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of <h1>Bank loses appeal over VAT refund transfer to joint venture account in insolvency case</h1> <h3>J.C. Flowers Asset Reconstruction Private Limited Versus Mr. Anil Mehta, Liquidator of Pratibha Industries Limited, FEMC-Pratibha Joint Venture</h3> J.C. Flowers Asset Reconstruction Private Limited Versus Mr. Anil Mehta, Liquidator of Pratibha Industries Limited, FEMC-Pratibha Joint Venture - TMI Issues Involved:1. Validity of the VAT refund transfer to the Corporate Debtor's account.2. Compliance with Regulation 21A of the Liquidation Process Regulations, 2016 by Yes Bank.3. Determination of the legal status and liabilities of FEMC Pratibha JV.Issue-wise Detailed Analysis:1. Validity of the VAT Refund Transfer to the Corporate Debtor's Account:The core issue in this appeal was whether the VAT refund amounting to Rs.32.11 Crores, received for the DMRC Project, should have been transferred to the account of the Corporate Debtor or FEMC Pratibha JV. The Appellant argued that FEMC Pratibha JV was a separate legal entity and the VAT refund should have been credited to its account. However, the Tribunal found that under the JV Agreement and its Supplementary Agreements, FEMC was only a technical partner, and all pecuniary liabilities, including VAT liabilities, were to be borne by the Corporate Debtor. It was noted that the Corporate Debtor had discharged all VAT liabilities, and thus, the VAT refund was rightly transferred to the Corporate Debtor's account by the Liquidator.2. Compliance with Regulation 21A of the Liquidation Process Regulations, 2016 by Yes Bank:The Tribunal examined whether Yes Bank, which had not relinquished its security interest, complied with Regulation 21A of the Liquidation Process Regulations. The Liquidator had issued a notice to Yes Bank on 02.11.2021, requesting payment of its proportionate share of the liquidation costs. Yes Bank failed to make the required payment within the stipulated ninety days. Consequently, the Tribunal held that the assets secured by Yes Bank became part of the liquidation estate as per Regulation 21A(3). The Tribunal found no error in the Adjudicating Authority's decision to include the VAT refund in the liquidation estate due to Yes Bank's non-compliance with Regulation 21A.3. Determination of the Legal Status and Liabilities of FEMC Pratibha JV:The Tribunal reviewed the JV Agreement dated 14.03.2012 and its Supplementary Agreements to determine the legal status and liabilities of FEMC Pratibha JV. It was established that the JV was a non-partnership, contractual joint venture without the characteristics of a separate legal entity. The agreements clarified that FEMC was only entitled to a consultancy fee and had no interest in the shareholdings, physical execution of works, or payments received from the client. The Tribunal concluded that all contractual liabilities, including financial obligations, were to be fulfilled by the Corporate Debtor. This understanding reinforced the decision that the VAT refund was appropriately credited to the Corporate Debtor's account.Conclusion:The Tribunal dismissed the appeal, affirming that the VAT refund was correctly transferred to the Corporate Debtor's account and that Yes Bank's failure to comply with Regulation 21A resulted in the secured assets becoming part of the liquidation estate. The Tribunal upheld the Adjudicating Authority's order, finding no merit in the appeal.
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