Ritu Tandon vs M/S Rain Automotive India Pvt. Ltd

IN THE MATTER OF: Ritu Tandon ...Appellant

Versus

M/s Rain Automotive India Pvt. Ltd. ...Respondent

Present: For Applicant: Mr. Nakul Mohta, Mr. Aakash Kumar, Advocates For Respondent: Mr. Mohak Sharma, Mr. Suprivo Banerjee, Mr. Sajal Jain, Adv. for Respondent

ORDER

Per: Justice Rakesh Kumar Jain:

03.07.2023: This appeal is directed against the order dated

03.06.2022, passed by the Adjudicating Authority (National Company Law

Tribunal, New Delhi Bench - II) by which an application filed by the

Respondent under Section 60(5) of the Insolvency and Bankruptcy Code,

2016 r/w Rule 11 of the National Company Law Tribunal Rules, 2016 (in short

'Code') for refund of the security deposit of Rs. 11,25,000/- by the Appellant

to the account of the Corporate Debtor has been allowed.

2. In brief, the Appellant is the owner of a property bearing No. F-11, Block

- 1, Mohan Co-operative Industrial Area, New Delhi which was given on lease

to the Corporate Debtor (Rain Automotive India Pvt. Ltd.) on 16.09.2016 at

the rate of Rs. 3,75,000/- per month with increase of 5% every year after the

receipt of security deposit of Rs. 11,25,000/- and execution of a lease deed

dated 18.10.2016.

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3. The Appellant (landlord) filed an application under Section 9 of the Code

bearing I.B No. 1095(ND) of 2019 before the Adjudicating Authority against

the Corporate Debtor in respect of arrears of rent of Rs. 23,04,284/- besides

the unpaid electricity bills of Rs. 47,363/-. The said application was admitted

on 14.06.2019 and Akarsh Kashyap was appointed as the Interim Resolution

Professional (IRP). Moratorium was also imposed and the Appellant was

directed to deposit a sum of Rs. 2 Lakhs to meet the immediate expenses of

IRP.

4. After appointment of the IRP, the Appellant submitted proof of claim in

Form-B on 20.06.2019 in which a categorical averment was made "details of

any mutual credits, mutual debts, or other mutual dealings between the

Corporate Debtor and the Operational Creditor which may be set off against

the claim - NIL"

5. There is no dispute to the fact that on 12.08.2019, the IRP sent an email

to the Appellant by which he informed her that peaceful and vacant

possession of the property has been handed over on 07.08.2019 and

demanded the security deposit of Rs. 11,25,000/- deposited by the Corporate

Debtor. The said email is reproduced as under:-

"12 August, 2019 at 11:49 IRP Akarsh Kashyap cirp.raipl@gmail.com To: ritu tandon ritutandon.del@gmail.com Cc: akashyap2002@yahoo.com, sudharshan.kedia@resurgentrp.com

12.08.2019 Mrs. Ritu Tandon w/o Dr Premendra Chand Tandon R/o #E-8/8, Vasant Vihar New Delhi - 110057 Demand of the Security Deposit 3

On 07th August, 2019 at 16:30PM we handed over the peaceful and vacant possession of the property located at F-11 Block 1 Mohan Co-operative Industrial Area New Delhi. As per clause 9 of our tenancy agreement dated 18.10.2016 we are entitled to receive back our security deposit of Rs. 11,25,000/-. You know five days have been passed. We left the premises Äs is Basis" and give you proper notice of our intention to vacate. In these circumstances we are not understanding your oversight in not promptly returning our money. Should we fail to bear from you by 20.08.2019 we will take this matter before the Hon'ble Tribunal. Please make immediate arrangement to return back our security deposit of Rs. 11,25,000/-.

Thanking you Sd/-

(Akarsh Kashyap) IRP in the matter of Rain Automotive India Pvt. Ltd. Regn No. IBBI/IPA-001/IP-P00566/2017-2018/11042"

6. It is pertinent to mention that despite the categorical demand by the

IRP of the security deposit which was estate of the Corporate Debtor, the

Appellant did not return the same and also did not claim any set off in Form-

B.

7. Be that as it may, the Committee of Creditors (CoC) in its 3rd Meeting

convened on 19.10.2019 passed a resolution for liquidation of the Corporate

Debtor in terms of Section 33(2) of the Code and in pursuance thereof, the RP

filed an application CA No. 1623 of 2019 before the Adjudicating Authority

seeking liquidation of the Corporate Debtor in which the Adjudicating

Authority passed the order of liquidation on 02.01.2020 and appointed Ms.

Preeti Jaiswal as the Liquidator who was later on replaced by Ms. Maya Gupta

by the order of the Adjudicating Authority on account of her failure to give

consent to act as the Liquidator of the Corporate Debtor within the prescribed

time.

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8. The Liquidator, in compliance of the Regulation 12 of the Insolvency

and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (in

short 'Regulations') made a public announcement on 01.02.2020 in Form - B

of Schedule II in Financial Express (English) (New Delhi Edition), Jansatta

(Hindi) and fixed the last date for submission of proof of claim as 26.02.2020.

The Respondent received a claim submitted by the Appellant to the tune of

Rs. 40,98,372/- as stipulated in Form B of Schedule II. In this Form, the

Appellant again averred that "details of any mutual credit, mutual debts, or

other mutual dealings between the Corporate Debtor and the Creditor which

may be set off against the claim - NIL" but at the same time in para 4 of clause

4 of the said Form made an averment that "in terms of clause 3(c) of the lease

deed the Operational Creditor had forfeited the security amount of Rs.

11,25,000/- and had adjusted the same against the unpaid lease rent". This

led to the filing of an application under Section 60(5) of the Code by the

Respondent for refund of the security with interest to form liquidation estate

of the Corporate Debtor which has been allowed by the impugned order.

9. There is no doubt that as per Section 14(1)(c) of the Code any action to

foreclose, recover or enforce any security interest created by the Corporate

Debtor in respect of its property including any action under the Securitisation

and Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002 (54 of 2002) is prohibited. Meaning thereby, the Appellant could not

have retained the security interest created by the Corporate Debtor at the time

when it was demanded by the RP vide its email dated 12.08.2019 much prior

to the date when the order of liquidation was passed on 02.01.2020. 5

10. However, Counsel for the Appellant has argued that once the order of

liquidation has been passed, the order of moratorium shall not have any effect

in view of Section 14(4) proviso, therefore, the Tribunal has erred in placing

reliance upon Section 14 for the purposes of passing the order of refund. He

has also argued that the amount of security is part of rent which has been

adjusted out of the arrears of rent to be paid by the Respondent (CD) in view

of Regulation 29 of the Regulations. During the course of hearing, Counsel for

the Appellant has categorially submitted that there is no direct precedent on

this issue of interpretation of Regulation 29 of the Regulations but the case

set up by the Appellant is that she has a right to claim set off of the arrears

of rent against the security deposit lying with her and if after adjustment also

some more amount is payable even then she can prefer a claim with the

Liquidator.

11. On the other hand, Counsel for the Respondent has submitted that the

Appellant has not come to the Court with clean hands and has been playing

hide and seek with the RP when she was categorially asked to refund the

amount of Rs. 11,25,000/- on 12.08.2019, much prior to the date of order of

liquidation, to return the amount of security deposit after taking peaceful and

vacant possession of the premises in question. In this regard, the Respondent

has also referred to the provision of lease deed pertaining to the security

deposit which is reproduced as under:-

"4. Security Deposit

The Lessee has deposited with the Lessor a sum of Rs. 11,25,000/- Cheque No. ..............dated 06.10.2016 at the beginning of the Term as Interest Free Security Deposit (hereinafter referred to as Security Deposit), the receipt of which the Lessor doth hereby admit and acknowledge. It is expressly agreed and understood between the 6

parties that the Security Deposit shall not carry any interest and the Lessor shall refund the said interest free security deposit to the Lessee simultaneously upon the Lessee handing over peaceful and vacant possession of the demised premises upon expiry of the term or prior termination of the lease subject to deduction of any of the dues on account of outstanding rent, BRPL/DJB dues, if any. The Lessor acknowledges that the refund under this clause shall remain a continued liability till such time that the amounts are refunded to the lessee."

12. It is also argued that the Appellant deliberately retained the amount of

Security and knew very well that it cannot be set off because of the clear

prohibition provided in Section 14(1)(c) of the Code because of which column

no. 8 of Form B dated 20.06.2019 filed by the Appellant before the RP was

kept Nil but after the passing of the order of liquidation, the Appellant has

raised the issue of adjustment of amount of security deposit in the Form

submitted by her as a proof of claim which is a fraudulent act on her part.

13. We have heard Counsel for the parties and perused the record with their

able assistance.

14. From the resume of the facts narrated hereinabove, it is apparent that

the Appellant and the Corporate Debtor were both bound by the terms and

conditions of the lease deed dated 18.10.2016 in which clause 4 was

incorporated in regard to the security deposit. It was agreed upon by both the

parties that handing over of peaceful and vacant possession of the demised

premises and the amount of security deposit has to be returned. As per the

email dated 12.08.2019 sent by the RP to the Appellant the peaceful and

vacant possession of the demised premises has been handed over to the

Appellant on 07th August, 2019 at 16:30 PM and in the same email the RP

requested the Appellant to refund the amount of security deposit as it was the

part of the estate of the Corporate Debtor and could not have been retained 7

by the Appellant in view of prohibition contained in Section 14(1)(c) of the

Code but the Appellant did not abide by it nor claim a set off in Form B which

was submitted by her to the RP on 20.06.2019. Therefore, it was only an

afterthought on the part of the Appellant who had perhaps waited for the

initiation of the liquidation proceedings and at that time the claim of set off,

in terms of the provisions of Regulation 29 of the Regulations, as alleged was

raised. But the question would arise as to whether the Appellant should be

given this kind of premium of making an adjustment of the amount of security

deposit during the liquidation proceedings, taking advantage of the provisions

of Section 14(4) proviso, especially when the said amount was asked to be

returned much earlier by the RP vide its email dated 12.08.2019 as the

liquidation order was passed much later on 02.01.2020. Had it been a case

where the RP had not even asked for the amount of security to be returned as

it could not have been retained by the Appellant in view of Section 14(1)(c) of

the Code or a case where RP had not gone to the Adjudicating Authority in a

case where the Appellant had claimed a set off despite the provisions of

Section 14(1)(c) then the matter would have been altogether different and

perhaps the Appellant might have been right in its approach because there is

no dispute that the rigours of Section 14 would come to an end as soon as the

liquidation order is passed but the Appellant cannot be allowed to take

advantage of its own wrong as she went in hiding after the email dated

12.08.2019 was sent which was almost four months prior to the passing of

the order of liquidation and did not comply with the provision of Section

14(1)(c) of the Code herself. The act and conduct of the Appellant cannot be

appreciated and rather deserves to be deprecated because she herself did not 8

follow the law which has been laid down in the Code, therefore, keeping in

view the aforesaid facts and circumstances much less the act and conduct of

the Appellant which we do not approve at all, this appeal is hereby dismissed

and the Appellant is hereby saddled with costs of Rs. 10,000/- which shall be

deposited by the Appellant in the Prime Minister Relief Fund within a period

of 30 days from the date of receipt of certified copy of this order.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sheetal