Continental Transport Organisation Private Limited vs RRC International Freight Services Limited

Per: Shyam Babu Gautam, Member (Technical)

This is an Application by Continental Transport Organisation Private Limited, Applicant (hereinafter referred to as the Applicant) Under Section 60 (5) of Insolvency and Bankruptcy Code, 2016 seeking direction against the Liquidator of the Corporate Debtor for declaration in relation to the 10 Nos. of hydraulic axels purchased and to restrain the liquidator from auctioning or dealing in any manner with the said assets.

The transaction between the Applicant and the Corporate Debtor (“CD”) is enumerated in tabular format:

4^th A sale deed was executed between the November, Corporate Debtor (“CD”) and the 2015 Applicant for the sale of 10 Global Series Hydraulic Axels (“Hydraulic Axels”) used

The contentions of the Applicant are as set out below:

The Applicant submits that the sale deed was executed between the Corporate Debtor and himself in accordance with the law, for 10 hydraulic axels for a consideration of Rs. 37,00,000/-, which were duly paid as narrated in the sale deed dated 4^th November, 2015. Thereafter, on the 6^th of November, 2015, the Applicant was given possession of the 10 hydraulic axels. Further, in pursuance of the letter addressed by Union Bank of India on 29^th December, 2015, to the Corporate Debtor the Applicant obtained the NOC from the bank and further stated since the hydraulic axels were hypothecated with the Bank, NOC was not required to be obtained along with certain terms and conditions as laid down in the said letter. Here, it is pertinent to note that, procurement of NOC was not a pre-requisite condition to the sale deed. A mere non-receipt of NOC would not invalidate the sale deed and the fact that possession was transferred before the NOC was given, indicated that the NOC was never a condition precedent to the sale deed. Moreover, the Applicant was in possession of the said hydraulic axels since the 6^th of November, 2015. No dispute had been raised by the Corporate Debtor ever since.

In pursuance of the Maharashtra Stamp Act, 1958, there is no provision specifically mentioning that a particular amount of stamp duty shall be payable on a transaction of sale of hydraulic axels (Since Hydraulic Axels are only a component of a vehicle and not an entire vehicle by itself as per the Motor Vehicles Act). However, if this were to be the case, then the sale would fall under the exemption of Article 5 of Schedule I, by which a transaction for a sale of goods exclusively is exempted from the payment of Stamp duty. Therefore, the sale deed was not only duly stamped but was also paid out of abundant caution as the Corporate Debtor had insisted upon it. Nevertheless, assuming the sale deed is insufficiently stamped, the same would not affect the ownership of the hydraulic axels in question.

A bare reading of section 2(28) of the Motor Vehicles Act, 1988, states that “a motor vehicle is a vehicle which is a mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto.” In the present case, hydraulic axels solely cannot be adapted for use upon roads, there has to be some attachment to the axels in order to make them mechanically propelled for the roads. Moreover, section 50 of the Motor Vehicles Act, 1988, also states that “where the ownership of any motor vehicle registered under this chapter is transferred”, stating that this particular section only applies to Motor Vehicles. However, hydraulic axels are only the components of a Motor Vehicle and not the entire Motor Vehicle. Therefore, hydraulic axels cannot be considered as a Motor Vehicle in relation to Motor Vehicles Act, 1988.

Section 27 of the Limitation Act refers to extinguishment of right to property, which states that “At the determination of the period for instituting a suit for possession of any property, his right to such property shall be extinguished.” This section shall be read with Article 29 in Part VI of the Schedule of the Limitation Act, 1963, which deals with other specific movable properties and states that if the property is wrongfully taken, the period of limitation for institution of appropriate proceedings to recover the possession is 3 years and even therefore, the Corporate Debtor today is hopelessly barred by limitation in order to recover the possession of the said hydraulic axels.

In addition to the above, the Applicant submits that, the Liquidator has maliciously proceeded with the Liquidation process of the Corporate Debtor thereby treating 10 hydraulic axels belonging to the Applicant as the assets of the Corporate Debtor. Further, despite the execution of the sale deed on 4^th November, 2015, the Corporate Debtor fraudulently manipulated its books of accounts thereby declaring the said hydraulic axels to be handed over to the Applicant only on rent. However, whatever the acts of the Corporate Debtor maybe, today to showcase the bonafides, the Applicant has purchased 8 more hydraulic axels vide an auction conducted by the Liquidator on 3^rd March, 2020, and is therefore now an owner of all the 18 hydraulic axels. Therefore, this act of the Applicant, only shows the bonafides of the Applicant.

For all of these reasons, it is humbly submitted that the Liquidator of the Corporate Debtor be directed to declare that the Applicant is the sole owner of the 10 hydraulic axels in pursuance of the sale deed dated 4^th November, 2015 and to exclude such axels from the assets of the Corporate Debtor.

The submissions are preferred to oppose unsubstantiated reliefs sought by the applicant in present Interlocutory Application. Before canvassing the submissions, it is imperative to set out a summary of List of Dates and Events (“LOD”) which are enumerated below:

The aforesaid LOD summarily narrates the factual backdrop of the issue at hand. A detailed explanation in regard to happening of events is set out in Para 6(a) to (6k) of the Affidavit in Reply of Respondent/ Liquidator. A bare perusal of the same clearly suggest that the applicant was initially desirous in purchasing 10 Global Series Hydraulic Axels owned by Corporate Debtor and entered into Sale Deed dated 4^th Nov 2015. However, the said deal could not materialize and the applicant thereafter decided to purchase 18 Hydraulic Axels along with some equipment’s and accessories at a consideration of Rs. 74,00,000/- (Seventy-Four Lakhs). Out of which Rs. 38,00,000/-(Thirty-Eight Lakhs) was paid in advance and the balance amount of Rs 36,00,000/- (Thirty-Six Lakhs) was agreed to be paid directly to Union Bank of India (in whose favour said axles were hypothecated) upon issuance of its NOC. However, the sale of could not be fructified as the Demand draft bearing no. 946537 dated 9^th Feb 2016 for an amount of 27 Lakhs against the part payment of 36 lakhs issued by the Applicant was cancelled for the reasons best known to him.

Further the applicants stand is completely demolished vide its letter dated 5^th July 2018 wherein it made a revise offer to purchase 18 axles from the corporate debtor. Most surprisingly, it appears that those 18 axels interalia included 10 axels which the applicant is claiming to have purchased vide sale deed dated 4^th Nov 2015. It is inconvincible as to why will the applicant on 5^th July 2018 (almost 2.5 years later) would make an offer for those 10 axels, which according to him were already allegedly purchased by him on 4^th Nov 2015. It is clearly apparent that applicant has fallen prey to its greed and is now belatedly making desperate attempts to take undue advantage of the Liquidation process.

Apart from the aforesaid, the applicants stand of ownership qua the said axels is further unsustainable in light of the following submissions.

It is imperative to mention that the said sale deed dated 4^th Nov 2015 is stamped for Rs 100/- which is ex-facie insufficient. A conjoint reading of Section 3 along with Article 25 (Schedule I) of Maharashtra Stamp Act, 1958 states that sale/conveyance of the movable property attracts 3% of the stamp duty of market value of the property. Further, it may also be pertinent to mention that there no express exemption from payment of stamp duty for sale of Axels under any law. Since the sale deed enumerated consideration of 37,00,000/- a stamp duty to the extent of Rs 1,11,000/-(3% of 37,00,000) was payable. As the purported sale deed is insufficiently stamped for only 100rs, the same cannot be admissible as an evidence in any court of law.

As seen from the afore mentioned LOD, the payment of Rs. 38,00,000/- made by the applicant was a part of the larger transaction for procurement of 18 axels. As the applicant cancelled its Demand Draft and filed to make complete payment, the transaction never concluded. It is evident from the documents annexed to the application that, the axels are still under the name and ownership of the Corporate Debtor in the records of the concerned RTO Authorities. Hence even if the applicant is in possession of those axels, it does not have a clear and marketable title over the same.

Without prejudice to the aforesaid, the Liquidator states that the assets forming subject matter of the said sale deed were hypothecated with UBI by the Corporate Debtor. The ownership of the said assets couldn’t had been transferred without absolute consent of UBI. The letter dated 29^th Dec 2015 issued by UBI is a conditional NOC. Admittedly, at relevant point of time the conditions set out in the said letter were never fulfilled and the transfer of the assets could not be complete. The aforesaid position is clearly evident from the letter 10^th April 2018 issued by the applicant itself, demanding NOC from UBI in respect of 10 axels.

It is imperative to state that the applicant during the CIRP period of the Corporate Debtor had submitted its claim in Form B before the Resolution Professional. A noteworthy point herein in the applicant in Form B claimed the amount of Rs 37,00,000/- given under the sale deed to be an operational debt. However, the applicant after initiation of liquidation has conveniently shifted its stand and treated the said amount as consideration of 10 axles, with an intent to wilfully claim ownership over the said 10 axles. The Liquidator states that the Applicant should be estopped from changing its stands in order to take undue advantage of the liquidation process. (Refer Pg 27 of Reply)

The Applicant cannot take the shelter section 27 and/ or of Article 29 in Part VI of the scheduled of Limitation Act, 1963, firstly, for the reason that Article 69 applies only to ‘SUITS’ and not to the present proceedings. Secondly, Article 69 shall only come into play when the property is ‘wrongly taken’ and the possessor has constantly been claiming its rights over the said property. In the instant case, letter dated 30^th April 2018 issued by the Corporate Debtor clearly stated that the axels shall be deemed to be given on rent and the accrued rent shall be adjusted against the advance received (Refer Affidavit in Reply Pg 20). Most importantly, letter dated 5^th July 2018 issued by applicant clearly shows that it has disclaimed having any rights over the said axels and made a revise offer to the Corporate Debtor (Refer Affidavit in Reply Pg 22). Since the axels were treated to be given on rent, read with the letter dated 5^th July 2018 issued by applicant clearly suggest that the axels were never ‘wrongfully taken’, hence Article 69 of Limitation Act has no application in the present case.

In furtherance of submissions the Respondent/the Corporate Debtor prayed to dismiss the instant application filled by the applicant and declare the axels to be the part of the Liquidation estate of the Corporate Debtor.

We have perused the records, it is observed that Applicant and Corporate Debtor had executed Deed of Sale dated 04.11.2015 for sale of hydraulic Axels which are subject matter of this application. The Liquidator has overlooked this fact and included the hydraulic Axels in the pool of assets of Corporate Debtor. Where the Deed of Sale was executed on 04.11.2015 and CIRP was initiated against the Corporate Debtor on 26.12.2018, the Corporate Debtor had entered into agreement much prior to CIRP therefore, at this juncture it is not appropriate for the liquidator to change the implications of contractual bindings of the Corporate Debtor. It is also observed that Applicant has not paid the consideration which was agreed, part consideration was paid the reason being the NOC from the Union Bank of India with whom the hydraulic Axels were hypothecated was not arranged by the Corporate Debtor as per Clause 4 of the Deed of Sale. As per the Deed of Sale dated 04.11.2015 NOC supposed to be obtained by Corporate Debtor. In the lights of these facts and circumstances, we direct the liquidator to transfer the said hydraulic Axels subject to the payment of remaining consideration.

With the above observations and directions MA 403 of 2020 is disposed of.