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TMI Blog2021 (7) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... ion filed by the Respondent MSTC Limited (MSTC in short). MSTC had supplied goods to the Corporate Debtor and made a claim of Rs. 300.17 Crores which claim was accepted during Corporate Insolvency Resolution Process (CIRP in short). As MSTC was not treated as secured creditor in spite of a pledge agreement, MSTC filed the Application to Adjudicating Authority and by the Impugned Order, the Adjudicating Authority treated MSTC as Operational Creditor who was a secured creditor. Thus, the Appeal. Case of the Appellant- in short 2. The Appeal claims and it is argued for the Appellant that M/s. Concast Bengal Industries Limited (CBIL in short), a Group Company of the Corporate Debtor- 'Concast Steel and Power Limited' entered into agreement with MSTC vide agreement dated 01st April, 2013. As per the agreement, CBIL was to purchase material from MSTC which material was to be procured by MSTC and which was to be stored in factory premises of CBIL. MSTC had responsibility to manage the material by appointing supervising agent. It is stated that pursuant to such agreement a tripartite agreement dated 14th August, 2013 was entered into between CBIL and Ferro Scrape Nigam Limited (FSNL in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commencement of CIRP across all its warehousing facilities. The Appellant relied on Annexure E Page 99 at Page 100 which is "Statement of Stock and Book Debts as on 07.11.2017" maintained by the Director of Corporate Debtor. The Appeal refers to MSTC writing letter addressed to the Appellant on 22.3.2018 (Annexure G - Page 155) seeking assessment of stocks pledged to MSTC and requested a joint inspection. According to the Appellant, he did not receive any notice from MSTC and MSTC had sent e-mail to employee of Corporate Debtor seeking assessment of the stock. Appellant claims that on 05th April, 2018 he had sent e-mail to MSTC (Annexure H- Page 158) seeking scheduled time/date for conducting assessment but he received reply that the assessment was already done on 29th March, 2018 by an external agency empanelled by MSTC. The Appeal is referring to exchange of correspondence and the Resolution Professional conveying necessity for joint inspection. It is claimed that on 19.04.2018 joint inspection could not take place due to obstruction from labour union and the same was done only on 3rd May, 2018. The Appeal claims that at the time of such inspection, stock report was different tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n report/findings which showed that the quantities of 63124.094 MT Steam Coal and 40489.085 MT Steel Billets were available lying in the Bankura Factory. The Appellant denied accepting the report on the basis that his authorized representative was not there. Respondent claimed that Respondent again requested for independent inspection which was scheduled on 09th April, 2018. But it could not take place due to labour problem. According to the Respondent, the quantities indicated in e-mail dated 24.04.2018 by the Resolution Professional were much less than the quantity of materials inspected and found available on 29.03.2018. It is claimed that in the inspection of stocks of Bankura, Corporate Debtor was represented by one Mr. Raj Kundu and representatives of MSTC as well as the FSNL. In the rescheduled inspection on 03.05.2018 it was found that the quantity of Steam Coal had reduced by 22,700 MT and that the entire stock of 40000 of MT Steel Billets was missing and wrongfully removed from Bankura Factory, without making payments to the Respondent. According to the Respondent, the inspection on both dates of 29th March, 2018 and 03rd May, 2018 was done by the same inspection agency G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till Corporate Debtor paid for the same, were to be treated as pledged material under the Agreement. The Learned Counsel for Respondent relied on Section 77(4) of the Companies Act, 2013 to submit that even if Charge had not been registered the same will not prejudice any contract or obligation for repayment of the money secured by a charge. Even, otherwise the duty to register charge was of the Corporate Debtor and Corporate Debtor cannot take advantage of its own wrong. The Respondent is supporting the Impugned Order as passed by the Adjudicating Authority. The Impugned Order 9. Impugned Order (Annexure-A, Page 50) shows Adjudicating Authority, after referring to the rival cases of the parties, found and held as under:- "6. It is not in dispute that the applicant has supplied goods. The amount of claim is also not in dispute. There is an agreement between the applicant and the corporate debtor dated 6/4/2013 which governs commercial relationship between them. Clause 5 of the said agreement governs the mode of sale of goods to corporate debtor by the applicant. As per Clause 8 the quantity is to be lifted on cash and carry basis. 7. Clause 5.2 of the Agreement has specifical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest has been created in favour of the applicant. As per Sec.3(33) security interest is created or provided in respect of a property by a transaction. "Property" as per Sec.3(27) includes goods, and "transaction" as per Sec.3(33) includes an agreement in writing for the transfer of goods from or to the corporate debtor. The definition of security interest as given in Sec.3(31) is wide enough to include pledge as creation or provision of right, title or interest or a claim of the applicant in the goods so pledged. Admittedly, there is an agreement in writing between the applicant and the respondent which, as per Clause 5.2 briefly narrated above, provides for creation of pledge in favour of the applicant till the payment of goods supplied to corporate debtor is made. 11. Thus, in our considered view, appellant has security interest in respect of pledged goods supplied. In this view of the matter, we do not find any merit in the contention of the RP, not to recognize the applicant as secured creditor. We, further find that the case before the Hon'ble NCLT, Chennai Bench was in regard to financial assets and financial transaction i.e. overdraft against fixed deposit of corporate de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purchased through MSTC. FSNL was entrusted with receiving the goods, custody of the goods, release of the goods as also all records in relation to receipt and release thereof. The CIRP was initiated on 07.11.2017 and IRP Mr. Sanjay Agarwal took stock of the goods and had a stock statement as on 07.11.2017. In November 2017 and as per the stock statement there were MS BILLETS: 1843.538 MT; COAL: 16364.605 MT. It is stated that the IRP appointed 'M/s. RBSA' as valuers to value the stock in December, 2017. In the Information Memorandum prepared by the IRP, stock statement as above reflected which was not challenged. The present Liquidator Mr. Kshitiz Chawcharia was earlier appointed as Resolution Professional on 04.01.2018. 'M/s. RBSA' gives valuation report on the stock, which is in consonance with the stock statement prepared as on 07.11.2017. A joint inspection was done on 03.05.2018 and the Written Submissions (Diary No.26245) submitted by the Appellant claim stock statement prepared by Mr. Sanjay Agarwal with regard to stock as on 07.11.2017 matches with the joint inspection done on 03.05.2018. The Written Submissions stated that in the joint inspection, MS BILLETS were found ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Goods did not take place until full payment was made, for the "protection of financial interest of MSTC" (Page 272), several other modes of security were agreed between MSTC and the Corporate Debtor. 15. Respondent has further argued that Tripartite Agreements in respect of the plants of the Corporate Debtor in Orissa and West Bengal were entered into. There are two separate agreements dated 26th July, 2013 (Page 201) and 14th August, 2013 (Page 71). It is stated that 16 'Memorandum of Pledge' (Pages 301 to 332) were executed. The Memorandum was to operate for a period of 90 days from the date of shipment of the Goods and for such period of 90 days, amounts mentioned in the 'Memorandum of Pledge' was to be treated as advance by MSTC to Corporate Debtor. According to the Respondent, the intention behind this was that no movement or use of the Goods could take place without payment to MSTC and the arrangement of pledge was to operate for a period of 90 days from shipment. MSTC claims that when CIRP started, the Interim Resolution Professional prepared a statement of stock and book debt as on the CIRP commencement date (as at Page 100). However, there was nothing on the record to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional were not present. The stand taken by the Resolution Professional was that Mr. Raj Kundu was not authorized to sign the joint stock statement on behalf of the Corporate Debtor. The Respondent has referred to the said letter of Resolution Professional at Page 170 from the Appeal and the Resolution Professional refused to accept the First Report submitted by 'Geo Chem' and advised to carry out joint inspection in presence of Resolution Professional's authorized person. The Respondent claims that when the joint inspection dated 14th May, 2018 could take place, even that was conducted by the same entity 'Geo Chem' and the Second Report shows that the entire stock of Steel Billets had gone missing. The Second Report is referred at Page 368. According to the Respondent, at the time of second inspection dated 3rd May, 2018, only 22,701 MT Steam Coal was found to be there. 17. The Respondent has further submitted that the Liquidator himself had raised the stand before the Adjudicating Authority which resulted in the Adjudicating Authority directing investigation by the SFIO (Page 409). Thus, it is claimed that the Resolution Professional (now Liquidator) has been taking contrary st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease of material will be issued by MSTC to CWC/FSNL/Supervising Agency for the quantity for which payment is realized by MSTC from CBIL and credited to MSTC's account. The tripartite agreement shall, inter alia, include the following terms:- a) The entire tonnage as per B/L quantity shall be pledged by CBIL to MSTC and the same shall be stored with CWC/FSNL/Supervising Agency if agreed to by MSTC for safe custody and eventual delivery against Authorization Letter issued by MSTC. b) MSTC Ltd. as holder of lien on the goods shall have free and unfettered access, without any prior notice, to the warehouse during all reasonable hours including the right of ingress and egress to and from the warehouse by MSTC, its men, agents, officials, transporters, goods vehicles officials of Customs, Excise, Sales tax, for storing, de-storing, removing the goods in or from the warehouse without any hindrance or obstacles." Part of Clause 10.3 reads as follows:- "10.3 In case of pledged cargo or Ex-Dock Sale or Ex-Stockyard Sale where CBIL proposes to lift materials by making payments in installments, CBIL shall lift the materials as per the following schedule assuming a supplier's credit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be provided free of cost to FSNL and the running cost of these facilities will also be borne by CBIL. MSTC and/or FSNL and/or their nominated representative shall have unfettered access to the warehouse/stockyard........" Clause 6 reads as under:- "6. FSNL shall engage their own Security round the clock at the designated warehouse/ stockyard handed over to it by MSTC." Clause 11 reads as under:- "11. Deliveries of the material shall be allowed by FSNL to CBIL only against Authorization Letter issued by MSTC to FSNL. Such delivery shall be made by FSNL to CBIL from 9.00 A.M. to 5.00 P.M. and weekly/ restricted holidays are applicable" (Emphasis supplied) 20. To understand the relationship and transactions, various arrangements (details of which are in the documents) need to be read with "Memorandum of Pledge" (at Pages 301 to 332). The Corporate Debtor executed these documents in favour of MSTC. These are of different dates, for different quantities but otherwise similarly worded. Portion of one may be reproduced from Pages 301 & 302 of Appeal. It reads: "The articles/ goods specified in the Schedule written herein below which we the undersigned M/s Concast Steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Professional. The Interim Resolution Professional vide letter dated 6th January, 2018 (Appeal Page 339) wrote to MSTC that they have filed claim calculating outstanding as on 31st November, 2017 but should file claim as on 7th November, 2017, which was the date of commencement of CIRP. He asked MSTC to rectify the claim. MSTC filed revised claim. 23. There is letter dated 15th December, 2017 (Page 347) in which MSTC informed the Interim Resolution Professional regarding its amount of claim and also informed that the MSTC was Secured Operational Creditor as security interest has been created by way of pledge over goods which were procured by the Corporate Debtor at the cost and expenses and which were to be lifted on cash and carry basis by the Corporate Debtor and that MSTC is still unpaid for unlifted balance and thus, it was Secured Operational Creditor. 24. The case of the MSTC is that MSTC was consistently making such claim but the Interim Resolution Professional or the Resolution Professional (now Liquidator) whose name was approved by the Committee of Creditors on 22nd December, 2017 and approved by the Adjudicating Authority on 4th January, 2018, both did not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ankura Plant scheduled on 29th March, 2018. The document shows that although MSTC had agreements (as referred in earlier part of this judgment) whereby its representative was on the premises of the Corporate Debtor for taking care of the goods which MSTC claims to be pledged, after the CIRP started, the access was not there, as e-mail dated 24th March, 2018 shows MSTC asking for gate passes for itself, Inspection Agency and FSNL to facilitate assessment. 26. It appears from the record that the assessment of the stocks was carried out through 'Geo Chem' on 29th March, 2018. MSTC has referred to Report dated 9th April, 2018 (Appeal Page 165) with regard to inspection carried out at the Bankura unit of the Corporate Debtor, on 29th March, 2018. The Physical Stocks Statement and Quality Report mentioned that the Applicant was MSTC and custodian was the Corporate Debtor. The place was Bankura factory yard of Corporate Debtor. Report has annexed to it "Joint Statement of Inspection" (Appeal Page 169) which is dated 29th March, 2018 and the Report found 63124.094 MT of Steam Coal and 40489.085 MT of Steel Billets at the site. The 'Joint Statement of Inspection' dated 29.03.2018 (First In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out and had even sought gate passes. 29. Section 18(1) (f) of the IBC and Explanation reads as under:- "18. Duties of interim resolution professional. - The interim resolution professional shall perform the following duties, namely: xxx xxx xxx (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including - (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; (vi) assets subject to the determination of ownership by a court or authority xxx xxx xxx Explanation. - For the purposes of this section, the term "assets" shall not include the following, namely: - (a) assets owned by a thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show steps taken on such count. Without doing this, when MSTC was constantly mentioning in its letters that it was Secured Creditor with goods pledged to it lying on the premises of the Corporate Debtor, nothing was done and when the assessment was carried out on 29th March, 2018, fault is being found with the official of the Corporate Debtor signing the Joint Statement of Inspection. We discard such effort on the part of the Appellant. The Appeal shows that the Appellant (Resolution Professional-now Liquidator) is conscious that 'Geo Chem' is an agency empanelled with MSTC which is an International Inspection and Testing Company. The Resolution Professional did not have any reason to question the action of 'Geo Chem' in the first Inspection Report. Grievance was not about the taking place of Inspection. It was only with regard to Authority of official of Corporate Debtor to sign the document. In fact, the Second Inspection/ Verification dated 3rd May, 2018 was also got done through 'Geo Chem'. With such facts, we are not ready to discard the First Inspection Report dated 29th March, 2018 on the lame excuse that the official of the Corporate Debtor was not authorised to sign the Jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stody. However, if the Corporate Debtor is in possession of such assets, it would be responsibility of the Interim Resolution Professional/ Resolution Professional who has taken over the management, to return the goods. If the goods get used to keep Corporate Debtor a going concern the value would have to become part of CIRP costs. Thus, if the Appellant claims that the goods were of the Corporate Debtor the taking over of control and custody would have to be shown. If the Appellant claims that the goods were not of the ownership of the Corporate Debtor (and inspection Report shows presence of the goods), there is no material to show that the same were returned to the owner. 36. MSTC has shown the presence of goods on 29th March, 2018 which drastically vanished by the time stocks assessment was done on 3rd May, 2018. In the facts of the matter, considering the agreements pointed out by MSTC, we do not find fault with the Adjudicating Authority drawing conclusion that MSTC deserves to be treated as Secured Operational Creditor. Counsel for Appellant has relied on Judgment of this Tribunal in the matter of "Volkswagen Finance Private Limited vs. Shree Balaji Printopack Pvt. Ltd."- [ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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