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TMI Blog2025 (4) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia filed Company Petition CP (IB) No. 72/CHD/HRY/2017 under Section 7 of the IBC against CD-M/s Vegan Colloids Limited. The petition was admitted by the Adjudicating Authority, initiating CIRP. Mr. Anil Kohli (Appellant) was appointed as the Interim Resolution Professional (IRP) on 04.12.2017 and later confirmed as the Resolution Professional. On 10.10.2018, the CD-M/s Vegan Colloids Limited was directed to undergo liquidation, and the Appellant was appointed as the Liquidator. 3. During liquidation, Respondent No. 1- PNB filed a claim of Rs.18,17,55,581/- on 17.12.2018, which was admitted by the Liquidator. Respondent No. 1- PNB relinquished its security interest to the Liquidation Estate, agreeing to receive proceeds from the asset sale. The Appellant initiated statutory audits for FY 2018-19 and obtained the audited financials on 08.01.2020. Discrepancies in financials prompted the Appellant to seek clarifications from Personal Guarantors - Respondents No. 2 and 3, and the late Mr. Bajrang Dass Aggarwal, who provided explanations on 25.02.2020. 4. The Appellant-Liquidator claimed that Rs.4,50,44,500/- deposited with the Respondent No. 1-PNB formed part of the Liquidation Est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceivable and an amount of Rs. 4,50,44,500/- has been reduced from the short-term borrowing in the balance sheet of the Corporate Debtor. In the event, any amount, if believed to be correct as contented and relied by the Adjudicating Authority was paid by Respondent Nos 2 and 3 as guarantors, then no such reduction in the short-term borrowing was required to be made in the balance sheet of the Corporate Debtor. 8. During the liquidation process no creditor can realise any amount towards its debt satisfaction from the account of the Corporate Debtor. The only mechanism under which a creditor can realise its security interest is either through Sections 52 or 53 of the Code. Since the Respondent No. 1-PNB had relinquished its security interest to the Liquidation Estate and, therefore, any realisation which Respondent No. 1 could have done towards its debt from the loan account of the Corporate Debtor can only be as per waterfall priority provided under Section 53 of the Code. 9. The Adjudicating Authority negated to consider the treatment in the balance sheet of FY 2018-19 whereby the short-term borrowings were reduced will be debt satisfaction qua the creditor from the account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. Rs. 44,500/- (Rupees Forty four lakhs five hundred only) received from M/S Vikas Chemical Gums (India) Corporate Guarantor on 19.03.2019. d. Rs. 2,50,00,000/- (Rupees two crore fifty lakhs only received from M/s True Value Traders on 05.01.2019." 14. Shri B. D Aggarwal/Guarantor acting as a guarantor, had entered into a OTS with the Bank and acknowledged individual liability through a letter dated 22.01.2019. The letter also referenced mortgaged properties not belonging to the Corporate Debtor, which the guarantor sought to release through settlement. The Bank accepted this proposal. Since Banks do not maintain separate accounts for borrowers and guarantors, any payment made by the guarantors is credited to the principal borrower's account and adjusted against its liability. Consequently, payments made by the guarantors reduced the Corporate Debtor's liability to the bank. 15. Respondents No. 1-PNB claims in its reply that the appellant is not entitled to refund as the amount of Rs. 4,50,44,500/- was deposited towards OTS which was entered into by the Guarantors in their individual capacity and as Corporate Guarantor for release of their properties under Equitable Mortgage. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'co-extensive' is an adjective for the word 'extent' and relates to the quantum of the principal debt. It is a settle proposition of law that the discharge of the principal debtor by operation of law does not discharge the surety and suit may also be maintained against the surety for the full payment of the debt where the principal-debtor has been adjudged insolvent or gone into liquidation. Further, as per the provisions of Code, separate proceedings may also be instituted against the personal/corporate guarantor of the Corporate Debtor, which clearly proves that the liability of surety is co-extensive with the borrower and guarantors are equally liable to pay the dues of the Corporate Debtor. 21. The guarantors of the loan account of Corporate Debtor entered into compromise with the answering Respondent Bank and amount was deposited/arranged by the guarantors to clear their liabilities being as guarantors, towards Bank. As such amount which was deposited and adjusted towards liability of the Corporate Debtor cannot be part of the Liquidation Estate. It is further stated that the only assets of the Corporate Debtor will become the part of the Liquidation Estate, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets of the Corporate Debtor. 24. The said amount has been paid/arranged by the surety/guarantors of the Corporate Debtor. It is also submitted that the said amount has not been paid/deposited by the Corporate Debtor directly in the loan account nor Bank has received the same from the realisation of assets of the Corporate Debtor. It is further submitted that the liability of the surety/guarantors continues till the payment has been made by them against the amount outstanding to be paid in the loan account of the Corporate Debtor, as such, no question arises to remit the amount paid/arranged by the guarantors and credited/adjusted towards liability of the Corporate Debtor in the loan account standing in the name of the Corporate Debtor, to the Applicant. It is submitted that since no asset in the name of the Corporate Debtor has been touched by the Bank/answering Respondent in such transaction being performed, the demand to refund the credited amount is against the settled preposition of law, as such, Application filed by the Applicant deserves to be dismissed on this count alone, with heavy cost. 25. Respondents No. 1-PNB claims that perusal of the letter dated 25.02.2020 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s there in Balance Sheet till LCD. There is an increase in trade payables by an amount of Rs. 2,50,37,504/- however in Balance Sheet till LCD the decrease was of Rs. 84,302/- only. There is an increase in Deferred Tax Liabilities by an amount Rs. 2,26,20,676/-. ii. There is a decrease in balance of Trade receivables by an amount of Rs. 2,15,88,181/- however in Balance Sheet till LCD the decrease was of Rs. 26,01,427/- only. iii. It was discussed that since during Corporate Insolvency Resolution Process (CIRP), bank accounts were to be operated by the RP only and debiting by any unauthorized means was discussed to be taken seriously. Also, the concerned bank account where such realized amount was deposited and utilized were found to be unknown." 29. On 25.02.2020 vide a letter by one of the ex-directors of CD-M/s Vegan Colloids Ltd., Sh, Bajrang Dass Aggarwal (now deceased) the Appellant- liquidator got the following clarification: - i. The short terms borrowing difference is 4,50,44,500/- which has been given to Punjab National Bank in the loan account; ii. The increase in trade payable 2,50,37,504/- (Payment of Rs. 2,50,00,000/- received from the firm named True Value pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not form part of the Corporate Debtor's estate. 33. AA held as follows: "7. After hearing the learned counsel and careful perusal of the record carefully, we are of the considered view that the present application for a refund of Rs.4,50,44,500/- against respondent No.3 Bank is misconceived. A perusal of the records shows that the said amount was deposited with respondent No.3 Bank by the guarantors under the OTS proposal. Although, it is contended by learned counsel for the applicant that the said amount has been deposited during the moratorium period and that too from the Bank account of the corporate debtor, therefore, this amount forms the assets of the corporate debtor. However, this contention of learned counsel for the applicant is devoid of legal force because there is only one loan account with the corporate debtor because the said properties are not owned by the corporate debtor but these are the individuals' property owned by the guarantors/mortgagors. The property of the corporate debtor mortgaged with bank-respondent No.3 has not been released so far. Moreover, in view of the judgment (supra) in the State Bank of India Versus Ramakrishnan & Anr., wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any subsidiary of the corporate debtor; (b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets; (c) tangible assets, whether movable or immovable; (d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights; (e) assets subject to the determination of ownership by the court or authority; (f) any assets or their value recovered through proceedings for avoidance of transactions in accordance with this Chapter; (g) any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest; (h) any other property belonging to or vested in the corporate debtor at the insolvency commencement date; and (i) all proceeds of liquidation as and when they are realised. (4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: - ...." 36. From the perusal of the balance sheet of the Corporate Debtor and other materials on record, we find that certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors. Any amount reflected in the balance sheet of the Corporate Debtor is admittedly an asset of the Corporate Debtor and, therefore, the Adjudicating Authority ought to have considered the balance sheet of the Corporate Debtor which reflects a reduction of short-term borrowing during the Liquidation process. The Adjudicating Authority failed to consider that in terms of Section 36 (3) (a) and (g) of the Code, any assets over which the Corporate Debtor has ownership right, including all rights and interest therein as evidenced in the balance sheet of the Corporate Debtor or any asset of the Corporate Debtor in respect of which a secured creditor has relinquished security interest, becomes part of the liquidation estate assets of the Corporate Debtor. Further Section 53 provides that the proceeds from the sale of the liquidation assets shall be distributed in the order of priority. Therefore, Respondent No. 1 has no right to recover any amount being an asset of the Company in liquidation during the liquidation process as Respondent No.1 - PNB will receive the proceeds from Liquidation Estate in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tune of INR 4,50,44,500/-, so satisfied are not made out of assets of the Corporate Debtor. We can, therefore, safely conclude that it is none other than Trade Receivables and Trade Payments of the Corporate Debtor which has been used to pay Rs.4,50,44,500/-. 39. This has also been noted in the 3rd Meeting of SCC convened on 06.02.2020 which: "that since during Corporate Insolvency Resolution Process (CIRP), bank accounts were to be operated by the RP only and debiting by any unauthorized means was discussed to be taken seriously. Also, the concerned bank account where such realized amount was deposited and utilized were found to be unknown." Conclusions : 40. All assets listed in the Corporate Debtor's balance sheet are included in the Liquidation Estate under Section 36 of the Insolvency and Bankruptcy Code, 2016. Debt realization during liquidation is permitted only under Sections 52 and 53 of the Code. Upon liquidation, dues must be distributed strictly according to the waterfall mechanism outlined in Section 53 of the Code. However, in this case, Respondent No. 1 (PNB) disrupted the Liquidation Estate formed under Section 36 by attempting to override the waterfall m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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