V.K. Traders vs Tripurari Agro (Pvt.) Ltd.

Per: Harnam Singh Thakur, Member (Judicial) Subrata Kumar Dash, Member (Technical)

The instant application has been filed by the applicant (Canara Bank) under Section 60(5) of The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code"), read with Rule 11 of the NCLT Rules, seeking directions to be issued to the Liquidator to restrain from making the plant and machinery part of the liquidation estate, as the same is exclusively charged to the applicant bank, and to accept the exclusive charge of the applicant bank over the plant and machinery of the corporate debtor and to allow the applicant bank to amend/modify the charge over the plant and machinery correctly in terms of the security documents of the applicant bank with the RoC.

This adjudicating authority, by order dated 07-06-2019, admitted the application filed by M/s V. K. Traders against the corporate debtor pursuant to Section 9 of the Code.

It is stated in the application that the applicant bank filed its claim with respect to its dues from the corporate debtor in Form C. The total facilities sanctioned by the applicant were to the tune of Rs. 12,61,08,000/-, out of which Rs. 10.00 crores were OCC, and Rs. 2,61,08,000/- was the term loan that was taken over from the Allahabad Bank for which the plant and machinery embedded in the earth were exclusively mortgaged with the applicant (as the applicant bank has stepped into the shoes of the Allahabad Bank after takeover). The exclusive charge over the applicant's plant and machinery has never been contested by PNB. Since no expression of interest was received, the CoC approved the liquidation of the corporate debtor, and the order for liquidation was passed by this adjudicating authority on 07-02-2020.

On 06-03-2020, the applicant bank furnished the liquidator with its claim in Form-D. In doing so, the bank exercised its right under Section 52 of the IBC and specified that it would not relinquish its security interest in the corporate debtor's plant and machinery, which is currently under its exclusive charge.

The applicant bank was informed by the liquidator vide email dated 27-06-2020, that the document attached by the applicant bank in their claim Form-D does not substantiate the exclusive charge of the applicant bank over the plant and machinery, and hence the said property will be considered part of the liquidation estate as per Section 52 of the IBC.

The applicant in favour of its exclusive charge has made the following submissions:

The respondent, in its reply dated 21-09-2020, stated that there are two financial creditors, namely the applicant, Canara Bank, and another financial creditor, Punjab National Bank, and as per record, the charge is registered under Section 77(1) of the Companies Act, 2013 with the Registrar of Companies, Chandigarh, and is pari passu between both financial creditors. According to the respondent, the applicant's assertion that they hold an exclusive charge over the corporate debtor's plant and machinery is inconsistent with the corporate debtor's documented records. In an email dated 20-06-2020, the applicant admittedly stated that the PNB failed to include the factum regarding the applicant's purportedly exclusive charge when registering the charge with the Registrar of Companies. Accordingly, several communications were sent to the applicant by email. The copies of emails sent to the applicant are attached as Annexure R-l.

It is stated that a company's charge cannot be considered by the liquidator unless it has been duly registered under Section 77(1). Additionally, the extent of security can only be determined based on the charge that the company has registered. Pari-passu, the charge is admittedly registered in the names of two financial creditors, Punjab National Bank and Canara Bank. The applicant has submitted the subsequent documents for the record:

Annexure A-8, Portfolio status report, column 8 corresponding to Charge ID at serial no. 3 having Charge ID 100065138 dated 26-11-2016, created on 21-04-2017, clearly shows Punjab National Bank as First pari passu Charge holder and the applicant as Second pari passu Charge holder; Regarding credit facilities extended jointly by the applicant bank and Punjab National Bank, the applicant has intentionally omitted the form CHG-l that was filed for creation of charge. A copy of the aforementioned form is appended as Annexure R-2.

As per the form CHG 1, the charge is pari passu between both the financial creditors. All the documents attached to the charge registration form also clearly indicate the charge to be pari passu, and there is no exclusivity of the applicant with respect to charge of the applicant bank on plant and machinery of the corporate debtor. Therefore, in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 the applicant bank is not entitled to 'not-relinquish" its security interest.

As per the record, the loan/credit facilities sanctioned by Allahabad Bank were repaid by the corporate debtor, and the charge registered in favour of Allahabad Bank was satisfied and was vacated in accordance with the provisions of the Companies Act, 2013.

The applicant submitted and relied upon a sanction letter dated 05-12-2017. On page 74 of the letter, it is explicitly stated that "the company will fulfill the ROC charge with Allahabad Bank and State Bank of India (SBoP) prior to the release of the credit facility." As per law, the applicant was responsible for getting the new charge registered in its favour as per its contractual arrangement, which has not been done by the applicant. A copy of the said satisfaction of charge is attached as Annexure R-3.

As stated in paragraph 6 of the application, the applicant acknowledges that he is not entitled to exclusive charge under the registered charge. Consequently, the applicant is obligated to transfer his security interest to the liquidator. At this late stage, the applicant can not use any supposed mistake on the part of the Punjab National bank to their advantage.

No affidavit from Punjab National Bank has been submitted in support of this claim by the applicant. Unregistered documents cannot be accepted by the liquidator in order to assess the applicant's rights pertaining to relinquishment or the realization of a security interest.

The applicant’s exclusive charge on the basis of certain unregistered documents is replied to as under:

However, the applicant has not placed on record any of the above said three documents to demonstrate his exclusive security interest.

It has been stated in the applicant's rejoinder that the corporate debtor has been provided with facilities through consortium financing, with Punjab National Bank serving as the lead bank. The charge over the entire consortium's secured assets has been registered with the ROC by the lead bank, PNB.

PNB does not dispute the exclusive charge that Canara Bank has over its plant and machinery, as is further established by PNB's sanction letter and the applicant bank's common hypothecation.

It is stated that the liquidator has erred in his interpretation of subsection (3) of Section 77 of the Companies Act. It is applicable when the charge is not officially registered, as is the case here, where the exclusive charge of the applicant bank has not been specified in a clear manner. The applicant bank believed that its exclusive charge over the corporate debtor's plant and machinery had been registered with the ROC, ever since the lead bank registered the charge with the ROC.

It is further stated that the liquidator has not only erroneously interpreted the provision of the Companies Act but has also misapplied its reliance on CHG-1, which in no way indicates that the corporate debtor's plant and machinery have been modified. Indeed, the aforementioned charge must be examined in conjunction with the prior charge of Allahabad Bank and the documents cited by the applicant bank from Punjab National Bank, which unequivocally establish the applicant bank's exclusive lien over the corporate debtor's plant and machinery. However, the applicant has not placed on record any of the above said three documents to demonstrate his exclusive security interest.

In the absence of clear evidence of a charge over the corporate debtor's plant and machinery, the liquidator cannot rely on such documents; therefore, the liquidator's verification of charge is not limited to ROC documents alone. There is no explicit provision in the code that prohibits the liquidator from examining additional documents submitted by the applicant bank in order to verify the charge.

The applicant bank has its independent exclusive charge over the plant and machinery of the corporate debtor, which is evident from the common hypothecation agreement executed between the parties.

In its written submissions, the applicant has placed reliance on the judgment in the case of Luxmi Fiber Limited vs. Andhra Pradesh Industrial Development Corporation Ltd., reported as 2015 SCC page 464, in which it was held that the Liquidator has no right to ascertain the claims and rights of the secured creditor who chose to stand outside the liquidation process.

In its written submissions, the respondent asserted that the Punjab National Bank and the applicant's registered "security interest" in the ROC is pari passu, but that the applicant's assertion of "exclusive charge" over the corporate debtor's plant and machinery as "security interest" rests on unregistered documents.

It is further submitted that the existence of "security interest" can be proved only in the manner provided in Regulation 21 of IBBI (Liquidation Process) Regulations, 2016.

It is also submitted that any claim beyond "security interest," for which a charge is registered, will be treated as an unregistered charge within the meaning of Section 77(1) of the Companies Act, 2013.

This Adjudicating Authority, vide order dated 05-01-2023, directed the applicant to implead PNB as respondent no. 2. An amended memo of parties was filed by the applicant vide diary no. 00561/10 dated 13-01-2023. Respondent no. 2, PNB, has declared its acceptance of the response submitted by the respondent liquidator.

The respondent placed on record an additional affidavit vide diary no. 00561/8 dated 08-022022, stating that the plant and machinery have already been sold off with the consent of the applicant bank, as agreed to in the Stakeholders Consultation Committee held on 27-11-2020. The said sale was subject to the condition that the proceeds of realization may be kept by the liquidator in the liquidation account, which shall not be distributed among the financial creditors till the order of this Bench is received in respect of the present application.

The auction in respect of the plant and machinery was successfully concluded on 12-05-2021, for an amount of Rs. 2,43,00,000/- in favour of M/s Delhi Pasand Agro Private Limited, and the letter of intent dated 14-05-2021 was issued to the successful bidder, and the auction amount was duly received by the liquidator.

The financial creditors agreed to the distribution of sale proceeds in accordance with Section 53 of IBC, 2016 in the meeting held on 27-10-2021 and accordingly, out of the sale proceeds, an amount of Rs. 92,56,453/- was transferred to the account of Canara Bank on 30-10-2021.

We have heard the Ld. counsels and carefully gone through the records.

The following documents have been specifically noticed by this Bench:

We have heard the Ld. counsels and have carefully gone through the records.

It is noticed that the common hypothecation agreement between Canara Bank and the corporate debtor was dated 31.03.2017, whereas the date of instrument creating or modifying the charge is given as 21.04.2017 in Form no. CHG-1, which was uploaded in the MCA portal.

We have also noted that only the form CHG-1 has been uploaded in the ROC portal, and none of the documents relied upon by the applicant has been similarly uploaded on ROC portal. Canara Bank has also submitted that its claim for exclusive charge should be examined in conjunction with the prior charge of Allahabad Bank. We, however, are not persuaded by these arguments because the charge registered in favour of Allahabad Bank was fully satisfied and vacated before the parties to the present application placed in. The applicant itself has relied upon the sanction letter dated 05.12.2017, which explicitly states that the company will fulfill the RoC with Allahabad Bank, State Bank of India (SBOP) before the release of credit facility.

We further note that Regulation 21 of the IBC (Liquidation Process Regulation, 2016) lays down three ways of proving the security interest, but the applicant has not been able to place any such record before the Liquidator as stipulated in Regulation 21. The other documents relied upon by the applicant are only their internal communication, which has limited evidentiary value in the context of the issue at hand. Thus, we agree with the Ld. Liquidator that only registered documents can be taken cognizance by him as stipulated in the Regulation 21, while deciding the issue of charge over the impugned property.

We, therefore, find no acceptable evidence on record to support the claim of exclusive charge claimed by the applicant.

Thus, I.A. No. 313 of 2020 stands dismissed and is disposed of accordingly.

The present application has been filed under Section 60(5) of the IBC 2016 read with Rule 11 of the NCLT Rules, 2016 by Mr. Rajesh Kumar Loomba, the Liquidator for M/S Tripurari Agro Private Limited, against Assistant Commissioner of Income Tax at Circle-1, Ludhiana (respondent no. 1), and Principal Commissioner of Income Tax at Aayakar Bhawan, Ludhiana (respondent no. 2), seeking directions for setting aside the impugned order dated 31-03-2023, passed under Clause (D) of Section 148A of the Income Tax Act, 1961, along with the impugned notice dated March 31, 2023.

The brief facts of the application are stated below:

In response to an application filed by its operational creditor M/s V.K. Traders under Section 9 of the IBC, 2016, the corporate debtor, M/s Tripurari Agro Private Limited (henceforth referred to as the "CD" or the "Corporate Debtor"), this Tribunal issued an order dated 7-06-2019 subjecting the corporate debtor to CIRP. Mr. Suresh Kumar Bansal was appointed as the IRP, and a moratorium under Section 14 was imposed.

On 7-02-2020, this adjudicating authority passed an order for liquidation wherein the applicant, Mr. Rajesh Kumar Loomba, was appointed as the liquidator, and a moratorium in terms of Section 33(5) of the IBC was imposed in the same order.

The applicant, in adherence to the liquidation order, sold every tangible asset of the corporate debtor throughout the liquidation process. The applicant asserts that the proceeds from the sale have been disbursed to different stakeholders in accordance with the provisions of the IBC. Furthermore, the applicant has reached the concluding phase of its application to dissolve the corporate debtor in accordance with Section 54 of the IBC, 2016.

Respondent no. 1, Assistant Commissioner of Income Tax, served the applicant with a show cause notice pursuant to Section 148A of the Income Tax Act, 1961 (henceforth referred to as the IT Act) on 07-03-2023. The applicant asserts that on 13-03-2023, they provided a response to the above said notice that detailed the corporate debtor's liquidation, including the sale of all assets and the distribution of the proceeds to the stakeholders.

Respondent No. 1, Assistant Commissioner of Income Tax, with the approval of respondent No. 2, Principal Commissioner of Income Tax, passed an impugned order dated 31-03-2023, along with an impugned notice under Section 148 of the IT Act, and held that the reply of the applicant liquidator was not acceptable to them. The relevant para of the impugned order dated 31-03-2023 has been reproduced below;

The applicant claims that it is a settled law that any dues of the Income Tax Department under the Income Tax Act, 1961, are considered "operational debts." The applicant further states that even if it is assumed that the respondent determined the escaped income, even then the respondent, being an operational creditor, can at the very least file the claim before the applicant, and in the present case, the time for filing the claim is already over.

The applicant asserts that in the event that the Hon’ble Tribunal issues an order imposing a moratorium pursuant to Section 33(5) of the IBC, 2016, the corporate debtor shall not initiate any legal proceedings, including suits or other litigation. The applicant further stated that the provisions of the IBC prevail over the general statutory provisions of the Income Tax Act, 1961, being a special law.

With regards to the above contentions raised regarding the moratorium period, the applicant relies on the judicial decisions of the Hon’ble Bombay High Court in the cases of Murli Industries Ltd. v. ACIT (TS-1155-HC-2021(BOM)), which in turn relied upon the Hon'ble Supreme Court’s ruling in the case of Ghanashaym Mishra, which held that the Revenue ought to have been diligent to verify the previous years’ assessment of the corporate debtor as permissible under the law and to raise the claim, if any, before the Resolution Professional in the prescribed form within time limits prescribed under the IBC. Since the Revenue has failed to do so, the claim stood extinguished after the approval of the Resolution Plan. Reliance was also placed on The Liquidator of the Corporate Debtor, Viz., Orieon Kuries and Loans Private Limited vs The State of Kerala And Ors. MANU/KE/1245/2022, Haravtar Singh Arora Vs. Punjab National Bank & Ors. (2018) ibclaw.in 83 NCLAT, Mr. Atul Rajwadkar Vs. HDFC Bank Limited & Ors (2021) ibclaw.in 55 NCLT, Ms. Anju Agarwal Vs. Bombay Stock Exchange & Ors (2019) ibclaw.in 123 NCLAT, Union of India & Anr. Vs. Videocon Industries Ltd. & Ors. (2019) ibclaw.in 473 NCLAT.

A notice was issued to the respondent, and an affidavit of service of the same has been filed by the applicant vide diary no. 01522/1 dated 20-06-2023. Despite being given two opportunities vide orders dated 14-09-2023 and 30-10-2023, none has appeared on behalf of the respondent.

We have heard the Ld. counsels and carefully gone through the case records.

It is noted that none appeared on behalf of the respondent, Income Tax Department. As there is no effective response from the respondent, it is not possible to ascertain whether the demand is likely to arise from the issuance of notice and also the period to which the alleged concealment of income pertains. The applicant has rightly argued that the claim on behalf of the Respondent Income Tax Department was to be filed before the Liquidator within the time limit specified for the same under the Code. We presume that the demand has not yet crystallised though in the absence of any representation, it is difficult to ascertain the present status of the demand.

In view of such facts, we are constrained to uphold the prayer by the applicant, keeping In view of the basic principle of the IBC that the claims have to be filed before the liquidator within the time specified under the Code. We note with regret that the Income Tax Department has not taken due care to present its case, especially when such a high demand is involved. A copy of this order be marked to the Principal Chief Commissioner of Income Tax, NWR Region, Chandigarh, for information.

In the result, the application is allowed and disposed of accordingly.