2020 (5) TMI 703 - Tri - Insolvency and Bankruptcy

Violation of Section 14 of the Insolvency and Bankruptcy Code, 2016 during the moratorium period by one of the Financial Creditors (Punjab National Bank) - Financial Creditors (Punjab National Bank) is holding voting share of 0.58% in the CoC - HELD THAT - Upon perusing the material and documents placed before this Bench, it is seen that the Respondent-Financial Creditor (Punjab National Bank) admits that an amount of ₹ 1.87 crores lying in the CC account (as on 22.05.2019) was further debited for the LC payment; during the CIRP period, the Respondent-Bank issued fresh LC of ₹ 2,38,46,467/- on 01.06.2019 considering the urgency of business commitment of Corporate Debtor Company after obtaining approval from the IRP. It is pertinent to mention here that in the 4th CoC meeting held on 07.0 1.2020, the members from SBI (consortium of Banks) holding 32,59% voting share pointed out that the issue relates to accounting treatment, the amount as claimed by the Applicant/Corporate Debtor could be reversed with the approval of appropriate authority. The Respondent-Bank has, in violation of the provisions under Section 14 of the IBC, unilaterally appropriated the amount due on LCs which is an amount distributable among all creditors after the conclusion of CIRP. (details of dates of LC and date if appropriate of the amount are given in Page.28 of the application). Further, no records could be found to ensure that the Respondent Bank has included the claim of LC in the outstanding credit prior to CIRP. The Respondent-Bank (Punjab National Bank) is required to credit to the Corporate Debtor s Account the amount of ₹ 17,95,04,271.79 (₹ 1,87,39,588.90 presently operated by the RP; ₹ 14,57,64,682,89 from the LC honored before CIRP and appropriated after CIRP and also GST refund of ₹ 1,50,000/- received during the CIRP period) which were meant to settle the liability on account of the LCs opened during pre-CIRP period. Application is allowed to the extent of amounts debited to the Corporate Debtor s account during the CIRP for having honored pre-CIRP LCs opened by the Corporate Debtor.

Summary

Issues:
- Violation of Section 14 of the Insolvency and Bankruptcy Code, 2016 by a Financial Creditor during the moratorium period.
- Appropriation of amounts by the Financial Creditor (Punjab National Bank) during the moratorium period.
- Dispute over the credit of certain amounts to the Corporate Debtor's Account.
- Interpretation of legal provisions regarding moratorium and creditor actions during the Corporate Insolvency Resolution Process (CIRP).

Violation of Section 14 of the Insolvency and Bankruptcy Code:
The Applicant, a Corporate Debtor, filed an application alleging that the Respondent, Punjab National Bank, violated Section 14 of the Insolvency and Bankruptcy Code by appropriating amounts during the moratorium period. The Applicant sought the recovery of these amounts, citing precedents emphasizing the prohibition on financial creditors from recovering any dues from the Corporate Debtor during the moratorium.

Appropriation of Amounts by the Financial Creditor:
The Applicant detailed various transactions where the Respondent, Punjab National Bank, had appropriated significant amounts during the moratorium period, despite the legal restrictions imposed by the Insolvency and Bankruptcy Code. The Applicant highlighted specific instances of appropriation, including LC payments and GST refunds, seeking a direction for the return of these amounts to the Corporate Debtor's Account.

Dispute Over Credit of Amounts:
The application involved a dispute over the credit of specific amounts to the Corporate Debtor's Account, operated by the Resolution Professional. The Applicant requested the Respondent, Punjab National Bank, to credit certain sums, including funds recovered for LCs honored before and during the Corporate Insolvency Resolution Process, as well as a GST refund received during the CIRP period.

Interpretation of Legal Provisions during CIRP:
The Respondent, Punjab National Bank, contended that certain transactions were necessitated to maintain the Corporate Debtor as a going concern during the CIRP period. The Respondent argued that actions taken were in compliance with directions from the NCLAT and the IRP, emphasizing the need for fresh LCs and adherence to banking guidelines. The Tribunal examined the material presented and concluded that the Respondent's actions contravened Section 14 of the IBC, directing the credit of appropriated amounts to the Corporate Debtor's Account.

Conclusion:
The Tribunal allowed the application to the extent of amounts debited during the CIRP for honoring pre-CIRP LCs, directing the Punjab National Bank to credit specific sums to the Corporate Debtor's Account. The judgment clarified that any future issuance of LCs during the CIRP must adhere to conditions imposed by the Respondent and directives from the IRP/RP in consultation with the CoC.