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TMI Blog2022 (8) TMI 1116X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with Section 18(1)(f) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'The Code'). 2. Succinctly put, the facts in brief are that the International Air Transport Association (hereinafter referred to as 'IATA'), had obtained an Insurance Policy from M/s. IFFCO Tokio General Insurance Company Limited (hereinafter referred to as 'IFFCO Tokio'), for covering any default committed by its Agents, one such Agent being M/s. Cox and Kings Limited (hereinafter referred to as the 'Corporate Debtor'). It is stated that due to the default committed by the 'Corporate Debtor', IATA submitted the Insurance Claim to IFFCO Tokio for an amount of Rs.83 Crores/- covered under the policy. IFFCO Tokio made the payment to IATA on 01.11.2019 and settled the claim amount. Vide letter dated 01.11.2019, i.e., on the same day, IFFCO Tokio was subrogated and sought to recover the 'Claim' amount. It is averred by the Applicant that as per Clause 7.2 of the Agreement, the said outstanding amount of Rs. 83 Crores/- be classified as 'Asset in Trust' as defined under Section 18(f) of the Code. The Learned Adjudicating Authority dismissed the I.A. holding as follows: "....3(11) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Appellant to prosecute the 'Corporate Debtor' for recovering the outstanding dues. * The Appellant on coming to know that Mr. Alok Kumar Agarwal was appointed as the IRP, mistakenly filed its 'Claim' before the IRP as an 'Operational Creditor' on 06.11.2019. * Learned Counsel placed reliance on Clause 7.2 of the Agreement in support of the Appellant's case that the amount collected under the Agreement is to be held in trust and these monies are not the assets of the 'Corporate Debtor'. Therefore, they cannot form part of the assets of the 'Corporate Debtor' for the purpose of Liquidation as per the mechanism under the Code and are required to be paid over to the party for whom they are being held under trust. The relevant portion of the Clause is extracted as hereunder: "7.2. all monies collected by the Agent for transportation and ancillary services sold under the Agreement including applicable remuneration which the Agent is entitled to claim thereunder, are the property of the 'Carrier' and must be held by the Agent in trust for the 'Carrier' or on behalf of the 'Carrier' until satisfactorily accounted for the 'Carrier' and settlement made." * As per Clause 3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. and Ors.' Vs. 'Vijaykum V. Iyer', [MA 230/2019 in CP No. 302/IBC/NCLT/MB/MAH/2018 and MA 219/2019 in CP No. 298/IBC/NCLT/MB/MAH/2018], Para 22.2 has observed as follows: "22.2 The above view is also to be examined in the light of few other provisions of the Code which are in operation during Corporate Insolvency Resolution Process. One of such Section is 18(1)(f) of The Insolvency Code wherein it is prescribed the duties of IP and one of them is to 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, whether that asset may or may not be in possession of the Corporate Debtor. So the general rule is that the IP is supposed to take control over all the assets of a Corporate Debtor having ownership rights. This is only one part of the coin and naturally the other part of the coin ought not to be ignored. Both the facets of a coin are equally important. Rather, one face coin is of no value. Likewise, a Balance Sheet is incomplete if not demonstrating assets as well as liabilities. Likewise, an account cannot be settled without accounting the credit entry as well as the debit entry. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Makers Pvt. Ltd. V/s. Parabolic Drugs Ltd. [CA 206/2019 in CP 102/CHD/2018], order dated 26.04.2019, that a perishable stock is supplied to the Corporate Debtor hence in possession of the Resolution Professional, who has denied to return the said stock back to the claimant on the ground of commencement of "Moratorium" but the NCLT Bench, Chandigarh has taken a view that an adjustment has to be allowed because the said stock was under 'contractual arrangement' in possession of the Corporate Debtor, therefore, out of the ambits of 'Moratorium' so that the said stock be returned to its actual owner. Therefore, a conclusion can be drawn that even during CIRP a question of set-off or netting off or adjustment can be raised either by the Creditor or by the Debtor which is permissible and to be adjudicated upon." (Emphasis Supplied) 'M/s. Embassy Property Developments Pvt. Ltd.' Vs. 'State of Karnataka & Ors.', [(2020) 13 SCC 308], in Para 40 it is observed as follows: 40. If NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(1)(vi) would not have made the task of the interim resolution professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002" and thus, although the machinery is the owned by appellant it is in legal possession of the Janata Sahkari Bank Limited though physically machinery is in the premises of the Corporate Debtor. 7. Both sides agree that as per explanation below Section 18 of Insolvency and Bankruptcy Code, 2016, the plant is owned by appellant and thus does not belong to the Corporate Debtor and is thus owned by third party, i.e. The Appellant. 8. As such we direct that the possession of the plant machinery shall be restored to the appellant through Janata Sahkari Bank Limited, Pune. The respondents will act accordingly. The appeal is accordingly disposed of. The claim of the Janata Sahkari Bank Limited with regard to the legal possession of the plant is left open and not disturbed, for the bank to take appropriate action under the provisions of law." * It is contended that the Adjudicating Authority has erroneously relied upon Clause 7.4 of the Agreement which stipulates that it can be invoked only after the Company goes into Liquidation. Liquidation Process commenced on 16.12.2021 and hence Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alls squarely within the definition of debt under Section 3(11) of the Code. * The reliefs claimed by the Appellant are in violation of Section 14(1)(b) and Section 14(1)(d) of the Moratorium which restrict transferring alienating or disposing of by the 'Corporate Debtor' any of assets or any legal right or beneficial interest therein. Further any payments made to the Appellant would also be in violation of the security interest/charge held by the 'Financial Creditors' of the Company over its Movable Assets including cash and Bank balance. If any dues were made to the Appellant, it would be contrary to the scheme of Code as it would enable the Appellant to take advantage over all the existing 'Secured Financial Creditors' and 'Operational Creditors'. * The Insolvency and Bankruptcy Board of India Regulation for Corporate Persons 2016 (CIRP Regulations) do not contain any specific exclusion against applicability of Section 14 vis-a-vis third party asset. However, such an exclusion has been expressly provided for in Rule 10 of the Insolvency and Bankruptcy (Insolvency and Regulation Proceedings of Financial Service Providers and Application to the Adjudicating Authority) Rules, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement of any trust is nowhere envisaged under the Agreement. Therefore, a valid trust has never been created under the provisions of Indian Trust Act, 1882. Assessment: 5. The main case of the Appellant is that the entire amount of Rs.83,16,80,230/- payable to the Appellant on the premises that the amount collected by the 'Corporate Debtor' on behalf of the 'Carrier'/IATA, in whose place, the Appellant has been subrogated, constitutes, 'Asset held in Trust' in terms of explanation A to Section 18 (f) of the Code. It is the main case of the Appellant that as per Section 18(f) of the Code, the IRP can take control and custody of the assets over which the 'Corporate Debtor' has Ownership Rights as recorded in the Balance Sheet. The explanation to Section 18(1)(f) provides that an asset owed by a third party in possession of the 'Corporate Debtor', held under trust, or contractual arrangement including bailment, cannot be taken into custody. Therefore, the moot question which arises in this Appeal is whether the amount collected by the 'Corporate Debtor' on behalf of the 'Carrier' is essentially 'goods held in trust' which can be recovered by the Appellant herein who stood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all third parties and not only per se in respect of transactions under the Agreement. It is relevant to note that there was no prior demarcation as to which of the amounts were received under the terms of the Agreement and which amount was received on account of other transactions of the 'Corporate Debtor'. 9. Having regard to the facts and circumstances of the attendant case on hand, in the absence of any separate trust account and specifically in the absence of any specific segregation/demarcation of the amount collected by the 'Corporate Debtor' under the terms of the Agreement, we are of the considered view that no trust can be said to have come into the existence in favour of the 'Carrier' in the present case as the goods that are said to be held in trust is the 'Money'/amounts collected by the 'Corporate Debtor'. There is no documentary evidence on record to establish that any steps were taken for creation of any separate trust account by the parties to the Agreement. Further, we are also conscious of the fact that the Appellant or the 'Carrier' did not take any action to recover the assets which they are claiming today prior to the initiation of the CIRP i.e., prior to 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n their capacity as 'Operational Creditor'. Section 3(11) of the Code defines 'debt' as follows: "3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;" 13. At the cost of repetition, merely because Clause 7.2 of the Agreement states that the property of the 'Carrier' must be held by the Agent in trust over the 'Carrier' does not lead to an understanding that the money in fact is to be held by the Company in trust for the 'Carrier'/IATA. If this is to be strictly interpreted, and if that was the truest intention of the parties, a separate trust account would have been opened to earmark the amounts received by the 'Corporate Debtor' in terms of Clause 7.2 of the Agreement, which in the instant case is admittedly not done. This provision in the Clause is only for defining the accountability of the 'Corporate Debtor'/Agent to the 'Carrier'/IATA for the amounts received or collected on behalf of the latter and prevent any misuse of such amounts. Therefore, we are of the considered view that the explanation to Section 18(f) of the Code is not applicable and hence the Judgements relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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