TaxTMI 
TaxTMI 
TaxTMI 
2020 (8) TMI 915
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....lant. Present Appeal claims and it is argued that the Adjudicating Authority although accepted that there was improper valuation, inconsistencies and contradictions in valuation, inconsistencies in the sale of plant and machinery so much so that material sold was at variance as compared to what was advertised and although Adjudicating Authority found undue urgency shown in auction sale, still it upheld the auction sale and consequent removal of goods by Respondent No. 2 (auction purchaser) referring to Respondent No. 2 as bona fide purchaser. The Adjudicating Authority rejected the Appellant's claim of having statutory lien and charge on the plant and machinery supplied by the Appellant holding that no security interest has been "created", as such. Appellant claimed to be Secured Creditor 2. It has been argued for the Appellant and the Appeal claims that in February, 2010, Visa Power Limited - Corporate Debtor (now in liquidation) had issued Notice inviting tender (NIT) inviting bids for design, engineering, manufacturing, transportation, storage, erection, testing and commissioning of 2 x 600 MW Coal based Thermal Power Plant at Chhattisgarh. Appellant was awarded Letter of ....
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....erected by the Appellant, was part of the "Plant and Machinery". The assets picked up for auction were divided in four heads - (A) Land and Building, (B) Plant and Machinery, (C) Furniture and Fixtures, Office Equipment and Computers at Raigarh, Chhattisgarh location, and (D) Furniture and Fixtures, Office Equipment and Computers at Kolkata location. (The details are at Annexure - V of the Sale Notice (Annexure - 9 at Page - 340). Appellant claims that although such Notice dated 10th April, 2019 was issued and published on 11.04.2019, the Liquidator suppressed this fact from Appellant and Adjudicating Authority on 11th April, 2019 when the matter came up for arguments of CA 149 of 2019. Liquidator rushed through before deciding issue of lien/charge - claimed 3. On 10th May, 2019, Adjudicating Authority set aside (Annexure - 8) the Order dated 31st December, 218 and remitted the matter back to the Liquidator for passing a reasoned decision. Copy of the Order is at Annexure - 12 (Page - 418). The Appeal claims that in spite of the matter being remitted back to the Liquidator on 10.05.2019, to decide if the Appellant had lien/charge and was a Secured Creditor, and give reasons in su....
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....cibly removed material which was not part of Certificate of Sale, including goods lying inside "BHEL's enclosure" as well as lying outside at other locations. Appellant claims that Appellant sent Notices on 12.07.2019 (Annexure -20) and 26.07.2019 (Annexure - 21) requesting the Liquidator to sequester the plant and machinery so that the auction purchaser may not remove the plant and machinery on which the Appellant was claiming lien. It is argued that in spite of such Notices, the Liquidator did not take necessary actions. The Appeal claims that the Adjudicating Authority had (vide Annexure - 17 dated 12th June, 2019) directed that movement of "goods" would be subject to outcome of proceedings. The Appellant had filed Appeal to this Tribunal having CA (AT) (INS) No. 802 of 2019 seeking stay to the operation and effect of Certificate of Sale dated 20th May, 2019. This Tribunal had vide Order (Annexure - 22) dated 7th August, 2019 directed the Liquidator not to allow any person to remove the assets in question, even if it is sold and yet not removed. According to the Appellant, the Liquidator had replied the Notice dated 26th July, 2019 (Annexure - 21) sent by the Appellant by hi....
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.... of the plant and machinery as 4 years, whereas the other valuers have considered the useful life as 44 years and 60 years respectively. This would imply that the depreciation should be in the range of 5-10% max. vii. Depreciated value of the assets has been considered even where the depreciated value is lower than the scrap value. In such case, where the scrap value is higher, the scrap value should have been considered as the liquidation value. viii. All reports have ignored the fact that as regards plant and machinery the scrap value was more than the liquidation value arrived at by the respective valuers." 7. The Appeal referring to the above Chart made by the Appellant refers to various contents of the Valuation Reports to highlight that the different Valuers approached the property available in different manners and putting them in different categories and it was not clear what was valued and what was left out. According to the Appellant, the Joint Plant Committee Report dated 20th June, 2019 (Annexure - 33), which Committee was constituted by Government of India, considered the scrap val....
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....Respondent No. 2 holding auction purchaser a bona fide purchaser." Case of Respondent No. 1 - Liquidator 9. We are now making brief reference to the defence put up by the Respondents. Respondent No. 1 - the Liquidator claims that he did receive Form 'B' from Appellant during CIRP and Form 'C' at the time of liquidation process and the Appellant claimed to be Secured Operational Creditor. The Respondent No. 1 claims that as the security interest has not been created by way of transaction, the Appellant could not rely on Sale of Goods Act or Transfer of Property Act and claim to be secured creditor. Respondent No. 1 claims that the liquidation process is time bound process and there was no stay to proceed with the auction process and thus, the Liquidator is justifying issue of Sale Certificate even before deciding the claim of the Appellant to be Secured Creditor, for which Order had been passed by the Adjudicating Authority on 10th May, 2019. He claims that auction process was discussed in Stakeholders Meeting dated 13.03.2019 and 14.05.2019. According to the Liquidator, the Adjudicating Authority did not attribute any motive to the Liquidator. Liquidator claims t....
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....to pick up the material from the project site. The Findings of Adjudicating Authority 11. It would now be appropriate to refer in short, findings arrived at by the Adjudicating Authority. We are referring to the same as there are many findings which have been arrived at against the Respondents and the findings have not been challenged by them in any Appeal. There are many findings which are held in favour of the Appellant but the Appellant claims that in spite of such findings, relief has not been given to the Appellant. The Relevant Provisions and findings of Adjudicating Authority a) Impugned Order refers to the respective cases which were put up and the arguments. Then in Para - 21, the Adjudicating Authority posed the question whether Appellant is a Secured Creditor or Unsecured Operational Creditor. Reference was made to provisions of Sections 45 to 48 of Sale of Goods Act, 1930 and Section 55(4)(b) of Transfer of Property Act, 1882 and Adjudicating Authority deliberated if these provisions could be said to be contrary to IBC or can be read harmoniously. Section 238 of IBC has been looked into. In Paragraphs - 22 to 28, the Adjudicating Authority discussed various provisio....
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....porate Debtor and the person claiming lien/charge. The agreement between parties. Held Appellant not a Secured Creditor c) The Adjudicating Authority then referred to the agreement between the parties by way of NIT and Letter of Award and that the LOA did not have any Clause relating to possessory lien or interest/right in the material supplied and erected. Provision of Letter of Credit Clause had been deleted subsequently. The Adjudicating Authority in Para - 35 concluded that the Appellant did not have any security interest and consequently could not be considered as Secured Creditor. The Adjudicating Authority then went on to discuss Regulation 21 of IBBI (Liquidation Process) Regulation, 2016 which relates to "proving security interest". Reference was made to the NIT and Clause 7 of General Conditions of the Contract, between the parties which provided that the "title of ownership of goods to be supplied shall pass on to the owner on despatch Ex-works/F.O.B. Port of shipment." The Clause provides that "until the work is completed in all respects and the plant is taken over by the owner, the goods shall remain within the custody of the contractor." Reference was also made to "....
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....hat date there was a possibility that there could be a security interest of the applicant and, if that would have become a reality, unless security interest was relinquished under section 52, such asset could not have formed part of liquidation estate at the very outset. We further hold that order of Tribunal has not been understood by the liquidator in it's true spirit." Adjudicating Authority held - Inconsistencies in Sale of Plant and Machinery; confusion as to what is sold and what is not; Improper Valuation, etc. f) With regard to the question No. 2 as raised in Para - 66, the Adjudicating Authority referred to the facts brought before it by the Appellant and observed that the Appellant was aggrieved by the functioning and approach of the Liquidator and had also doubted the integrity of the Liquidator. The Adjudicating Authority deliberated (in Para - 84) as to how the grievance of the Appellant could be addressed within framework of IBC. Adjudicating Authority went ahead to discuss other aspects like valuation (Para - 86); inconsistencies in sale of plant and machinery (Para - 87) and the fact that there was confusion as regards what is sold and what is not. Adjudicatin....
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....applicant had been wrongly lifted by the auction purchaser. However, it has been refuted by auction purchaser as well as the liquidator." [Emphasis supplied] Legal Corollary to findings - denied by Adjudicating Authority g) The Adjudicating Authority after making observations as above, in Para - 90 referred to the claim of Appellant to cancel the auction and that Appellant sought restitution, and that the Appellant had claimed return of goods. It was then observed:- "Although having regard to the above discussion, this should be an outcome but in the facts and circumstances of the case and applicable legal position, the moot question is can it really be done." Posing such question, the Adjudicating Authority went on to note that the contract was abandoned and machinery erected remained in open for almost 7 years; the plant and machinery had already been dismantled to substantial extent and cannot be got back to the form in which it was supplied or erected and that it was physically impossible to return the plant and machinery and thus, went on to observe that the prayer of Appellant cannot be given effect to. It also observed that as the Appellant was Unsec....
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....The applicant is directed to accord it's approval without any delay. In any case, if approval is not done by the applicant of any such request within two days from the date of request made, the approval shall be deemed to have been granted." With such findings and observations, the Impugned Order came to be passed disposing of the CAs filed before it by the Appellant. Such final operative Order created further problems and Appeal Para 7-11 claims that Respondent No. 2 commenced lifting material without approval of Appellant or Liquidator (and another report to Police dated 19.12.2019 by Liquidator got filed). The Question before us and Reasons 12. The question before us is that considering the various facts and findings recorded by the Adjudicating Authority whether the result of the litigation as recorded by the Adjudicating Authority is correct. We proceed to consider this, and other aspects. The Auction in dispute 13. We first proceed to consider the auction which has taken place. The Sale Notice Published a) When CA 149/2019 against earlier Order of Liquidator rejecting claim of Secured Creditor, was pending before Adjudicating Authority, the Liquidator issued Sale ....
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....t" (Information Document - in short). This document on the second page has "Notes" and Note 1 reads that this document is issued "only for the interested bidders". Thus, with Annexure - 9 being the Sale Notice in public domain, the interested bidders would get this information document. Now we proceed to see what this document says. With other things being similar, this document in Annexure - V has material changes when compared with Annexure - V of Sale Notice. We reproduce portion relating to Block 'A' and 'B' of Annexure - V of Annexure 10 which is as under:- Comparing Annexure - V of Sale Notice with Annexure - V of Information Document If both the above Annexure - V of Annexure - 9 and Annexure - 10 are compared, the major change which can be noticed, is that in the "Description of Building" in Sale Notice (the structures embedded in ground as photographs on record show) (1) Turbine Generator Structure, (2) Boiler Tower and (3) ESP Electrostatic Precipitator - were included as "Buildings" while in this Information Document, these properties were shifted from the "Description of Building" category to category of "Plant and Machinery" and removed from Block ....
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....t and Machinery" after issue of Sale Notice (Annexure - 9). The Liquidator has not argued nor explained before us as to why there is such major difference between Annexure - V of Sale Notice compared with Annexure - V of the information document. Clearly what was sold as "Plant and Machinery" was different and much more than what was advertised in the Sale Notice. How can Reserve Price for "Plant and Machinery" remain same even after embedded huge "structures" were shifted from Block 'A' to Block 'B' in that category? They could not have and should not have been shifted. What was later taken away by the Respondent No. 2 was shocking and still worst. We will discuss that after sometime. Here, we record that there is material difference between what was advertised in Public Notice and what was put in the information document and actually passed on by way of Sale Certificate. The above factors in our view are themselves sufficient to set aside such auction which must be said to be vitiated as there is fundamental defect in putting up the articles for auction. Liquidator failed to prescribe pre-bid Qualifications. - Defective Auction process 15. Apart from above, alth....
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....sm is not baseless. 17. Going through the Valuation Reports, although these are documents by experts, it appears that the Valuers treated different items differently. Someone picked/left some items in building category and someone picked/left the same in plant and machinery category and vice versa. No clear instructions appear to have been given to Valuers by Liquidator (who was earlier RP even in CIRP) with regard to particulars and categories of the assets. The Liquidator appointed Valuers during liquidation but gave up on them midway after taking tentative valuation and jumped to the valuation got done in CIRP. The higher figures of plant and machinery recorded in the valuation done by Punjab National Bank with regard to plant and machinery was not adopted although for land, that Valuation Report was relied on. According to the Appellant in CIRP, the Articles included in Block 'C' relating to Furniture, Fixtures, Office Equipment, etc. were not valued but such big list of articles was given reserve price of Rs. 12 Lakhs in the Public Notice and was put up for sale as scrap. What was the basis for such figure is also not clear. Section 18(1)(a) requires IRP to collect al....
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....making his subsequent action of hearing the Appellant on 29th May, 2019 (as per his e-mail dated 27th May, 2019 - Annexure -14), a mere formality. He again rejected the claim of the Appellant to be secured Creditor for the material and the erected structures. Having already sold off the material and structures, he could not have taken any other decision on this count although for operational dues, now he admitted the claim (vide Annexure - 16 - Order dated 3rd June, 2019) of Rs. 5,72,19,46,434/- out of Rs. 664,98,37,221/-, a substantial increase when compared with his earlier Order (Annexure - 8) dated 31st December, 2018. The Liquidator then appears to have sat down to convince the Adjudicating Authority that he did not defy its Order dated 10th May, 2019 (Annexure - 12) and was only required to record reasons on remand. Because of this, the Adjudicating Authority made observations as in Para - 81 of the Impugned Order (referred supra). He did change the figures of operational dues substantially but he had closed the doors on himself regarding claim of Secured Creditor by his own conduct of hurriedly issuing Sale Certificate of the same material. It is immaterial here as to what w....
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....he material for which valuation was not done, 3) water pipes (partly underground and partly outside, running approximately 36 kilometres), 4) Transmission Towers duly erected at various locations at the site. In Para - 7 of above Reply Notice, Respondent No. 1 stated that unauthorised lifting of material from the site is illegal and strict action shall be taken against person/entity involved in such activity. It was mentioned that "In case any of the material is unauthorizedly lifted from the site, it is the duty of all to report such lifting to the concerned authorities as well as to the undersigned." Thus he left it to others to report if unauthorized lifting is there. On 7th August, 2019, this Tribunal had in Company Appeal (AT) (Ins) No. 802 of 2019 (Annexure - 22) directed the Adjudicating Authority to decide the Appeal of Appellant on an early date and in the meantime, Liquidator was directed not to allow any person to remove the assets in question even if it is sold but if not yet removed. On that date of 07.08.2019, Counsel for Respondent No. 1 kept opposing the Appellant, not telling us that on 05.08.2019, his representative "visite....
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....ever, until the work is completed in all respects and the plant is taken over by the owner, the goods shall remain within the custody of the contractor". It appears that between the parties, there was only this document of NIT and Annexure - 3 - Letter of Award. If the above condition which is Condition - 7 is seen, the title of ownership of goods would pass to the Corporate Debtor on despatch Ex-works/F.O.B. Port of shipment. The custody may have remained with the Appellant as the works did not get completed and the plant was not commissioned. Under the provisions, at CIRP stage itself Respondent No. 1, (then as Resolution Professional) was expected to decide Form B - dated 13.01.2018 and question of lien/charge, which if rejected he should have taken possession of material, ownership in which had been passed. When the ownership is of the Corporate Debtor, it was responsibility of the Respondent No. 1 - Liquidator to take stock and possession of all the material. He does not seem to have done anything with the dispute of lien/charge during CIRP when Form 'B' was filed. This being so, Respondent No. 1 cannot be heard claiming that it was not clear how much material was act....
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....f the complaint is at Page - 942 of the Appeal. The developments as appearing from the record and the correspondence which we have noticed, makes it clear that on project site, there were only Guards posted by the Respondent No. 1 and the Appellant who appears to have been on the project site since before due to the contract, was holding on to what is referred as "BHEL enclosure" having its own Guards. Even after his first complaint to Police dated 06.08.2019 of illegal lifting to the extent of Rs. 20 Crores, it does not appear that Respondent No. 1 had posted any responsible person on site or laid down any procedure or ensured that, on spot the auction purchaser is handed over only due articles which were part of Sale Certificate after the Impugned Order. Conspectus of above discussion and record is that it appears that Respondent No. 2 had a freehand and freewill at the project site to pick up and take away goods and materials it wanted, even against resistance by some Guards (who would naturally not know what is, or what is not part of the Sale Certificate, under dispute). Respondent No. 2 picked up articles worth Rs. 20 Crores which were not sold? - No system in place 23. Wha....
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....n of the Liquidator (?) and it was not sold to them. It is surprising that when so much of material was at project site and some was to be allowed to be lifted (and Appellant was making grievances), no system was put into place for identifying, segregating and permitting, lifting of goods/material. It is shocking to see that an auction purchaser who was issued Certificate of Sale (Annexure - 13) with description of Asset Schedule - 1 referring to plant and machinery and Block 'B' for Rs. 23.40 Crores, lifts further material worth Rs. 20 Crores from the spot and the Liquidator does not come to know about it in good time? Definitely time must have been consumed for removing of transmission towers and laid water pipe lines. This only indicates and we repeat that there was no system put in place for protecting and managing the huge and valuable property of the Corporate Debtor which was there on the project site. When Liquidator sends an e-mail (see Page - 932) stating that it has "sought list of items already picked up", it shows that the Liquidator did not know as to what was/is being picked up. The complaint to Police dated 6th August, 2019 shows that there was much more to ....
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....t the Liquidator agrees "to put the purchaser in possession of the Asset" - Respondent No. 2 admittedly went around as if impliedly it got possession of the factory premises and project site itself. In our view only because an Auction Purchaser has a Certificate of Sale in pocket, of some (out of many) articles/goods of Plant and Machinery scattered at the remote project site, it is no license to take over the Factory Premises/project site claiming implied possession and walk away with things without the Liquidator putting the " purchaser in possession of the Asset" as was mentioned in the Sale Certificate. Documents show acts of scaring guards took place. Such acts of the Respondent No. 2 must be said to be criminal acts. The Reply has no denials to specific averments of the Appeal that Respondent No. 2 went on to remove/take away forcibly materials/goods even which were not part of Sale Certificate. There are no explanations of Respondent No. 2 to Appeal and claim of Respondent No. 1 of forcible entries and removal of goods/material, leading to filing of 2 Police Complaints, one of which alleged theft of articles worth Rs. 20 Crores. C) Reply of Respondent No. 2 speaks poorly of....
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....k for stay of auction, would be no reason not to cancel the auction sale even after noticing material errors and illegalities in the process followed. The Liquidator had fiduciary responsibility and had duty to avoid loss/further loss to Corporate Debtor. The auction purchaser had paid the consideration would also be no reason not to set aside the auction considering the illegal factors we have found in this Appeal as well as what findings Adjudicating Authority recorded in this regard. There was no material before the Adjudicating Authority to refer to the Respondent No. 2 as "bona fide purchaser". The reference was made in the passing. When Adjudicating Authority held that it was wrong on the part of Liquidator, to first not decide question of lien/charge and Secured Creditor and could not have issued Sale Certificate clearly dispute was pending litigation. Respondent No. 2 who did not check up, cannot claim to be bona fide purchaser. Similarly, the Adjudicating Authority erred in not giving any restitution. It expressed helplessness claiming that disciplinary proceedings against a Resolution Professional can be taken only by IBBI and that if somebody has unlawfully gained and re....
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....The Appellant is claiming to be Secured Creditor on statutory basis. Admittedly, the Appellant is not relying on any contractual provision, or transaction creating security interest to claim benefits of lien/charge. Counsel for Appellant relied on "ICICI Bank Vs. Sidco Leathers" (2006) 10 SCC 452 where inter alia it was considered that Section 529-A and Section 529 under the Companies Act, 1956 were silent on the question of inter se priority between Secured Creditors and Section 48 of Transfer of Property Act, 1882 applied. Reliance was also placed on "Central Bank of India vs. State of Kerala" (2009) 4 SCC 94 in which inter alia issue was State Legislators creating first charge on the property of dealer/person liable to pay sales tax and Section 34(1) of DRT Act and Section 35 of Securitisation Act, for enforcing security interest were examined and observation was that non-obstante clauses in said Central Acts could not render first charge created by said State enactments inoperative. In our humble opinion, the said Judgements do not help Appellant in interpretation and application of IBC in the manner in which Appellant wants. We agree with the Adjudicating Authority in this reg....
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....cating Authority to whom we remit back this matter. Respondent No. 1 will report inventory of all the plant and machinery and goods which (i) were on the spot, and (ii) which have been removed/missing and (iii) which are still now available. d) Adjudicating Authority is requested to give further necessary directions/Orders from time to time to Respondent No. 1 - Liquidator to ensure further actions to recover goods/material removed/taken away by Respondent No. 2/its Directors or on their behest. e) Respondent No. 1 is directed to report the Adjudicating Authority particulars with regard to all goods/material taken away/missing/damaged and Respondent No. 2 and its Directors shall be liable to pay for the same. f) Respondent No. 1 shall after taking such and other steps as may be directed by Adjudicating Authority, on recovery of the goods/material of the Corporate Debtor, put them to re-auction. The earlier Valuation Reports shall be ignored from consideration and Liquidator shall call for fresh valuation reports from 2 new registered valuers as per procedure, duly giving them necessary information and copy of this Judgment and after taking fresh Valuation Reports the assets o....