SPS Steels Rolling Mills Limited & Anr. vs MSTC Limited & Anr.

a. A direction on the Respondents to refund a sum of Rs.8.56 Crore to the Applicant along with interest as claimed under paragraph 18 of the Application;

b. Injunction retraining the Respondents from operation their bank account without leaving a sum of Rs.8.56 crore together with interest.

c. A direction on the Respondents to secure the sum of Rs.8.56 Crore and the interest dues and accrued

This Adjudicating Authority vide its order dated 22 December, 2017 had initiated a Corporate Insolvency Resolution Process (‘CIRP’) against the Corporate Debtor. Thereafter, Respondent No.2 was appointed as the Resolution Professional for the Corporate Debtor.

During the course of the CIRP of the Corporate Debtor, MSTC Limited had filed an application being CA (IB) No. 1167 of 2018 before this Adjudicating Authority with the following prayers;

However, this Adjudicating Authority vide its order dated 08 April, 2019 did not allow the reliefs sought by MSTC on the grounds that this Adjudicating Authority finds no reason to interfere with the decision of the Committee of Creditors (‘CoC’) in allotting the amount due to MSTC Limited and the same is in accordance with the Code.

In the 17^th Meeting of the CoC on 14 February, 2019, the Operational Creditor enquired about the Liquidation Value, where the Authorised Representative of the RP mentioned that the Liquidation Value due to MSTC Limited is Rs.8.56 crore as determined by two independent valuers.^{22.Page 72 of the Application} Subsequently, The Resolution Plan submitted by Shakhambhari Ispat Power Limited was approved by this Adjudicating Authority vide its order dated 08 April, 2019.

Pursuant to the said order dated 08 April, 2019, the Resolution Professional in consultation with the CoC at a meeting held on 11 April, 2019 advised Shakhambhari Ispat Power Limited, the Successful Resolution Applicant to deposit a sum of Rs.8.56 crore for payment to MSTC Limited on account of the iron ore, belonging to MSTC Limited, lying at the factory premises of the Corporate Debtor.^{33.Annxure – D of the Petition at pages -100-111} Subsequently, the payment was made to MSTC Limited by the Shakhambhari Ispat Power Limited.^{44.Annexure – E of the Petition. At pages 112 - 114}

The Resolution Professional and the CoC were not willing to entertain any plea to hand over the possession of the factory to the Successful Resolution Applicant till the dues of MSTC Limited are being cleared. The Factory Premises is situated at Durgapur.

Upon taking possession of the Factory Premises, the Successful Resolution Applicant started preparing list of the inventories. The process of making inventories of assets and properties was concluded on 9 September, 2019, that is when the Successful Resolution Applicant noticed that the iron ore belonging to MSTC Limited was not present at the Factory Premises.

Thereafter, the Successful Resolution Applicant sent a letter dated 13 September, 2019 to the Respondents calling upon them to refund a sum of Rs.8.56 crores along with interests. The RP and MSTC Limited acted collusively and made the Successful Resolution Applicant pay a sum of Rs.8.56 crores.

As per the Resolution Plan MSTC Limited and the other Operational Creditors were entitled to a sum of Rs.1.5 Crore or the liquidation value, whichever is higher. The Successful Resolution Applicant was made to believe that the materials lying at the Factory Premises was worth up to Rs.8.56 crore.

This instant application is an afterthought and this Adjudicating Authority has no jurisdiction to entertain the said Application. The Application also suffers from the non-joinder of necessary parties as the CoC have not been made a party to this application. Further, all decisions regarding the payment of money was approved by the CoC. This application has been filed to defame the Respondents.

MSTC Limited submitted its claim for a sum of Rs.300.64 crores. As per the public disclosure made by the RP, MSTC Limited was admittedly a Secured Creditor against the pledged goods to the extent of Rs.282,16,56,230.62.

MSTC Limited had executed an Agreement for procurement of various raw materials required by the Corporate Debtor. The Agreement was extended from time to time and was lastly renewed on 25 August, 2017. The materials provided by the MSTC Limited had to be pledged to MSTC Limited and the same were to be in the custody of a Custodian. However, after the initiation of the CIRP, RP and its agent had the custody of the pledged materials.

On 9 April, 2018, the RP had issued a process document on behalf of the CoC. As per Claus 1.6.5 of the process document, the Resolution Applicant shall be deemed to have conducted a due diligence exercise with respect to all aspects of the Corporate Debtor, including site visit.

The iron ore deposits belonging to MSTC Limited, equivalent to a sum of Rs.8.56 Crore were allegedly lying at the factory premises of the Corporate Debtor but the same were not present when the RP took over the possession of the factory premises on 12 April, 2019. The Applicants are seeking for refund of the amount that has already been paid in terms of the approved Resolution Plan by this Adjudicating Authority vide order dated 08 April, 2019.

As per section 233 of the Code, the RP shall not be held liable for any thing which has been done or intended to be done in good faith under the Code. No issues were raised by the Applicants either before or immediately after the approval and implementation of the Resolution Plan.

The materials pledged to MSTC Limited were stored outside the premises of the Corporate Debtor and were entirely in custody of a third party independent custodian appointed by MSTC Limited. MSTC Limited had conducted physical verification of its pledged stock on 20 March, 2018^{55.Page 15 of the Reply by the Respondent No.2} as well as on 21 April, 2018^{66.Page 16 of the Reply by the Respondent No.2}. It is evident from the physical verification statement that the materials were stored at Nassir Hussain Avenue, Durgapur, whereas, the factory is at Zakir Hussain Avenue, Durgapur.

Section 30 of the Code envisages that at least liquidation value to the Operational Creditor is required to be paid to them. As per the Resolution Plan, at page no.23, Part B, point no. 1(d), a sum of Rs.1.5 crores or liquidation value, whichever is higher, is to be paid to the Operational Creditors.

Further, in the 3^rd and 4^th meeting of the Monitoring Committee, the members passed resolution in respect to distribution of funds to the creditors in terms of the approved resolution plan, which included payment for a sum of Rs.8.56 crore to MSTC Limited.

Vide email dated 04 May, 2019, the RP had provided a detailed calculation to the Successful Resolution Applicant, as to how the liquidation value due to MSTC being secured Operational Creditor was arrived at.^{77.Annexure – D at Page 120 of the Reply by the Respondent No.2} The liquidation value were arrived on the basis of the report by two independent valuers i.e., RBSA Advisors and Duff & Phelps.

Further, the Successful Resolution Applicant was invited for a site visit to the premises of the Corporate Debtor, including the premises where the pledged materials to MSTC Limited was held by the custodian appointed [refer to clause 1.1.4 and 1.1.7 of the process document].^{88.Page 136 of the Reply by the Respondent No.2}

All the information regarding the assets and liabilities of the Corporate Debtor, including the stock verification report as on 22 December, 2017 was available on the Virtual Data Room and the applicant had availed full access. The Successful Resolution Applicant was provided multiple opportunities but chose not to visit site either prior or after submission of its Resolution Plan.

MSTC Limited had filed a Special Leave Petition^{99.SLP (Crl.) No.9574-9575/2019}(‘SLP’) against the Judgment dated 12 July, 2019, passed by the Hon’ble High Court at Calcutta. In the said SLP, MSTC Limited has enclosed certain document which has nexus with this instant application, details of which are as follows;

Letter dated 27 November, 2017 from the erstwhile director of the Corporate Debtor to MSTC Limited, wherein they stated that their representative at Durgapur Factory had informed that the quantity of the pig iron appears to be less than on 01 April, 2017 at the time of verification. Upon enquiry they have found that there is a shortage of approximately 19,500 metric of Pig Iron. Such shortage has occurred by reason of wastage or inadvertent consumption.

Pursuant to the said letter MSTC Limited replied vide its letter dated 30 November, 2017, where they contended that it is incomprehensible that the entire stock of one material has been inadvertently wasted or consumed. However, as per the agreement, in case of any shortage on account of the Corporate Debtor payment to be made for the shortage amount.

Further, on volumetric analysis of the goods dated 01 December, 2017 by Geo-Chem Laboratories Private Limited in two location (i) Zakir Hussain Avenue, Durgapur and (ii) Nassar Hussain Avenue, Durgapur, the following materials were found

Thereafter, MSTC Limited again wrote a letter dated 12 December, 2017 to the erstwhile directors of the Corporate Debtor with respect to the unauthorised removal of the pledged material from the stockyard of the Corporate Debtor. MSTC Limited contended that as per the volumetric assessment here is a shortage for Pig Iron alone at 19,360.42 MT, constituting 95.40% of shortage.

As per the volumetric analysis it is clear that the premises where the materials were lying is very much part of the Corporate Debtor, which is old stock yard outside factory premises.

As a matter of fact there were no inventories pledged to MSTC Limited were left at the premises or stockyard of the Corporate Debtor as on 12 April, 2019, when the Successful Resolution Applicant took over the physical possession of the premises.

If there were no materials present then how did the valuers come to the liquidation value of MSTC Limited and the same were relied on by the RP? Alternatively, if the materials were present then Did the Resolution Professional take appropriate steps to preserve and protect the assets of the Corporate Debtor as envisaged under section 25^{1111.Section 25 - Duties of resolution professional (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:— (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the information memorandum in accordance with section 29; (h) invite prospective lenders, investors, and any other persons to put forward resolution plans; (i) present all resolution plans at the meetings of the committee of creditors; (j) file application for avoidance of transactions in accordance with Chapter III, if any; and (k) such other actions as may be specified by the Board.} of the Code? If yes, then;

How come no materials were found when the Successful Resolution Applicant concluded the process of making an inventory of assets and properties?