Analysis of NCLT in Weather Makers Pvt. Ltd. vs. Parabolic Drugs Ltd.

The area of operation of Sec. 18 of IBC is distinct from Sec. 14. 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.

In the light of the factual matrix narrated, 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.

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 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 Code includes 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 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.

Judgement link : https://nclt.gov.in/sites/default/files/Interim-order-pdf/FINAL%20Orders%20on%20CA%20206%20of%2019%20in%20CP%20102%20of%2018%20-60%285%29-Weather%20Makers.pdf