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2024 (8) TMI 727 - AT - Insolvency and BankruptcyRejection of prayer for quashing the invitation of Expression of Interest ( EoI ) dated 25.04.2022 issued by Respondent No.1 Financial Creditor - error in the Assignment Agreement executed by Respondent no.2 or not - It is submitted that EoI for selection of new operation and maintenance contractor does not amount to any breach of Section 14(1)(d) of the IBC - HELD THAT - On looking into the Facility Use Agreement entered between Corporate Debtor and Respondent No.2, it is clear that the Appellant has been handed over the substations (switchyards) for operation and maintenance and there is a clear Agreement between the parties that notwithstanding the Corporate Debtor operating, maintaining and usage of Facility, the ownership of the Facility shall remain solely with Respondent No.2. Except for the right to operate, maintain and use the Facility, the Corporate Debtor will have no right whatsoever in the ownership of the Facility. We have also extracted Clause 2.2.(d) of the Facility Agreement dated 12.08.2013. There can be no dispute that Facility has been handed over to the Appellant for operation and maintenance. Further, Respondent No.2 was also obliged to provide access to representative of the Corporate Debtor for operating and maintenance, but the mere fact that the Appellant has been permitted to use the Facility for operation and maintenance, cannot lead to conclusion that the Corporate Debtor is in occupation of the Facility and there is any breach of Section 14(1)(d). Section 14(1)(d) of the IBC prohibits recovery of any property by an owner or lessor, where such property is occupied and in possession of the Corporate Debtor. The present is not a recovery of the Facility by owner or lessor, who is Respondent No.2 herein. Further, the Facility is neither in occupation, nor in possession of the Corporate Debtor, since the Corporate Debtor has been appointed as operating and maintenance contractor The Adjudicating Authority has considered the various Clauses of the Facility Agreement and has rightly come to the conclusion that the EoI issued by Respondent No.1 to appoint another operating and maintenance contractor, cannot be interfered with. The fact is not disputed that the Corporate Debtor is not paying the facility use charges and is trying to set off the same against the claim against Respondent No.2. It is due to the non-payment of facility use charges, Respondent No.2 is unable to service the debt, causing an event of default for which Respondent No.1 has already initiated proceedings under the SARFAESI Act, 2002 against Respondent No.2. Thus, no error has been committed by the Adjudicating Authority in rejecting the Application filed by the Appellant - there are no merit in the Appeal - appeal dismissed.
Issues Involved:
1. Validity of the Expression of Interest (EoI) issued by Respondent No.1 under Section 14(1)(d) of the Insolvency and Bankruptcy Code (IBC). 2. Ownership and operational rights over the Facility. 3. Applicability of Section 14 of the IBC to the EoI issued. 4. Impact of non-payment of Facility usage charges by the Corporate Debtor. 5. Validity of actions taken under the SARFAESI Act. Issue-wise Detailed Analysis: 1. Validity of the Expression of Interest (EoI) issued by Respondent No.1 under Section 14(1)(d) of the Insolvency and Bankruptcy Code (IBC): The Corporate Debtor, through its Resolution Professional (RP), challenged the EoI dated 25.04.2022 issued by Respondent No.1, arguing that it violated Section 14(1)(d) of the IBC. The Adjudicating Authority, however, rejected this submission, holding that the Corporate Debtor did not have ownership of the Facility and merely had rights to operate, maintain, and use it. Consequently, the issuance of the EoI was not in contravention of Section 14(1)(d) of the IBC. 2. Ownership and operational rights over the Facility: The Facility Agreement dated 28.12.2007 between the Corporate Debtor and Respondent No.2 granted the Corporate Debtor the right to use, operate, and maintain the Facility. However, the Agreement explicitly stated that the ownership of the Facility remained solely with Respondent No.2. This was reiterated in the Facility Usage Agreement dated 12.08.2013, which also mandated the payment of facility usage charges by the Corporate Debtor. 3. Applicability of Section 14 of the IBC to the EoI issued: Section 14(1)(d) of the IBC prohibits the recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor. The Tribunal, referencing the Facility Agreement, concluded that the Corporate Debtor's rights were limited to operation and maintenance, and it did not have possession or occupation of the Facility. Thus, the EoI issued by Respondent No.1 did not breach Section 14(1)(d). 4. Impact of non-payment of Facility usage charges by the Corporate Debtor: The Corporate Debtor was obligated to pay facility usage charges to Respondent No.2, which it failed to do. This non-payment led to Respondent No.2's inability to service its loan, causing an event of default. Consequently, Respondent No.1 initiated proceedings under the SARFAESI Act against Respondent No.2. The Tribunal noted that the Corporate Debtor's attempt to set off the unpaid charges against claims from Respondent No.2 did not justify the non-payment. 5. Validity of actions taken under the SARFAESI Act: Respondent No.1's actions under the SARFAESI Act were upheld by the Tribunal. The Tribunal had earlier refused to stay the SARFAESI proceedings, noting that the action was against Respondent No.2 and not the Corporate Debtor. The Tribunal emphasized that the EoI for selecting a new operation and maintenance contractor did not violate Section 14(1)(d) of the IBC and that Respondent No.1's measures were within its rights under the Loan Agreement, Hypothecation Agreement, and Conditional Deed of Assignment. Conclusion: The Tribunal dismissed the Appeal, affirming the Adjudicating Authority's decision that the EoI issued by Respondent No.1 did not breach Section 14(1)(d) of the IBC. The Corporate Debtor's rights were limited to operation and maintenance, without ownership or possession of the Facility. The Tribunal found no error in the Adjudicating Authority's rejection of the Corporate Debtor's Application and upheld the actions taken under the SARFAESI Act. The Appeal was dismissed with no order as to costs.
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