NCLT rules in favor of Kausar Textiles in dispute over unit handover, goods release, and RP conduct

The National Company Law Tribunal (NCLT) ruled in favor of M/s. Kausar Textiles Private Limited, the Applicant, in a case involving the effective handover of the unit of the Corporate Debtor, release of goods, refund of monies, non-cooperation by the Resolution Professional (RP), breach of agreements, and jurisdiction under the Insolvency and Bankruptcy Code. The Tribunal directed the immediate release of goods, ordered a refund of Rs. 73.57 lakhs with interest, and emphasized the importance of balancing stakeholders' interests and ensuring the Corporate Debtor's continuity. The RP's conduct was criticized, and corrective measures were mandated, with the order to be forwarded to the Insolvency and Bankruptcy Board of India (IBBI).

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Issues Involved:
1. Effective handover of the unit of the Corporate Debtor to the Applicant.
2. Release of goods belonging to the Applicant.
3. Refund of monies paid by the Applicant with interest.
4. Non-cooperation and hindrance by the Resolution Professional and other parties.
5. Breach of Memorandum of Understanding (MoU) and lease agreement.
6. Jurisdiction of the National Company Law Tribunal (NCLT) under Section 60(5) of the Insolvency and Bankruptcy Code (IBC).

Issue-wise Analysis:

1. Effective Handover of the Unit:
The Applicant, M/s. Kausar Textiles Private Limited, sought directions for the Resolution Professional (RP) of the Corporate Debtor to effectively hand over the unit for business operations per the lease agreement dated 29.09.2020. Despite the execution of the lease agreement and payment of dues, the Applicant claimed that effective possession was not given due to various hurdles created by the personnel of the Corporate Debtor and Respondent No. 2. The Tribunal noted that the RP and the personnel under his control failed to hand over effective possession, which hindered the Applicant from commencing operations.

2. Release of Goods Belonging to the Applicant:
The Applicant also requested the release of its goods lying at the Corporate Debtor's plant. The Tribunal found that the RP had no right to retain the Applicant's goods under the lease agreement dated 29.09.2020. The RP's action of retaining the goods was unjustified as there were no outstanding dues under the lease agreement that could warrant such retention.

3. Refund of Monies Paid by the Applicant with Interest:
The Applicant alternatively prayed for the refund of monies paid with interest at the rate of 12%. The Tribunal held that the Applicant was entitled to a refund of Rs. 73.57 lakhs paid to the RP, with interest at 7% per annum from the date of receipt until the date of payment, if the Applicant refused to enter into a new arrangement to run the plant on lease or under any other agreement.

4. Non-cooperation and Hindrance by the RP and Other Parties:
The Tribunal observed that the RP failed to discharge his duties effectively, resulting in non-cooperation and hindrance in the Applicant's operations. The RP's conduct, supported by the Committee of Creditors (CoC), was found to be unsatisfactory. The Tribunal noted that the RP did not take corrective measures to protect the assets of the Corporate Debtor and failed to manage the Corporate Debtor as a going concern, violating Section 25 of the IBC.

5. Breach of MoU and Lease Agreement:
The Tribunal found that the termination of the MoU dated 02.01.2020 and the non-performance of the lease agreement dated 29.09.2020 by the Corporate Debtor, represented by the RP, constituted a breach. The Tribunal noted that the RP forced the Applicant to pay dues for the lockdown period when the plant was closed, which the Applicant was not liable to pay. This action was deemed coercive and an abuse of the RP's dominant position.

6. Jurisdiction of NCLT under Section 60(5) of IBC:
The Tribunal asserted its jurisdiction under Section 60(5) of the IBC to entertain and dispose of the claims made by the Applicant. The Tribunal emphasized that the NCLT has jurisdiction over claims arising out of or in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor. The Tribunal also highlighted the importance of balancing the interests of all stakeholders, as stated in the preamble of the IBC, and ensuring that the Corporate Debtor remains a going concern.

Conclusion:
The Tribunal directed the immediate release of the Applicant's goods and advised the new RP to explore the possibility of running the plant on lease or under any other arrangement with the Applicant, giving the Applicant the first right of refusal. If the Applicant refused, the Tribunal ordered the refund of Rs. 73.57 lakhs with interest. The Tribunal also directed the Registry to send a copy of the order to the Insolvency and Bankruptcy Board of India (IBBI).

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