned counsel for the parties

and perused the records.

9. The Adjudicating Authority has stated in its order that "during course

of hearing a representation on behalf the Respondent that Reply has been

filed today in the registry. Counsel for the Applicant brings it to the notice of

the Tribunal that a delay of more than three weeks in filing the Reply hampers

the CIRP of the Corporate Debtor prejudicially as the CIRP is to expire on 02nd

November, 2019 and the CIRP is a time bound process. Pursuant to this, the

Tribunal is constrain to take the application today itself for disposal but

without consideration of the submissions made and contentions raised in the

Reply as filed by the Respondent being not available".

10. It is thus, clear that the Adjudicating Authority has decided the

application without considering the submissions made by the Respondent,

even though objections were filed by the Respondent but that was not

Company Appeal (AT) (Insolvency) No. 1521 of 2019 3 of 7 considered and Order was passed in haste, which is against the Principles of

Natural Justice.

11. The Learned Adjudicating Authority has allowed the application of the

Resolution Professional on the pretext that during Moratorium, no

encumbrance or charge can be created over the property, by any authority

including the Respondent, except in accordance with the provision of IBC

2016 even for the dues which are payable by the Corporate Debtor.

12. The Adjudicating Authority has further observed that the provision of

Section 238 of the IBC shall have effect not withstanding anything in

consistent therewith contained in any other law for the time being in force.

In the circumstances, the Adjudicating Authority allowed the M.A. and

passed the impugned Order that encumbrance, which had been created by

way of attachment, registered by the Respondent stands cancelled.

13. It is pertinent to mention that the Adjudicating Authority has passed

the impugned Order without considering the attachment order dated 04th

August, 2017. It is on record that the Recovery Officer in order to realise

outstanding dues, attached the immovable properties belonging to the

Corporate Debtor, in the exercise of powers vested in him under Section 8(B)

of the EPF and M.A. Act, 1952, vide order of attachment EPFCP-16 bearing

reference No. T.N./VL/6294/Recovery/2017 dated 04th August, 2017. On

perusal of this letter (Annexure A-4), it is clear that Authorised officer,

Regional officer, Vellore, issued a Recovery Certificate to the Recovery

Officer, Regional Office, Vellore in exercise of powers conferred under

Section 8(B) to 8(G) of the Employees Provident Fund and Miscellaneous

Company Appeal (AT) (Insolvency) No. 1521 of 2019 4 of 7 Act, 1952. Copy of Order of attachment EPFCP-16 is also enclosed with the

attachment order passed by the Recovery Officer, Employees Provident Fund

Organization. Thus, it is undisputed that the attachment of immovable

property of the Corporate Debtor was made by the Recovery Officer EPFO

Organization on 04th August 2017 much before the petition under Section 7

of the Code.

14. Appellant has also filed the letter (Annexure A-5) issued to the Sub

Registrar for issuing attachment certificated dated 10th May, 2018. It is

stated that the:

"Recovery Officer has attached the immovable properties belonging to the said establishment and had requested to encumber the scheduled properties in your records as per the provisions. Whereas it is ascertained through your official website (www.tnreginet.com) the above-said property has not been encumbered in the name of EPFO, Vellore till date. Copy of the acknowledgement along with EPFCP-16 are enclosed for ready reference.

Hence, you are once again requested to encumber the property in the name of Employees Provident Fund Organization, Vellore and not to allow the owner of the property to enter into any transaction for sale of the attached properties without the prior written approval of the undersigned. You are also requested to issue Encumbrance certificate duly incorporating the attachment of EPFO. This office has to recover the statutory dues by selling the encumbered property through e-auction. Your cooperation is very much solicited."

15. On perusal of the above-mentioned letter, it is clear that the Recovery

Officer had issued a reminder to Sub Registrar for issuance of encumbrance

Company Appeal (AT) (Insolvency) No. 1521 of 2019 5 of 7 certificate about the property attached by EPFO Vellore, to put a restriction

on the Corporate Debtor from alienating the property, already attached by

the Recovery Officer for the dues of Employees Provident Fund, by Order

dated 04th August, 2017. The Recovery Officer has also demanded the

encumbrance certificate duly incorporating the attachment of EPFO.

16. It is also apparent that the Sub Registrar failed to incorporate the

attachment in the register. Therefore, the Recovery Officer of EPFO issued a

reminder on 10th May 2018 and 29th November 2019 for incorporating

attachment of the immovable property in the record. The Respondent has

filed the attachment order dated 04th August 2017, which shows that the

attachment order of immovable property of the Corporate Debtor was made

by the Recovery Officer Employees Provident Organization on 04th August

2017. The petition under Section 7 was admitted by the Adjudicating

Authority by Order dated 04th February 2019. Thus it is apparent that the

attachment of the immovable property in question had already existed prior

to the initiation of CIRP of the Corporate Debtor. The Sub Registrar indeed

failed in his duty to incorporate the attachment in the register, despite

receiving the attachment order on 16th August 2017 and after that reminder

letter DT 14th May 2018 and 29th November 2018. The Section 14 of the

Insolvency and Bankruptcy Code, 2016 prohibits transferring, encumbering,

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

legal right or beneficial interest therein by the Corporate Debtor. In this

case, the alleged encumbrance certificate which was issued during

Moratorium is only the incorporation of earlier Order in the record. But in

Company Appeal (AT) (Insolvency) No. 1521 of 2019 6 of 7 fact attachment of the property was made much before the initiation of

Corporate Insolvency Resolution Process. It is also clear that the

Adjudicating Authority has passed the Order even without considering the

submission and objections of the Appellant. Adjudicating Authority failed to

consider the fact that attachment of the property was made much before the

issuance of the CIRP.

17. It is thus clear that the Adjudicating Authority failed to take notice

that attachment of the property of the corporate debtor was made much

before the initiation of CIRP, but it was only recorded in the register during

CIRP. It is on record that the impugned order is passed without considering

the objections of the Recovery Officer, EPFO, though the objection by EPFO

was already filed in the Registry of NCLT. In the circumstances, we are of

the considered opinion that Appeal deserves to be allowed.

18. The Appeal is allowed. The impugned Order is set aside. No order as to

Costs.

[Justice Venugopal M.] Member (Judicial)

[V. P. Singh] Member (Technical)

[Shreesha Merla] Member (Technical) NEW DELHI 08th JUNE, 2020

pks/nn

Company Appeal (AT) (Insolvency) No. 1521 of 2019 7 of 7