TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 1669
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.... to the admitted claim amount of the Intervener." 2. A petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 ('Code') was submitted by the 'Operational Creditor' M/s Weather Makers Pvt. Ltd. against the 'Corporate Debtor' M/s Parabolic Drugs Ltd., which was Admitted vide an order dated 30.08.2018 by invoking the provisions of Section 9 of the Code. Thereupon, 'Moratorium' under Section 14(1) of the Code was pronounced. In the said order it is specifically directed that the supply of essential goods and services to the Corporate Debtor must not be suspended or interrupted during the 'moratorium' period. 3. The admitted factual position as narrated in this application was that a Bailor and Bailee Agreement was executed on 01.05.2018 between Orbit Lifesciences Pvt. Ltd. (Intervener) on one hand and on the other hand, Parabolic Drugs Pvt. Ltd., (Corporate Debtor). Since the CIRP had commenced vide order dated 30.08.2018, therefore, this agreement was undisputedly executed before the commencement of CIRP. It was agreed upon between the parties that the Intervener would provide raw material to the Corporate Debtor to carry out manufacturing activity. Therefore, under the....
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.... Rs.8,08,40,571/-, as against the sum of Rs. 11,01,32,696/-. The difference amount of Rs.2,92,92,125/- was shown as 'difference amount' as was stated to be rejected by the Resolution Professional. 7 . It has also been admitted that the Intervener was able to retrieve some raw materials from the said stock for the value of Rs.3,53,64,529/- (referred pages 11 and 12 of the compilation). 8. The main contention of the applicant is that the impugned raw material has a shelf life with an expiry date. After the expiry date, the value of the raw material got reduced, being chemical in nature. To protect the stock, the Intervener had made a request to the Resolution Professional for removal of the raw material on number of occasions, but was not allowed. No information was received giving reasons for declining the permission for removal of the raw material. 9. It has been brought to the notice of the Intervener that a stock auditor had been appointed to verify the position of the stock lying with the Corporate Debtor's plant. According to the applicant, the Resolution Professional as well as Committee of Creditors has erred in declining the lifting of the impugned raw material. The said....
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.... return of goods. The Bailor M/s Orbit Lifesciences Pvt. Ltd. (Intervener) had agreed to pay all the monthly expenses to run the plant. The said amount was due to be paid by the Intervener, which were towards the operational expenses incurred for manufacturing of goods for the period from 01.05.2018 to 31.08.2018. 13. The main contention of the Resolution Professional is that the Intervener had to discharge its obligation, as committed vide Clause 11.2 of the said Agreement, before demanding the return of goods. In the absence of the discharge of liability infested upon the Intervener/applicant, the stocks being in physical possession of the Corporate Debtor need not be disturbed, vehemently pleaded. 14. In the rejoinder-affidavit, the Intervener has mostly reiterated those very facts as already stated in the main petition. By referring to the provisions of Section 18 of the Code, it is pleaded that although the Interim Resolution Professional can take control and custody of the asset, but it was restricted over those assets on which the Corporate Debtor has ownership rights. It is also required that the ownership rights should also be recorded in the balance sheet of the Corpora....
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....the sides at some length. As far as the legal question about the applicability of the 'moratorium' provisions as prescribed under Section 14 to be read along with Section 18 of the Code are concerned, it is worth to mention at the outset that this Bench has already dealt with the same in an order dated 26.04.2019 passed in CA No.206/2019 in CP(IB) No.102/Chd/CHD/2018 under Section 60(5) read with Section 14(1)(d) and Section 18(1)(f) of the IBC, 2016, Company Application by M/s Sun Pharmaceutical Industries Ltd.- Applicant ; in the matter of Weather Makers Pvt. Ltd. Versus Parabolic Drugs Ltd." wherein a view was expressed that since the raw material was supplied under a contractual arrangement, therefore, the provisions of 'Explanation' annexed to Section 18 of the Code should apply. In the said case, it was ordered that the applicant was entitled to take back the property from the possession of the Resolution Professional. The findings for ready reference are reproduced below:- "9. Heard the rival submission and perused the records of the case. One of the facts is not in dispute that the Applicant had supplied raw material which is in possession of the Corporate Debtor, n....
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....hall not constitute an Asset and therefore, an Asset owned by a third party, however, in possession of the Corporate Debtor, held under trust or under contractual arrangement. In short, an Asset belonging to an Operational Creditor, however, in possession of a Corporate Debtor shall not be treated as an Asset, therefore, the RP shall not be allowed to take control and custody over the said Asset. In the light of this provision if we examine the facts of this case, it is not in dispute that the Operational Creditor M/s. Sun Pharmaceutical Ltd. has supplied the raw material which is in possession of the Corporate Debtor i.e. Parabolic Drugs Ltd. should be released without delay being perishable in nature, following section 18(1)(f) r/w Explanation. 11. A question is to be answered that what are the areas of operation of Sec. 14 vis-a-vis Sec. 18 of IBC. A fine distinction is available between these two enactments. The area of operation of Sec. 14 is in respect of property which is occupied or in possession of the Corporate Debtor. The property as defined U/s 3(27) of the Code includes money, goods, land, actionable claims etc. If the property as defined in Sec. 3 is in possession o....
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....p' of the Applicant, then, the 'Explanation' annexed to Section 18 IBC is to be applied in this case as well. As far as the basis for demanding Rs. 2.30 Crore, a calculation chart is available as an Annexure of a pleading wherein offered the details of expenses incurred for the month of May, June, July and August 2019 amounted to Rs. 3,57,87,366/- and total receipts on this account amounted to Rs. 1,34,60,644/-, thus the balance of Rs. 2,23,26,722/- is the amount for claim by the Resolution Professional. These details are annexed on Page 17 and 18 of the Affidavit filed by the Resolution Professional. 18 . The question of such set- off has been decided in one of the latest case of Bharti Airtel Limited and Bharti Hexacom Limited Vs. Vijaykumar V. Iyer Resolution Professional, in the matters of Dishnet Wireless Limited [CP 302/2018] & Aircel Limited [CP 298/2018] Corporate Debtors MA 230/2019 in CPNo.302/IBC/NCLT/MB/MAH/2018 & MA 219/2019 in CP No. 298/IBC/NCLT/MB/MAH/2018 Order dated 01.05.2019. Although this decision could not be confronted to the parties and discussed while deciding this Miscellaneous Application but referred herein only for the purpose of citing the ratio decid....
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....y come rushing, demanding their property back under possession of the said Corporate Debtor. Let us frame an example that what will happen if there is an existence of a reverse position of accounts in which the Corporate Debtor is supposed to owe a huge liability, but against that the said Corporate Debtor is to recover an amount from its Debtor. If set-off is not granted in this reverse situation then the Resolution Applicant may or may not propose a correct Resolution Plan after seeing the said huge liability without analysing the benefit of set-off of credit amounts. To make myself clear it is necessary that a Resolution Applicant must be aware of the correct outstanding balances appearing on the date of commencement of Insolvency in the Balance Sheet of a Corporate Debtor. It is necessary to communicate to Resolution Applicant a true and correct picture of outstanding balances in the Balance Sheet, ought to be net balances and not the gross balances. Only then a Resolution Applicant can be sure about his money position that the proposed plan is economically viable to him. Rather, it is required to make the law clear and unambiguous that there ought not to be any controv....
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.... under contractual arrangement shall not be taken over by the Resolution Professional. This provision of the Code is squarely applicable on the present situation that a sum of Rs.112 Crores, although said to be under ownership of the Corporate Debtor, but the right is arising out of a contractual arrangement. Unpaid invoices are nothing but in the nature of a contractual obligation emerging from the services provided. The unpaid invoices are the asset of the Operational Creditor i.e. Airtel Entities, although not in direct control/ possession of the Corporate Debtor but out of the ambits of Section 18(1)(f), being an asset under contractual obligation of payment by the Corporate Debtor to the Operational Creditor. Interestingly, the language of Explanation (a) and the language of Section 14(1)(d) are very much identical. On co-joint reading of these two sections a message is conveyed that if an asset is in possession of the Corporate Debtor then in spite of the applicability of "Moratorium", if that asset came into existence out of a contractual obligation then setoff or adjustment is required to be allowed so that the Resolution Professional be not entitled to take control over su....
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....s noted that a Corporate Debtor is required to be preserved as a going concern, however, it has also been observed that set-off may be considered at the stage of filing of proof of claims during the Resolution Process. Otherwise also, while lodging Form No. B it is obvious that inter se mutual debit and credit entries are supposed to be reflected in the Statement of Accounts to arrive at a figure of claim amount. Therefore, it is wrong to say that a preference is given to a particular Operational Creditor. This method of inter se adjustment ought to be available to all other Creditors (Financial/ Operational), naturally if an amount is available for mutual adjustment. 24. While reading the judgment of Swiss Ribbons we have noticed that at the time of filing of Resolution Plan, the Resolution Applicant is to take into account the amount of set-off in terms of Section 30(2)(b) of The Code, which provides that: for the repayments of the debts of operational creditor shall not be less than the amount to be paid to the operational creditor in the event of liquidation of the Corporate Debtor U/s 53 of the Code. Interestingly, it is made clear in Section 30(2) that the Resolution Pr....
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....me parties are enough to permit adjustment so as to arrive at a net figure of payment, either to the Creditor or to the Debtor. It is not necessary that set off is permissible in respect of same nature of transaction. This conservative or strict condition has a limited scope of its application, such as Income Tax laws where set off of Loss is allowed against the same nature of transaction. In my humble opinion, the terminology "mutual dealings" is a conscious Legislation. While deciding such disputes revolving around claim or counter claim or set off, it is expected to give due regards to this term "mutual dealings". The scope of this terminology is wide, which must not be applied in restrictive manner. 27. Before I part with, it is necessary to place an important feature as appearing in Form B which is meant for submission of claim by operational creditor wherein as per clause 8 of the Form "the details of mutual credit, mutual debit between the Corporate Debtor and creditor are required to be informed which may be arrived by set off against the claim. The amount of claim in Form B is not the gross amount to be furnished by Operational Creditor but only the amount after set off ....
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....g to run the business of the Corporate Debtor as a going concern, then the supplier is to be treated none other than 'Operational Creditor'. In that situation a claim is to be lodged and the supplier shall be included in the list of rest of the Operational Creditors. But in this case a slight departure is that although the Intervener is an Operational Creditor, but its demand is that neither the goods supplied are used for the manufacturing purpose by the Resolution Professional nor being returned, And that being perishable in nature may perish being a chemical having expiry date. We think that the Resolution Professional is also aware of this situation, hence, not seriously objected to return the goods. The main objection of the Resolution Professional is that the expenditure incurred for protection of goods whether to be borne by intervener or to be treated as a CIRP cost. At this juncture, it is also worth to place on record that none of the party has made out a case that the goods in question be declared as essential goods or services. Therefore, we cannot hold that the intervener should not stop or terminate or suspend the supply of raw material. 21. In the light of the discu....