2020 (2) TMI 1495 - AT - Insolvency and Bankruptcy

Direction to Bank to reverse the entry vide which the Bank had appropriated margin money which was kept in the form of three Fixed Deposits - HELD THAT - It does appear that money which was lying with the Bank as margin money in the Form of 3 FDs in the name of Corporate Debtor were appropriated after the CIRP was initiated and thus the same could not have been done under Section 14 of IBC. What internal instructions Bank gave on 01.08.2017 is not relevant. Admittedly F.D. Accounts were closed on 02.08.2017 when Moratorium was in force. There are no error in the Impugned Order passed by the Adjudicating Authority - appeal dismissed.

Summary

Issues:
1. Appropriation of margin money in the form of fixed deposits during Corporate Insolvency Resolution Process (CIRP).
2. Compliance with the moratorium under the Insolvency and Bankruptcy Code, 2016.
3. Dispute regarding the date of appropriation of funds by the Bank.
4. Interpretation of internal instructions given by the Bank.

Analysis:
1. The Appeal was filed by Bank of Baroda against the Impugned Order in a case related to the Corporate Insolvency Resolution Process (CIRP) of ABG Shipyard Ltd. The Respondent, the Resolution Professional, sought directions against the Bank for depositing an amount of ?9,73,83,818/- that was appropriated by the Bank in violation of the moratorium imposed by the Tribunal. The Bank had appropriated margin money held in three Fixed Deposits (FDs) after the initiation of CIRP, which the Adjudicating Authority found to be in violation of the moratorium.

2. The Adjudicating Authority held that the Bank was aware of the CIRP proceedings initiated by another financial creditor against the Corporate Debtor. Despite this knowledge and the moratorium in place, the Bank proceeded to appropriate the funds from the FDs. The Authority directed the Bank to reverse the wrongfully appropriated amount and pay accrued interest to the Resolution Professional. The Tribunal found that the Bank should have respected the moratorium and not appropriated the margin money during the CIRP.

3. The Bank argued that it had internally decided to appropriate the funds on 01.08.2017, the date the insolvency application was admitted, and closed the FD accounts on 02.08.2017. However, the Resolution Professional presented evidence showing that the funds were actually appropriated on 09.08.2017. The Tribunal considered the documents and determined that the Bank's actions of appropriating the funds after the initiation of CIRP were in violation of the moratorium.

4. The Respondent Bank contended that the internal instructions given by the Bank on 01.08.2017 acknowledged the CIRP initiation and the restrictions on adjusting margin money without consent. Despite this awareness, the Bank proceeded with the appropriation of funds. The Tribunal concluded that the Bank's actions were not in compliance with the provisions of the Insolvency and Bankruptcy Code, and upheld the decision of the Adjudicating Authority. The Appeal was dismissed, and no costs were awarded.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by both parties, and the Tribunal's reasoning in reaching its decision.