Machinery Hypothecated By Corporate Debtor Against Loan Remains Its Asset If No Lease Deed Is Shown By Third Party: NCLAT

Brief Facts:

Bank of India Limited (Financial Creditor) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ('Code') against the Corporate Debtor (CD) for the resolution of its debt which was admitted on 24.12.2021.

The Resolution Professional (RP) of the corporate debtor filed an Interlocutory Application (IA) for approval of the resolution plan of Agrasen Engineering Industries Pvt. Ltd. (SRA). In this application, RP filed an Intervention Application against the suspended directors of the corporate debtor for seeking declaration of certain business / transactions conducted by them as fraudulent and a direction against them to make appropriate contribution of the assets of the corporate debtor.

At the same time the appellant filed an Intervention Application against the RP seeking declaration that machinery, namely, Wagner 630 line ( 'machinery') allegedly owned by it and not to include it in the Information Memorandum (IM) of the corporate debtor as it cannot form part of the resolution plan of the SRA.

The Tribunal allowed the IA filed by the RP and by the same order dismissed the IA filed by the appellant.

Contentions:

The appellant submitted that the machinery was given on lease to the corporate debtor and since it was only a transfer of interest, therefore, it does not amount to transfer of ownership. As per explanation to Section 18 of the Code the assets shall not include the assets owned by a third party held under trust or under contractual arrangements including bailment.

Per contra, the respondent submitted that corporate debtor had executed a hypothecation cum loan agreement executed on 06.06.2014 whereby it hypothecated the machineries.

It was also argued that when the RP started valuation of hypothecated assets, an objection was raised by the Appellant that the machinery belongs to the Appellant Company.

It was also argued that the machinery has been recognised as fixed assets of the corporate debtor in balance sheet in the year 2017 and depreciation has been claimed on it.

Observations:

The tribunal noted that the primary argument of the appellant is that the machinery was given on lease which has to be established by way of a lease deed because it is a transaction between two companies and the lease amount has also to be mentioned.

It further noted that neither the lease deed nor the amount of lease has been demonstrated rather the corporate debtor had hypothecated the machinery with the financial creditor while securing the loan in terms of the loan agreement executed on 06.06.2014 and in terms of clause 5(a)to(c) of the said hypothecation agreement.

The tribunal said that the corporate debtor has created charge in respect of the machinery and a declaration has been made by the corporate debtor that the machinery has already been acquired and shall form part of promoters contribution to the loan sanctioned by financial creditor.

It further observed that the corporate debtor had admittedly claimed depreciation on the machinery as an owner because a lessee cannot claim depreciation as per judgment of the Supreme Court in the case of Mother Hospital Pvt. Ltd. Vs. Commissioner of Income Tax, Trichur (2018).

The tribunal concluded that “we do not find any error in the impugned order which calls for any interference by this Court in this appeal. Hence, both the appeals are found to be devoid of merit and the same are hereby dismissed.”

Case Title: Saturn Ventures & Advisors Pvt. Ltd. Versus S. Gopalkrishnan & Anr.

Case Number: Comp. App. (AT) (Ins) No. 645 of 2024

Judgment Date: 13/02/2025

For Appellant : Mr. Devansh A. Mohta, Ms. Anne Mathew & Mr. Jai Govind, Advocates.

For Respondents : Mr. Gaurav Mitra, Mr. Ishan Roy Chowdhary , Ms. Pranati Bhatngar, Ms. Palak Johnson, for R-1/RP. Ms. Nivedita R Sarda, Ms. Sagrika Joshi & Mr. Ronak Sharma, for SRA.