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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 ..... erim Resolution Professional and the Resolution Professional did actually go and take or cause to be taken physical verification of the stocks. When the provisions require taking control and custody of the assets, it would be necessary for the Interim Resolution Professional/ Resolution Professional to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the facts. There is no substance in the Appeal - appeal dismissed. - Company Appeal (AT) (Insolvency) No.1482 of 2019 - - - Dated:- 5-7-2021 - [Justice A.I.S. Cheema] The Officiating Chairperson And [Justice Anant Bijay Singh] Member (Judicial) For the Appellant : Mr. Arun Kathpalia, Sr. Advocate with Mr. R. Sudhinder, Ms. Ekta Bhasin, Ms. Pooja Chakrabarti, Mr. Prithwish Roy and Ms. Dikshaa Gupta, Advocates For the Respondent : Mr. Abhijeet Sinha, Mr. Saikat Sarkar and Ms. Pallavi Pratap (Caveator), Advocates for R-1. JUDGMENT A.I.S. Cheema, J. 1. The Appellant Corporate Debtor Concast Steel and Power Limited (CSPL in short) has filed this Appeal through Liquidator against the Impugned Order dated 25th October, 2019 passed by Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) in CA (IB) No. 713/KB/2018 and CP (IB) No. 446/KB/2017. By the Impugned Order, the Adjudicating Authority allowed the Application filed by the Respondent MSTC Limited (MSTC in short). MSTC had supplied goods to the Corporate Debtor and made a claim of ₹ 300.17 Crores which claim was accepted during Corporate Insolvency Resolution Process (CIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as agreed between the parties. Appellant claims that the supervising agent was the custodian of the material which was pledged to MSTC and the material was to be released from time to time to CBIL on cash and carry basis after receipt of authorization from MSTC (See Appeal Paragraph 7 (e)). Referring to the tripartite agreement (Annexure C), the Appeal claims that CBIL was to provide storage of the billets and other materials purchased by MSTC for supply in its warehousing facility located at Mouza Moshiya, Village Gourandihi, P.O. Bonkati, Bankura in West Bengal. Ferro Scrape Nigam Limited (FSNL in short) was to be custodian. Subsequently the agreement was extended for period till entire pledged material is redeemed and lifted by CBIL. Steps of IRP/ RP on initiation of CIRP 4. The Appellant further claims that after CIRP was initiated, the IRP Mr. Sanjay Agarwal had noted that the Company had total stock of 1943 MT of MS Billets and 16789 MT of Coal on the date of 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 Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. The arrangement was to protect interest of MSTC in the said materials. The Corporate Debtor was to utilize the materials on cash and carry basis. The goods were stored in the factory premises of the Corporate Debtor at Bankura in West Bengal and also at Jharsuguda in Orissa. From 2017 onwards, the Corporate Debtor was failing and neglecting to pay the outstanding dues. There was outstanding of ₹ 285.01 Crores (Including interest when letter dated 16.09.2017 was sent). When CIRP was initiated MSTC filed Form B of ₹ 300.71 Crores which claim was admitted by the IRP. The MSTC however was not treated as secured creditor in spite of the documents. The Appellant admitted entire claim of the MSTC of ₹ 300.71 Crores but refused to accept MSTC as secured creditor. According to the MSTC with prior intimation to the Appellant inspection was carried out through 3rd Party regarding the procured material secured at Bankura Factory on 29.03.2018. The Appellant however refused to accept the inspection 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 accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of MSTC. In addition to such condition, the Corporate Debtor was required to provide post-dated cheques towards consideration in favour of MSTC. The Document shows that Respondent/MSTC was secured creditor. Respondent claimed that Respondent had given intimation on 24th March, 2018 for inspection on 29th March, 2018 and the same was conducted by M/s. GEM CHEM an independent assessment agency which showed quantity of 63124.9 MT of Steam Coal and 40489.085 MT of Steel Billets. Till March, 2018 such stock was available. Respondent claims that in the meeting on 08th May, 2018 the Appellant handed over copy of email dated 24th April, 2018 which was allegedly sent and it was claimed that quantities available at various locations were actually less than found in the inspection held on 29th March, 2018. Respondent claims that the stock was either stolen and / or unlawfully consumed by the Corporate Debtor without intimating the Respondent. The goods and stocks which were lying at Bankura and Orissa factories, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(31)- security interest means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: 3(33)- transaction includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor; 9. From the definition of creditor, it is apparent that any person to whom a debt is owed is a creditor which includes both an operational creditor and a secured creditor. A creditor becomes a secured creditor in favour of whom security interest is created. Thus, if a security interest is created or exists in favour of an operational creditor then such operational creditor would be considered as secured creditor. 10. Having said so, now we have to see whether in the present case any security interest 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of MSTC could not be said to be a secured creditor. 11. It is further argued by Learned Counsel for the Appellant that the Respondent- MSTC is claiming to be owner in respect of the goods sold and the Corporate Debtor having purportedly pledged such goods in favour of the Respondent. Such claim was admitted as unsecured. It is claimed that such stand of the Respondent was self-destructive. It is further argued that the stocks purported to be pledged do not exist. The Respondent has filed an FIR in relation to purportedly missing goods. The Respondent has made allegations of discrepancies between an alleged inspection carried out on 29.03.2018 which according to Appellant is without the presence of the Resolution Professional and the joint inspection conducted on 03.05.2018. Such allegations are untenable. 12. The Learned Senior Counsel for the Appellant has further submitted that under a tripartite agreement dated 14.08.2013 (Annexure-C, Page 17) between Corporate Debtor, MSTC and FSNL, FSNL was appointed by MSTC and became the custodian of all goods purchased through MSTC. FSNL was entrusted with receiving the goods, custody of the goods, release of the goods as als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements between CBIL and MSTC are also, therefore, referred as agreements between Corporate Debtor and MSTC. (In documents reference to CIBIL should be referred as Corporate Debtor CSPL) 14. The Respondent claims that the Respondent had lodged a claim for a total amount of ₹ 302.58 Crores which was revised to ₹ 300.70 Crores. However, the Resolution Professional did not accept MSTC as secured creditor. Respondent refers to the agreements between the Corporate Debtor and MSTC dated 6th April, 2013 (Appeal Page 269) and 3rd February, 2014 (Appeal Page 280) where inter alia it was provided that (a) MSTC was to procure the Goods on behalf of the Corporate Debtor; (b) the sale of such Goods was to be on cash and carry basis; (c) the delivery of the Goods was to be made to Corporate Debtor on proper authorization of MSTC; (d) Tripartite Agreement was to be entered into MSTC, Corporate Debtor and Ferro Scrap Nigam Ltd. (FSNL); (e) Goods were to be pledged in favour of MSTC until payment for the Goods was made (Page 272); and (f) in order to ensure that the movement of Goods did not take place until full payment was made, for the protection of financial interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary No.213404, Page-1). The Respondent states that the Resolution Professional did not file any document to show that any physical verification of the quantities or stocks was undertaken by the Resolution Professional/ Liquidator at any time even after taking charge from the Interim Resolution Professional. There was considerable depletion of the quantity of stocks and, therefore, MSTC has also initiated criminal proceedings and a charge sheet has been filed. 16. The Respondent further claims that it is not correct on the part of the Appellant to claim that during the physical verification carried out by MSTC in March, 2018 there was no authorized representative of the Resolution Professional. According to Respondent, the Physical Stock Assessment and Quality Report issued by Geo Chem (First Report) refers to a joint statement of inspection which was attended to by the representative of the Corporate Debtor (Page 169). When the Resolution Professional wrote letter dated 24th April, 2018 after the above First Report, it was not claimed that the authorized personnel of the Resolution Professional were not present. The stand taken by the Resolution Professional was that Mr. Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under:- 10.1.1 However, if CBIL is unable to furnish L/C for the value of material sold, then the High Seas Sale will be made against PDCs for maximum 90 (ninety) days for the value of entire cargo and the entire cargo shall move to the designated stockyard/ plot within CBIL s works for exclusive storage of cargo pledged to MSTC under the supervision of CWC/FSNL/Supervising Agency appointed by CBIL with prior consent from MSTC, the costs of which shall be borne by CBIL. The said designated stockyard shall be duly demarcated by appropriate boundary mark and highlighting that it is MSTC s bonded warehouse, to the satisfaction of CWC/FSNL/Supervising Agency. CWC/FSNL/Supervising Agency and MSTC shall sign a tripartite agreement whereby CWC/FSNL/Supervising Agency would deliver the goods to CBIL only against written release instruction from MSTC. CBIL will appoint CWC/FSNL/Supervising Agency with consent of MSTC as the custodian of the pledged material who will also responsible for delivery of material to CBIL only against written instruction by MSTC for the purpose. Specific authorization for release of material will be issued by MSTC to CWC/FSNL/Supervising Agency for the quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kyard immediately upon arrival, CBIL shall not do transit warehousing of the material unless it is specifically agreed by MSTC. And whereas, FSNL is appointed by MSTC and FSNL shall act as a custodian of pledged stock to protect interest of MSTC. Now this tripartite agreement witnesseth as follows: 1. It is greed that for the purpose of storage of Billets other material purchased by MSTC for supply to CBIL from time to time in terms of the agreement made between them under agreement dated 29.06.12 and subsequent Addendums, CBIL shall provide well developed space to MSTC for warehousing at CBIL premises located at Mouza Mosliya, Junebedia, Bankura, West Bengal. 2. MSTC shall use the said warehouse/stockyard as Licensee for a period of One year from 14-August-2013 or till the pledged goods are fully lifted, whichever is later and shall pay token sum of ₹ 10/- per month (Rupees ten per month only) as consolidated license fee to CBIL. 3. CBIL shall handover the warehouse/stockyard to MSTC. An office equipped with required infrastructure such as electricity, toilet, telephone, access to fax/ e-mail etc. will have to be provided free of cost to FSNL and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The powers hereby conferred on you are irrevocable and shall be exercisable by you, your successors and assigns. The Schedule above referred to A Total Quantity of 3180 MT (+/-10%) OF Steel Billet transported by Road under RTGS dtd. 13th December, 2016 from Hoogly to Jhansuguda, Odisha. 21. What appears from above is that goods procured by MSTC for consumption of Corporate Debtor, stored at the premises of Corporate Debtor, under custody of FSNL for MSTC, which were to be issued to Corporate Debtor on cash and carry basis was in practical execution modified accepting Memorandum of Pledge treating Corporate Debtor as Pledger delivering goods by way of arrival of shipment at its factory premises for payment of amounts mentioned in the Memorandum which was to be treated as advance by MSTC to Corporate Debtor. MSTC thus claims existence of pledge and goods at site to be of MSTC and to be secured. 22. Having heard Counsel for both sides and having gone through the records what is apparent is that CIRP started on 7th November, 2017. One Mr. Sanjay Kumar Agarwal was earlier appointed as Interim Resolution Professional. MSTC filed claim with the Interim Resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out the current market price of the pledged goods which was more than 30% than the book value, outstanding amount of ₹ 302.58 Crores and proposed to the Resolution Professional that if the material pledged is used instead of fresh procurements there would be substantial savings and payment can be adjusted against its claim. 25. There is another letter of MSTC dated 22nd March, 2018 (Page 356 of the Appeal) which annexed details of stock lying at the two plants and their value pointed out to the Resolution Professional that its officials had meeting with the Resolution Professional and he had given to understand that he would allow consumption of MSTC material after assessment of stocks is over which was not done. MSTC pointed out that they would be having stock assessment by an outside agency empanelled by them by end of the month i.e. March, 2018. There is e-mail (Appeal Page 361) from MSTC dated 24th March, 2018 addressed to [email protected] and in the same page there is e-mail addressed to IP Concast dated 27th March, 2018. The document at Page 361 of the Appeal shows that MSTC has informed regarding the volumetric assessment at Concast Steel and Power, B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Joint Statement of Inspection done on 3rd May, 2018 (Second Inspection Report- in short). The document of actual Joint Statement of Inspection is at Page 370 of the Appeal. The Second Inspection Report shows that at such time at the site very few billets approximately 1506 MT were lying in the billets yard and the Steam Coal now found was 40420.236 MT at the same site. The Resolution Professional later on prepared list of Creditors updated as on 8th June, 2018 (Page 345). Claim of MSTC was admitted to the extent of ₹ 3,007,092,993/- but still with regard to security interest it was mentioned that verification under process . 28. Before us there are these two Inspection Reports done on 29th March, 2018 (First Report) and the other done on 3rd May, 2018 (Second Report). The Appellant (Resolution Professional/ Liquidator) wants the First Inspection Report to be ignored on their reasoning that it was not carried out in the presence of the authorised representative. Fact remains that the inspection was carried out in the presence of official of Corporate Debtor who was at the concerned premises and after there is record to show that MSTC had informed regarding the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above provisions that when Interim Resolution Professional gets appointed, the management of the Corporate Debtor vests in the Interim Resolution Professional. The above provisions point out duty on the part of the Interim Resolution Professional/ Resolution Professional to take immediate custody and control of all the assets of the Corporate Debtor, including the business records of the Corporate Debtor. When it is duty to take immediate custody and control of all assets of the Corporate Debtor and at the same time not to include assets owned by a third party which is in possession of Corporate Debtor a responsibility to physically take, segregate and account for is spelt out. 32. Facts in the present matter point out that the Interim Resolution Professional took note of the records and on said basis calculated the stocks. However, there is no material shown that before the second Inspection dated 12th May, 2018 was done, at any time the Interim Resolution Professional and the Resolution Professional did actually go and take or cause to be taken physical verification of the stocks. When the provisions require taking control and custody of the assets, it would be necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion through SFIO which direction appears to have been later on modified to get investigation done through local police. Charge sheet now is pending. 34. From the above discussions, the matter zeros down to the position that MSTC had in view of the agreements as referred above and arrangements with the Corporate Debtor to store the goods which appear to have been imported, on the premises of the Corporate Debtor but FSNL was to be the custodian. The access of FSNL and MSTC appears to have got lost when CIRP started and Interim Resolution Professional/ Resolution Professional came into management. First Inspection Report read with Second Inspection Report show Substantial goods have been lost/missing/ consumed (or whatever) for which MSTC cannot be blamed. 35. Section 18 shows that the Interim Resolution Professional was to take control and custody of the assets over which the Corporate Debtor has ownership rights and which may be in possession of the Corporate Debtor. The explanation shows if the Corporate Debtor is in the possession of the assets owned by a third party which are in possession of the Corporate Debtor held under trust or under contractual arrangements includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecall Explanation below Section 18 would require, as discussed earlier segregating assets owned by a third party in possession of Corporate Debtor, including Bailment and thus naturally accounting for it. In the facts of present matter, at present we are not revisiting interpretation of law on this dispute of charge for further reasons as below. 38. The Appellant wants to claim that pledge should not be recognised. In the facts of the matter where goods of MSTC have disappeared drastically from custody of Corporate Debtor under management of IRP/ RP, if the Agreements (as on record) between parties are seen, the goods- (Steam Coal and Steel Billets which reduced between the First Inspection Report and Second Inspection Report) was of the ownership of MSTC. Same must be deemed to have been consumed at the Bankura Unit which was functional during CIRP. The value of the same should in that case have to step up the ladder under Section 53 of IBC as CIRP costs. However, this not having been claimed by MSTC, we decline to interfere in the Impugned order, which placed MSTC on a lower rung, considering the facts. 39. For the above reasons, we do not find that there is substance in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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