Tribunal rules on material return and expense reimbursement in CIRP intervention case.

The Tribunal partly allowed the Intervener's application, directing the RP to return the raw material to the Intervener and the Intervener to reimburse the pre-CIRP expenses incurred by the Corporate Debtor. The Tribunal clarified the applicability of moratorium provisions and the rights and obligations under the Bailor-Bailee Agreement, ensuring a fair resolution of the issues involved.

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Issues Involved:
1. Release of raw material/stock lying at the Corporate Debtor’s plant.
2. Acceptance and addition of the difference amount to the admitted claim of the Intervener.
3. Applicability of moratorium provisions under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC).
4. Rights and obligations under the Bailor-Bailee Agreement.
5. Set-off and cross-claims during the Corporate Insolvency Resolution Process (CIRP).

Issue-Wise Detailed Analysis:

1. Release of Raw Material/Stock:
The Intervener requested the Tribunal to direct the Corporate Debtor, Resolution Professional (RP), and Committee of Creditors (COC) to release the Intervener’s raw material/stock lying at the Corporate Debtor’s plant. The Tribunal noted that the raw material was delivered under a Bailor-Bailee Agreement dated 01.05.2018, and the Corporate Debtor held the stock merely as a Bailee with no ownership rights. The Tribunal referred to a previous order in CA No.206/2019, which established that raw material supplied under a contractual arrangement should be returned to the owner, as it does not constitute an asset of the Corporate Debtor under Section 18(1)(f) of the IBC. Consequently, the Tribunal directed the RP to return the stock to the Intervener urgently, considering its perishable nature.

2. Acceptance and Addition of Difference Amount:
The Intervener claimed a total amount of Rs. 16,06,33,009, out of which Rs. 11,01,32,696 was admitted by the RP, and the remaining Rs. 5,05,00,313 was not admitted, being the value of raw material lying at the Corporate Debtor’s plant. The Tribunal noted discrepancies in the admitted claim amounts and emphasized that the RP should correct these figures. The Tribunal also directed the Intervener to reimburse the pre-CIRP cost incurred by the Corporate Debtor for protecting the goods, amounting to approximately Rs. 2.30 Crores, as per Clause 11.2 of the Bailor-Bailee Agreement.

3. Applicability of Moratorium Provisions:
The RP argued that under Section 14(1)(d) of the IBC, the moratorium prohibits the recovery of any property in possession of the Corporate Debtor. However, the Tribunal clarified that this provision applies to properties owned by the Corporate Debtor, not third-party assets held under a contractual arrangement. The Tribunal reiterated that the raw material in question, being owned by the Intervener and held under a Bailor-Bailee Agreement, should be returned, as per the explanation to Section 18(1)(f) of the IBC.

4. Rights and Obligations Under the Bailor-Bailee Agreement:
The Tribunal acknowledged the Bailor-Bailee Agreement dated 01.05.2018, under which the Intervener supplied raw material to the Corporate Debtor for manufacturing purposes. The agreement stipulated that the Corporate Debtor would hold the stock as a Bailee with no ownership rights. The Tribunal emphasized that the Corporate Debtor’s obligation to return the raw material was clear, and the RP’s refusal to release the stock was unjustified. The Tribunal also highlighted that the Intervener was required to bear all running expenses, including electricity, as per the agreement.

5. Set-off and Cross-Claims During CIRP:
The Tribunal discussed the principles of set-off and cross-claims, citing the case of Bharti Airtel Limited and Bharti Hexacom Limited vs. Vijaykumar V. Iyer, where it was established that set-off is permissible during CIRP to arrive at a net figure for settlement of accounts. The Tribunal emphasized that mutual dealings should be considered, and the correct outstanding balances should be reflected in the Corporate Debtor’s balance sheet. The Tribunal directed that the pre-CIRP expenses incurred by the Corporate Debtor for protecting the raw material should be reimbursed by the Intervener, and the stock should be returned accordingly.

Conclusion:
The Tribunal partly allowed the Intervener’s application, directing the RP to return the raw material to the Intervener and the Intervener to reimburse the pre-CIRP expenses incurred by the Corporate Debtor. The Tribunal clarified the applicability of moratorium provisions and the rights and obligations under the Bailor-Bailee Agreement, ensuring a fair resolution of the issues involved.

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