TMI Blog2021 (4) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... ons without any difficulties. In this situation, we are not able to appreciate as to what prompted RP to not to continue with this arrangement, particularly when the Applicant was already having such arrangement since 2017 and had all the competency and all the resources to continue with the same arrangement and MoU dated 02.01.2020 was still valid. There are two clauses in the definition of claim as per Section 3(6) of the Code. Clause (a) covers right to receive payment. It is important to note that this right is defined in very wide manner and covers various kinds of rights which may arise out of contract or judgment or even disputed. Thus, if claims of applicant are disputed by the RP still it would fall under the definition of claims. Assuming for a moment that it is claimed that payment of old dues was made by applicant and, there is no provision for refund of that, either in MoU dated 02.01.2020 or lease agreement dated 30.09.2020, hence, not admissible. Our answer to this possibility is that first of all these dues were no payable by Applicant under both these agreements and, secondly, lease agreement has not been performed, hence, having regard to the term equitable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Kausar Textiles Private Limited for directions to the Resolution Professional (Respondent No. 1) of the Corporate Debtor, M/s. Krishna Knitwear Technology Limited to effectively handover the unit of the Corporate Debtor for carrying business as per the lease agreement dated 29.09.2020 and release of goods belonging to applicant. It is also alternatively prayed that monies paid by the applicant be refunded with interest at the rate of 12%. 2. The relevant facts are that the Applicant was having business relationship with the Corporate Debtor i.e. Respondent no. 1 since 2017 for production on job work basis as per the agreement between them. This arrangement was further extended between the Applicant and the Corporate Debtor by MoU dated 02.01.2020 whereby the Applicant assigned the job work to the Corporate Debtor for utilizing the plant and machinery and other infrastructure belonging to the Corporate Debtor for production of goods for applicant. Subsequently, Corporate Debtor was admitted into Corporate Insolvency Resolution Process by the order of this Authority dated 31.01.2020. The Respondent No. 1 was appointed as an IRP. Later on, the Committee of Creditors ( CoC ) confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000/- per month as lease charges. It was also resolved that such approval was subject to the payment of all dues by the Applicant till 30.08.2020 and also other dues in terms of MoU dated 02.01.2020 entered into between the Applicant and Corporate Debtor. It was also resolved that MoU dated 02.01.2020 shall stand terminated with effect from 31.08.2020. The Resolution Professional of the Corporate Debtor, in view of this resolution, required the Applicant to submit the proof of payment of all outstanding dues as agreed. Such payment had to be made within 7 days from the date of decision of CoC. 4. The Applicant made the some payments and also requested the Resolution Professional to execute lease agreement and provide full access of the location so that the Applicant could carry out the operations. Further payments were made on 12.09.2020. The Resolution Professional wrote an email on 29.09.2020 whereby he acknowledged the receipt of payment and sent signed of the lease agreement return thereof within 3 days after acceptance by applicant and to take possession of the production facilities at Silvassa and Piperia. On 29.09.2020, the Resolution Professional also wrote a letter t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has also been stated in the reply that due to non-payment of electricity bills and other dues, Respondent no. 1 was left with no other option but to terminate the lease agreement. It has also been stated on behalf of Resolution Professional that even offer was made to take back the goods vide mail dated 29.09.2020 to the extent of 80% of goods and balance 2020 after payment of dues. 6. The Learned Senior Counsel appearing on behalf of the applicant first of all narrated significant facts and submitted that though on paper, possession was given but in reality the possession was not given in the real sense so that applicant could have started manufacturing operations thereafter. Thus, the application should be viewed on the premise that possession has not been given at all. He further submitted that in terms of MoU dated 02.01.2020, there was no liability for the so called dues, but having regard to the goods of the applicant lying in the plant and in the hope of getting a new contract and to recoup such costs and earn forfeit were paid. It was also claimed that during the course of subsistence of MoU dated 02.01.2020 issued advertisement for giving the plant on lease basis was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are going under Corporate Insolvency Resolution Process simultaneously. One Corporate Debtor is M/s. Krishna Knitwear Technology Ltd. whose Resolution Professional is Mr. Brijendra Kumar Mishra and second Corporate Debtor is M/s. K-Lifestyle Industries Ltd. whose Resolution Professional is Mr. Ajit Kumar. It also appears that the units which had been given on lease by Resolution Professional of M/s. Krishna Knitwear Technology Ltd. to the Applicant, there exists some dispute of title of plot(s), where such units are located, between both Corporate Debtors. However, that is separate issue and as such, it has got no bearing on the issue raised before us except that it has been alleged by the applicant that for this reason, free movement was not allowed by Respondent No. 2. In the present case, it is not in dispute that Applicant is having business relationship of the similar nature with the Corporate Debtor since 2017 i.e. production of goods on job work basis. Before initiation of Corporate Insolvency Resolution Process, MoU had also been entered into between the Applicant and Corporate Debtor i.e. M/s. Krishna Knitwear Technology Limited on 02.01.2020. It is also not in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowed. Operations were also stopped. The Respondent No. 1 took a stand that removal of goods could be done only after approval of CoC. However, from the minutes of CoC held on 02.06.2020, it is noted that the Resolution Professional informed the CoC that operations of the Corporate Debtor at Silvassa Plant were being carried out at 10% of operational capacity till March, 2020. Apart from this, there is no discussion on the aspect that how these operations were carried out. Even in the first meeting of CoC held on 29.02.2020, there is no mention as regard to the units were being run for job work of the applicant. These facts show that Resolution Professional did not apprise even CoC in the manner in which he should have. In fact, in the first meeting of CoC, no discussion has taken place on the operational status of the Corporate Debtor which is one of the crucial aspects of Insolvency Resolution Process because RP is not only mandated to conduct the CIRP but one of its primary duties is to manage the affairs of the corporate debtor as a going concern because if the corporate debtor remains a going concern, the aspect of maximization of value of assets, being one of the prime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other properties of the Corporate Debtor while ensuring labour related compliances. 13. The CoC was also informed that four parties had expressed interest in running the plant on lease basis and one of them, was applicant before us. The proposal submitted by the applicant was discussed. The aspect whether applicant was a related party of the Corporate Debtor or not was also discussed. In this meeting certain resolutions were proposed for consideration and approval of CoC to execute the lease agreement with the applicant which were ultimately approved. 14. In the fifth meeting of the CoC held on 27.10.2020, in item no. 10 it was informed that the M/s. Kausar Textiles Private Limited had made certain payments which included part payment of electricity bill. The amount paid on this account stood at ₹ 44,79,472.63/-. It was also informed that there was a further outstanding amount of electricity charges for Samarvani Plant to the tune of ₹ 37,28,239/- on September, 2020 which was also to be paid by the Applicant. As regard to the labour dues, it was pointed out that the applicant had paid ₹ 17,50,000/- towards payment of such dues. In this meeting, the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perate the plants. In addition to this, other factor of theft of two transformers and other parts/items in spite of two persons, being supervisors appointed by Corporate Debtor who could not prevent such thefts also resulted into a situation of plant not being made operational. A letter was written on 08.10.2020 by the applicant to RP of Corporate Debtor pointing out such situation. A copy of this letter is also marked to such supervisors and concerned financial lender. In this letter, it has been categorically mentioned that plant cannot be started without transformers cost of which was around ₹ 1,00,00,000/-. In this letter a request for refund of money was also made along with a request to give authority to remove the goods. 15. Thereafter, sixth meeting of CoC was held on 21.12.2020. In the said meeting, the lease agreement with the applicant has been terminated for the reason that the applicant did not allow inspection to Resolution Professional on 07.11.2020. However, the fact remains that the plant manager of the Corporate Debtor which is Mr. Sharma and its two supervisors were always there. No material has been brought on record to show that such persons had been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipated in this process earlier. Even the business profile of the such party has not been brought on record whereas in the case of applicant, such business profile was asked for at the lieu of execution of lease agreement dated 29.09.2020, in spite of fact that applicant was already getting job work done in these plants for last 3 years or more on the earlier occasion. However, it appears to us that such fresh lease proposal has not been executed as yet because on the last date of hearing i.e., 30.03.2021, the learned counsel appearing on behalf of Resolution Professional stated that the Resolution Professional may be permitted to enter into such agreement which was declined by us as present application was pending for disposal. It is also noted that in the said meeting resolution was also proposed to sale the stock of raw material/finished goods/working progress belonging to the applicant to realize so called outstanding dues. During the course of hearings on different dates, we asked the Resolution Professional and his advocate to show us the clause as to how and on what basis such goods could be retained by Resolution Professional or sold. It is also noted that dues of period pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to liability or dues of the applicant under lease agreement, which is, whether Resolution Professional can demand such dues when the Samarvani plant could not be operated due to reasons mentioned elsewhere in this order? Are the terms and conditions of lease agreement dated 29.09.2020 fair and reasonable to both parties? If not, then whether Doctrine of unconscionability of contract is applicable in regard to such agreement? To find answer to this question, we need to look at various clauses of both MoU dated 02.01.2020 and lease agreement dated 30.09.2020. 17. In this regard, we consider it pertinent to reproduce the relevant portions of memorandum of understanding dated 02.01.2020 executed between the applicant and the corporate debtor. Main features of MoU dated 02.01.2020 are as under: M/s. Krishna Knitwear Technology Limited (hereinafter referred as a KKTL ). The other portions of this MoU is not relevant, hence, not reproduce and M/s. Kausar Textile Private Limited (hereinafter referred as KTPL ) not relevant, hence, not reproduce. And whereas KKTL has been carrying on business of Spinning and Knitting for around 2 decade sat its units located at Krishna Nagar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egated in the manner that the same can be easily identified. KKTL confirms that as on the date of this understanding no goods i.e. raw material, stock in process and finished goods are lying in its units at Samarvani/Silvassa and that KTPL can store/bring their material for the proposed job work to be got performed through KKTL. KKTL further declares that all stocks in the plant such as Raw Materials, Stock in Process and Finished Goods brought in by KTPL shall remain to be property of KTPL at all times. 4. It is expressly agreed between the parties that KTPL, inconsideration for getting job work performed shall pay KKTL a sum of ₹ 2.0/- per kg on the actual monthly production of Ring frame yarns and ₹ 1 per kg on OE yarns subject to a minimum sum of ₹ 1,00,000/- (Rupees One lakh only) per month, on or before the 7th of very next month i.e. for the month of January, 2020, KTPL shall pay the amount on or before 7th February, 2020. Both the parties agree that the minimum sum of ₹ 1,00,000/- per month would be paid by KTPL to KKTL, irrespective of the fact that there is any job work to be performed or not, except on account of inability of KKTL to do so or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00092 and having its registered office at village Samarvani Krishna Nagar, Silvassa UT, Gujarat, represented by its Resolution Professional (Mr. Brijendra Kumar Mishra) And whereas the Corporate Insolvency Resolution Process (hereinafter called The CIRP ) of the Corporate Debtor was initiated on 13.02.2020 by the order passed by Hon'ble National Company Law Tribunal, Bench at Ahmedabad (hereinafter called NCLT ) And whereas the Corporate Debtor owns land, buildings, plant machineries, fixtures fittings, office equipment, furniture, utilities and facilities, electrical and water installations etc. (hereinafter referred to as The manufacturing facilities or The facilities) at C.S. No. 59/1, 65P of Silvassa, Village Samarvani, Union Territory of Dadra and Nagar Haveli-396 230 and Plot Nos. 59, 70/1, 70/4, 70/5 of Dan Udyog Sahakari Sangh Limited, Silvassa, Village - Amli (Piperia), Union Territory of Dadra Nagra Haveli-396 230. For manufacturing, spinning, knitting and processing textile products. And whereas due to certain financial and other resource constraints it desired to maximize the value of the corporate debtor said facilities be given on lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own costs and expenses, 6.3 The Lessor undertakes to pay the insurance cost in respect of all the assets of the facilities where ever applicable and to the need thereof, as may be appropriate. The Lessee shall assist and provide all kind of support including identification and physical verification of the assets for taking the necessary insurance cover. 6.4 In the event, any item of facilities is lost, stolen or destroyed or damaged beyond repair for any reason, Lessee shall promptly bear the responsibility of the same and pay the Lessor the instalments of lease rentals then remaining unpaid, if any, plus the price/costs attributable to the lost, stolen or damaged equipment 7. Indemnity: Lessee agrees to comply with all laws, regulations and orders relating to the possession, operation, and use of the Facilities and assumes all risks and liabilities arising from or pertaining to the possession, operation or use of the Facilities. Lessee does hereby agree to indemnify and keep indemnified and hold safe and harmless the Lessor from and covenants and undertakes to defend Lessor against any and all claims, costs, expenses, damages and liabilities whether civil or cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Any expressed or implied waiver by the lessor of any default shall not constitute a waiver of any other default by lessee or a waiver of any of Lessor's right. All original rights and powers of the Lessor under this Lease Arrangement will remain in full force, notwithstanding any neglect, forbearance or delay in the enforcement thereof, by the Lessee of this Lease Arrangement shall not be deemed as waiver or any continuing or recurring breach by the Lessee of this Lease Arrangement. 13. Notices: Not relevant, hence, not reproduced. 14. This Lease Arrangement and other contracts executed between the parties hereto pursuant to this Lease Arrangement cannot be cancelled or terminated except as expressly provided herein. Lessee hereby agrees that Lessee's obligations to pay all Lease rentals and any other amounts owing hereunder shall be absolute and unconditional. This Lease Arrangement cannot be amended except in writing and shall be binding upon and to the benefit of the parties hereto their permitted successors and assigns. Clause 15 is not relevant, hence, not reproduced 16. Arbitration: All disputes, differences, claims and questions, whatsoever, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same is not applicable. Apart from this fact we cannot forget the fact that the goods worth ₹ 4,00,00,000/- or more belonging to the applicant were lying in these plants since March, 2020. Those goods were not allowed to be removed by Resolution Professional nor, the plant was utilized for job work operations to be carried on by the Corporate Debtor in terms of provisions of MoU dated 02.01.2020. It is again to be reminded that as per MoU there is a lock-in-period of 2 years and if MoU is rescinded before that the Corporate Debtor is liable to pay a compensation of ₹ 20,00,000/- which has not been paid although the contract has been terminated before expiry of such period. Further, public announcement inviting Expression of Interest for giving plant on lease has been given without before bringing the facts relating to such operational arrangement to CoC and during the subsistence of MoU dated 02.01.2020. Even the term of lease has been reduced from 6 months to 3 months and no reason has been given for that. This action is not justified as this results into distraction from the main purpose i.e. time bound Insolvency Resolution as after expiry of time of lease, fresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in the garb of running the affairs of Corporate Debtor as a going concern, which have not materialized as yet, Resolution Professional has practically exploited the situation to get money from the applicant. In this regard, we also consider it pertinent to mention that even amount paid by the applicant for clearing the electricity dues appears to not have been paid as electricity charge arrears are claimed by the electricity supplier in its bill dated 05.01.2021. As we have not been provided outstanding dues by RP inspite of our direction due to failure of RP to attach the same with their supplementary affidavit, we are unable to five details as regard to period of arrears. 23. We have also no hesitation to state that Resolution Professional of the Corporate Debtor has failed to discharge its functions as provided in Section 17, 18 20 which are also applicable to Resolution Professional as Section 5(27) provides that Resolution Professional shall include IRP and as per Section 23(2) of the Code, Resolution Professional is duty bound to exercise powers and performance duties as vested or conferred on IRP. In addition to this, Section 25 also enumerate duties of Resolution Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Process (CIRP). There was a lock-in-period of two years. The goods worth of ₹ 4.00 Crores and more belonging to the Applicant was also lying at the plants, hence, on the removal of lockdown or lifting of restrictions, the Applicant could start the operations without any difficulties. In this situation, we are not able to appreciate as to what prompted RP to not to continue with this arrangement, particularly when the Applicant was already having such arrangement since 2017 and had all the competency and all the resources to continue with the same arrangement and MoU dated 02.01.2020 was still valid. Having stated so, if the RP wanted to renew or modify commercial terms and conditions, the same could have been done on mutual basis but that has not been done. On the contrary the Applicant has been forced to pay the dues which he was not liable to pay at all as noted in the earlier part of this order. The purpose of this discussion is to enter into the area whether termination of the MoU dated 02.01.2020 and non-performance of lease agreement dated 29.09.2020, can be said to be in relation to or arisen out of Insolvency Resolution of the Corporate Debtor as per the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y statue specifically bars the jurisdiction of a Civil Court, then the dispute even of Civil nature would have to be decided by the judicial forum constituted under that statue. We further note that in clause 60(5) (b), the term Claim has been used. This term has been defined in Section 3(6) of the Code which is reproduced as under: 3(6) claim means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, un-matured, disputed, undisputed, secured or unsecured; . There are two clauses in this definition. Clause (a) covers right to receive payment. It is important to note that this right is defined in very wide manner and covers various kinds of rights which may arise out of contract or judgment or even disputed. Thus, if claims of applicant are disputed by the RP still it would fall under the definition of claims. Assuming for a moment that it is claimed that payment of old d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of all the stakeholders. If we pose a question to ourselves whether Applicant's claims fall under all the three above objects. Even a layman can answer it so. Having arrived at such conclusion, we also state that preamble of any statute is not only a guiding force to find the legislative intent and policy in enacting a statute but such preamble is also equivalent to provisions of law which can be resorted to decide issues arising under that statute. In this regard, following observations of Hon'ble Supreme Court in the case of Committee of Creditors Essar Steel India Ltd., vs. Satishkumar Gupta RP of ESIL as reported in SCC online, are very important, hence, reproduced as under; 54. This is the reason why Regulation 38(1A) speaks of a resolution plan including a statement as to how it has dealt with the interests of all stakeholders, including operational creditors of the corporate debtor. Regulation 38(1) also states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases would amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs being equal. Thus, Hon'ble Supreme Court while determining the scope of jurisdiction of Adjudicating Authority vis- -vis final authority of CoC while approving the resolution plan considered the factors, being part of the preamble, and held that non-adherence there could result into an occasion for intervention by Adjudicating Authority. Thus, in this sense, preamble is treated not only a guide but also as an enforceable provision of law. Thus, this aspect further strengthens view taken by us relying on the preamble of the Code. Thus, considering the above position of law in our considered view that this Authority have requisite jurisdiction to entertain and dispose of the claims made by the Applicant for enforceability of the lease agreement or illegal action of termination of MoU or of the lease agreement or both, and allow the RP to continue with the Applicant, if Applicant agrees to get its job done either after taking the plant on lease or in the like arrangement which was prevalent under MoU dated 02.01.2020. In case, it is not done, we also have authority to direct the RP to return the money (₹ 7357 Lacs), which has been paid by the Applicant to the RP @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and, therefore, quantum of lease charges has been accepted. Thus, lease charges can be said to be net of these liabilities. Therefore, there could be a situation where more amount of lease charges could be fixed and these charges would have been paid by Corporate Debtor directly. Accordingly, these expenses, being of the nature of CIRP costs, would have been met out of internal accruals in that sense. Now due to non-performance of lease agreement the amount so received from applicant, need to be reimbursed and in that way, it amounts to interim finance raised by RP of the Corporate Debtor. As stated earlier CoC has approved such arrangements, hence, it can be considered as CIRP costs. As per Section 53, CIRP costs are to be paid in full. Thus, considering this legal position, amount claimed to be returned also falls under Section 60(5) (c) of the Code. Accordingly, it is absolutely clear that the issues raised in this application can be said both as in relation to or arising out of insolvency resolution and a claim against the Corporate Debtor. Therefore, even if some financial obligation becomes payable by the Corporate Debtor, in our view, the same needs to be met by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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