2020 (8) TMI 534 - AT - Insolvency and Bankruptcy

Release of raw material/stock lying at the plant of Corporate Debtor as belonging to it - CIRP process - HELD THAT - It must be remembered that Section 9 Application was admitted on 23.08.2018 and thus there were occasions which were required to be taken note with regard to pro or post moratorium. In view of this, the Adjudicating Authority passed orders as noted. It is not found that the Appellant can find fault with the Resolution Professional if the claim as made by the Appellant did not get support from the Books of Accounts of the Corporate Debtor. At the time of argument, learned Counsel for the Resolution Professional submitted that as there were dues payable by the Appellant, the Corporate Debtor could exercise lien on the goods which were available with the Corporate Debtor and thus, according to the learned Counsel, the Adjudicating Authority rightly protected the interest of the Appellant as well as Corporate Debtor by directing that while returning the goods, side by side the dues payable by the Appellant should come to the Corporate Debtor. There are no fault with the directions of the Adjudicating Authority as recorded in paragraph-21 of the Impugned Order. The actions taken by the Resolution Professional were placed before the CoC and even CoC had found that the Appellant should clear the outstanding dues of the Corporate Debtor before goods could be returned. Appeal dismissed.

Summary

Issues involved:
1. Ownership of raw material/stock in insolvency proceedings.
2. Appellant's claim for release of raw material/stock.
3. Resolution Professional's rejection of appellant's claim.
4. Dispute over outstanding dues and expenses.
5. Appellant's request for immediate release of goods.
6. Resolution Professional's defense under the Indian Contract Act.
7. Adjudicating Authority's decision on ownership and dues.

Issue 1: Ownership of raw material/stock in insolvency proceedings
The appeal was filed by a company seeking the release of raw material/stock claimed to belong to it during insolvency proceedings. The original proceedings were initiated by an Operational Creditor against the Corporate Debtor. The Adjudicating Authority held that the impugned asset was not the property of the Corporate Debtor but owned by a third party, directing its return to the Intervener urgently. The Intervener was also required to reimburse the Pre-CIRP cost incurred.

Issue 2: Appellant's claim for release of raw material/stock
The Appellant sought immediate release of raw material/stock, claiming they were exclusively owned and not subject to the moratorium. The Appellant filed an Intervention Application for the release of goods and to direct the Resolution Professional to release admitted dues. The Appellant's claim was rejected partially, leading to the appeal seeking various reliefs, including the release of raw material/stock and setting aside the RP's claim for alleged dues.

Issue 3: Resolution Professional's rejection of appellant's claim
The Resolution Professional rejected a part of the Appellant's claim, citing shortcomings in the Corporate Debtor's Books of Accounts. The Resolution Professional argued that the Appellant had not cleared pending dues and expenses, leading to CoC objections regarding the return of goods. The Resolution Professional asserted the Corporate Debtor's right to retain raw materials due to unpaid dues.

Issue 4: Dispute over outstanding dues and expenses
The Resolution Professional claimed that the Appellant had not paid all monthly expenses as per the Agreement, resulting in outstanding dues. CoC meetings highlighted non-payment issues affecting liquidity. The Resolution Professional emphasized the need for the Appellant to clear outstanding dues before the return of goods could be considered.

Issue 5: Appellant's request for immediate release of goods
The Appellant requested the immediate release of goods due to their perishable nature and the impending loss of value. The Appellant faced challenges in retrieving the stocks, leading to a CoC resolution appointing a Stock Auditor to verify the stocks.

Issue 6: Resolution Professional's defense under the Indian Contract Act
The Resolution Professional invoked Section 170 of the Indian Contract Act, asserting the Corporate Debtor's right to retain raw materials until pending dues were cleared. The Resolution Professional argued that the Appellant did not press the difference amount earlier and that the claim was verified based on supporting documents.

Issue 7: Adjudicating Authority's decision on ownership and dues
The Adjudicating Authority analyzed the parties' cases, noting ownership of goods by the Appellant and pending dues. The Authority passed orders to protect the interests of both parties, directing the return of goods while ensuring the payment of dues by the Appellant. The Authority upheld the Resolution Professional's actions and CoC decisions, dismissing the appeal for lack of substance.

In conclusion, the judgment addressed ownership disputes, claim rejections, outstanding dues, and the release of goods during insolvency proceedings, emphasizing the need to balance the interests of all parties involved.