IN THE NATIONAL COMPANY LAW TRIBUNAL

CHANDIGARH BENCH

CA 206/2019
in C.P.(IB)-102/CHD/2018

Under section 60(5) r/w Sec. 14

(1)(d) & Sec 18(1)(f) of the IBC, 2016

Company Application by:

M/s. Sun Pharmaceutical Industries Ltd.
....Applicant

In the matter of
Weather Makers Pvt. Ltd.
....Petitioner/Operational Creditor
v/s.

Parabolic Drugs Ltd.

….Respondent/Corporate Debtor

Heard on : 11.04.2019

Order delivered on : 26.04.2019

Coram: Hon’ble Shri. M.K. Shrawat, Member (Judicial)

Hon’ble Shri. Pradeep R. Sethi, Member (Technical)

For the Petitioner : 1. Mr. Anand Chhibbar, Sr. Adv. a/w

2. Mr. Gaurav Mankotia and Mr. J.S.
Bhatia, Advocates for the Applicant

For the Respondent : Mr. Pulkit Jain, Adv for Mr. Sahil
Sharma, Advocate for the Resolution
Professional

For JMFARC Ltd : Mr. Abhishek Anand, Advocate

For Union of India : Mr.Kamal Satija, Advocate

Per M.K. Shrawat, Member (Judicial)

ORDER

This is an application submitted on 15.03.2019 by M/s.

Sun Pharmaceuticals Industries Ltd. seeking directions by
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CA 206/2019
in C.P.(IB)-102/CHD/2018

invoking the provisions of section 60(5) of the Insolvency Code

to allow the Applicant to lift the raw materials allegedly
belonging to the Applicant, however, stated to be in the
possession of the Corporate Debtor; M/s. Parabolic Drugs Ltd.,
now managed and under control of Resolution Professional Mr.
Raj Kumar Ralhan.

2. A Petition u/s 9 of IBC was submitted by the ‘Operational

Creditor’ M/s. Weather Makers Pvt. Ltd. against the ‘Corporate
Debtor’ M/s. Parabolic Drugs Ltd. which was admitted vide an
order dated 30.08.2018, by invoking the provisions of section 9
of IBC, thereupon moratorium u/s 14(1) of IBC was pronounced.
In the said order it is specifically directed that the supply of
essential goods and services to the Corporate Debtor must not
be suspended or interrupted during the ‘Moratorium’ period.

3. The Applicant M/s. Sun Pharmaceutical Industries Ltd.

(erstwhile Ranbaxy Laboratories) had entered into a
“Manufacturing & Supply Agreement” dated 11.02.2010 with the
Corporate Debtor. In terms of the said agreement, the
Corporate Debtor had agreed to manufacture a Drug (Cefaclor)
for the Applicant and in turn the raw-material for the purpose of
manufacturing of the said Drug was supplied by the Applicant
M/s. Sun Pharmaceutical Industries Ltd. The Applicant has
placed on record the said “Manufacturing & Supply Agreement”
dated 11.02.2010 executed between Ranbaxy (erstwhile name)
on one hand and Parabolic Drugs Ltd. (Corporate Debtor) on the
other hand. Some of the important clauses have been strongly
relied upon by the Applicant, being relevant reproduced below:

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CA 206/2019
in C.P.(IB)-102/CHD/2018

“3.11 PARABOLIC guarantees and warrants that it shall

utilize the raw material supplied by RANBAXY solely and
exclusively for the purpose of manufacture of “Product” for
RANBAXY and not for any other purpose.

3.12 PARABOLIC agrees that the raw materials to be

supplied by RANBAXY to PARABOLIC are intended solely for
the purpose of being utilized in the manufacture or processing
of the products ordered by RANBAXY and for no other purpose
and consequently the said raw materials and/or the finished
products resulting there from supplied to PARABOLIC and any
stock-in-process shall be held by PARABOLIC in trust for
RANBAXY and for the purpose of being delivered to RANBAXY
and no finished products, or raw materials shall be delivered to
any third party.

3.14 PARABOLIC shall keep the raw materials as supplied by

RANBAXY & Product manufactured for RANBAXY in a separate
enclosure and maintain separate accounts and records for the
same.

3.16 PARABOLIC shall furnish to RANBAXY every month, a

statement showing therein:

(a) Quantities of raw materials received from RANBAXY

during the preceding calendar month;

(b) Quantities of raw materials actually used by

PARABOLIC during the preceding calendar month;

(c) Quantities of raw materials and finished products in

stock at the beginning and end of each English
calendar month;

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(d) Quantities of in-process raw materials at the

beginning and end of each English calendar month;

(e) Quantities of finished Products manufactured and

supplied to RANBAXY during the preceding calendar
month.

3.18 The property and ownership in the raw materials,

packaging or other materials and the finished Products
or stock in-process of manufacture shall at all times
remain and shall be deemed to be vested in RANBAXY.”

(emphasis supplied)

4. In this Application it is mentioned that the Applicant has

placed a manufacturing order on the Corporate Debtor to
manufacture the said Drug, hence supplied a raw material stated
to be to the tune of ₹14.01 crores. The Applicant kept on
supplying the said raw material and for the period January 2016
to October 2018 further supplied for a sum of ₹20.10 crores.
Evidences of supply of the raw material are annexed with the
Application.

5. The grievance of the Applicant is that neither the

manufactured product was made available to the Applicant nor
raw material was returned to the Applicant. Moreover, after the
pronouncement of moratorium the Applicant had not been
allowed to visit the manufacturing unit. The Applicant has
informed that electricity connection was disconnected in
September 2018. The apprehension is that the raw material
being a sensitive chemical might get perished by the passage of

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in C.P.(IB)-102/CHD/2018

time. Being aggrieved, this Application is moved seeking an

order for return of raw material as supplied by this Operational
Creditor/Applicant to the Corporate Debtor.

6. Ld. Representatives of both the sides are present and

heard at length.

7. From the side of the Applicant, a legal argument has been

raised that the admitted position of supply of goods was not
denied by the Resolution Professional. Further, it is pleaded
that provisions of Section 14 do not apply in this situation
because the material supplied do not fall under the category of
essential goods or services. The Ld. Counsel has informed that
“Essential Supplies” are defined under Regulation 32 of IBBI
(Insolvency Resolution Process and Corporate Persons)
Regulation 2016 which includes and shall mean electricity, water,
telecommunication services and information technology services.
Further, it has also been argued that as per section 18 of the
Insolvency Code under the head “Duties of Interim Resolution
Professional”, the Resolution Professional shall perform certain
duties and one of them is as per section 18(1)(f) of the Code
which prescribe that the RP shall -

(f) take control and custody of any asset over which the corporate
debtor has ownership rights as recorded in the balance sheet of
the corporate debtor, or with information utility or the
depository of securities or any other registry that records the
ownership of assets including -

(i) assets over which the corporate debtor has ownership

rights which may be located in a foreign country;

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(ii) assets that may or may not be in possession of the

corporate debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiary of the

corporate debtor, financial instruments, insurance policies;

(vi) assets subject to the determination of ownership by a

court or authority;

7.1 It is pleaded that an exception has been carved out by

defining the term “assets” in the explanation annexed to section
18(1)(f) of the Code, for reference reproduced below:

“Explanation- For the purposes of this [section], the terms “assets”

shall not include the following, namely:-

(a) assets owned by a third party in possession of the

corporate debtor held under trust or under contractual
arrangements including bailment;

(b) assets of any Indian or foreign subsidiary of the corporate

debtor, and

(c) such other assets as may be notified by the Central

Government in consultation with any financial sector
regulatory.”

7.2 Therefore, the argument is that an asset owned by a third

party but in possession of the Corporate Debtor which is held
under a trust or under a contractual arrangement shall be out of
the clutches of the provisions of 18(1)(f) as well as section 14 of
IBC.

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8. On the other hand, Ld. Representatives appeared on behalf

of the CoC and the Resolution Professional, have vehemently
opposed this application. It is pleaded that once the Moratorium
u/s 14 of IBC is in operation, then the recovery of any property
by any owner which is in possession of the Corporate Debtor is
prohibited, referred section 14(1)(d) of the Code.

8.1 It is also argued that the term “property” is defined u/s

3(27) of the insolvency code which includes money, goods,
actionable claim, land, etc. The raw material which is supplied is
the “Property” as mentioned in section 14(1)(d) which is under
prohibition, therefore, cannot be recovered from the possession
of the Corporate Debtor.

8.2 Ld. Representatives have also informed that the said

request for release of the goods lying in possession of the
Corporate Debtor and under control of RP was put forth for the
discussion before the CoC and by a meeting of 05.01.2019 it was
resolved to obtain a legal opinion on this issue. Finally, it is
pleaded that this Application is with the sole objective to protect
its interest over and above the other Operational Creditors,
instead of having share percentage in the offer to be made as
per a Resolution Plan yet to be received.

9. Heard the rival submission and perused the records of the

case. One of the facts is not in dispute that the Applicant had
supplied raw material which is in possession of the Corporate
Debtor, now under insolvency, hence controlled by the appointed
Ld. Resolution Professional. The Applicant has expressed an

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apprehension that the raw material being a chemical, is

perishable in nature, hence requires to be protected before it
expires or gets destroyed by any chemical reaction.

9.1 In the light of the factual matrix narrated above, a legal

question has been raised that whether the raw material in
possession of the Corporate Debtor, should not be allowed to be
returned on commencement of “Moratorium”? On one hand the
Ld. RP has taken the shelter of the provisions of section 14(1)(d)
of the IBC, but on the other hand the Applicant has placed
reliance on the Explanation under section 18(1)(f) of IBC. At the
outset, at this juncture, in our opinion the facts and
circumstances of the case lead us to hold that the provisions of
section 18 are more appropriate to address the legal issue in
hand. Reasons follow herein below.

9.2 First we shall deal with the provisions of section 14(1)(d),

wherein the terminology used is “Property” and not “Asset”. This
section says that on commencement of insolvency by an order of
Adjudicating Authority prohibition is to be imposed in respect of
recovery of any property by an Owner or a Lessor where such
property is occupied by or in possession of the Corporate Debtor.
In this section the reference is in respect of a “Property” which is
duly defined u/s 3(27) of IBC, means money, goods, land,
actionable claim, etc. As far as the CoC is concerned, it was
resolved by 100% voting not to release the goods belonging to
Sun Pharmaceutical Industries Ltd. The said decision of CoC was
declared in a routine manner although the question was that
whether it was a case of “Recovery” by an owner of the property.

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In strict sense, the claim of the Applicant is not for recovery of

money/goods.

10. The statute has mandated vide section 18(1)(f) that the
Interim Resolution Professional shall perform several duties such
as ‘take control and custody of any asset over which the
Corporate Debtor has ownership rights as recorded in the
Balance Sheet of the Corporate Debtor’. Tangible assets
whether movable or immovable is within the category of
“Assets” as defined in this section vide insertion of an
Explanation. Through this explanation an exception is carved out
that for the purpose of this section i.e. section 18(1)(f) the
followings shall not constitute an Asset and therefore, an Asset
owned by a third party, however, in possession of the Corporate
Debtor, held under trust or under contractual arrangement. In
short, an Asset belonging to an Operational Creditor, however, in
possession of a Corporate Debtor shall not be treated as an
Asset, therefore, the RP shall not be allowed to take control and
custody over the said Asset. In the light of this provision if we
examine the facts of this case, it is not in dispute that the
Operational Creditor M/s. Sun Pharmaceutical Ltd. has supplied
the raw material which is in possession of the Corporate Debtor
i.e. Parabolic Drugs Ltd. should be released without delay being
perishable in nature, following section 18(1)(f) r/w Explanation.

11. A question is to be answered that what are the areas of

operation of Sec. 14 vis-a-vis Sec. 18 of IBC. A fine distinction is
available between these two enactments. The area of operation

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of Sec. 14 is in respect of property which is occupied or in

possession of the Corporate Debtor. The property as defined U/s
3(27) of the Codeincludes money, goods, land, actionable claims
etc. If the property as defined in Sec. 3 is in possession of the
Corporate Debtor, then such property cannot be recovered from
the Corporate Debtor by the owner of the property on
commencement of Moratorium. This is the general rule through
which the Corporate Insolvency Resolution Process proceedings
are being triggered on admission of an insolvency petition. Under
the insolvency Code, later on an exception is provided U/s 18
(Explanation) against this general rule. However, the area of
operation of Sec. 18 is distinct from Sec. 14. There is a fine
distinction as appearing in Sec. 18 r/w explanation that for the
purpose of this section the term ”asset” shall not include an
asset owned by third party in possession of Corporate Debtor,
either (i) under trust, or under (ii) contractual arrangements
including bailment. Therefore, it is clear that the ambit of
application of this explanation is confined to these two types of
assets, i.e. either a trust asset or an asset in possession owing to
contractual arrangement. Hence, a conclusion can be drawn that
the exception as carved out through this explanation against the
general rule of S. 14, which is limited in its operation in respect
of these two types of assets only, although as per the main
provision, an asset owned by a third party but in possession of
the Corporate Debtor shall not be included U/s 18(1)(f) which
prescribes taking control over the properties as described
therein. Next is the question that whether the raw material which
is supplied by the applicant for manufacturing of a drug in

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possession of the Corporate Debtor can be an asset to be held as

a trust property or under contractual arrangement. Our concern
is limited to an arrangement which is undisputedly a contractual
arrangement, which in general prescribes the delivery of goods
by one person to another for some purpose, upon
a contract that they shall, when the purpose is accomplished be
returned or otherwise disposed off according to the directions of
the person delivering them.
Since, the raw material was supplied under a
contractual arrangement, terms already reproduced above
therefore, the provisions of Explanation to Sec. 18 are squarely
applicable. The applicant is entitled to take back the property
from the possession of the RP.
12. In view of the directions made hereinabove, CA 206/2019 in
CP 102/2018 is hereby allowed.

Pronounced in open court.

Sd/- Sd/-
PRADEEP R. SETHI M.K. SHRAWAT
MEMBER (TECHNICAL) MEMBER (JUDICIAL)

Date: 26.04.2019

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