2020 (4) TMI 897 - Tri - Insolvency and Bankruptcy

Seeking a direction to the respondent/non-applicant i.e. Indian Overseas Bank to release all the funds of the corporate debtor which were retained by the respondent/non-applicant - HELD THAT - The Hon ble Supreme Court of India in State Bank of India Versus V. Ramakrishnan and Another 2018 (8) TMI 837 - SUPREME COURT while holding that Section 14(3) of the Code has no application to the personal guarantors, discussed the background to the introduction of the amendment to Section 14(3) of the Code - A careful examination of Section 14(3)(b) of the Code and the decision of the Hon ble Apex Court, indicates that the action of the respondent/nonapplicant is not covered under Section 14(3)(b) of the Code. In the present case, it is in dispute that whether a charge was created in accordance with Section 77 of the Companies Act, 2013. Neither of the counsel filed any proof or document in support of their respective contentions. In the absence of the same, no finding can be given on this aspect. The respondent/non-applicant shall release the amounts in Item Nos.2, 5, 6, 7, 8 and 9, of the table mentioned above, alongwith interest accrued, if any, to the account of the corporate debtor to enable it to utilize in accordance with the Code and the Regulations made thereunder - applicant/Resolution Professional is directed to file a detailed affidavit before this Tribunal with regard to utilization of the amounts, within two weeks from the date of reopening of National Company Law Tribunal, Chandigarh Bench, after the lockdown is removed. Application disposed off.

Summary

Issues Involved:
1. Release of funds retained by the respondent in violation of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Allegation of fraud against the Resolution Professional.
3. Validity of moratorium under Section 14 of the IBC.
4. Treatment of fixed deposits held as collateral security and margin money for bank guarantees.

Issue-wise Detailed Analysis:

1. Release of Funds Retained by the Respondent:
The Resolution Professional (RP) filed an application under Section 60(5) read with Section 74(2) of the IBC, 2016, seeking a direction for the respondent, Indian Overseas Bank, to release funds retained in violation of the Code. The respondent had adjusted several amounts towards its dues despite the moratorium declared under Section 14 of the Code. The amounts in question were detailed in a table provided in the judgment. The RP later withdrew claims for certain items, leaving disputes over specific amounts.

2. Allegation of Fraud Against the Resolution Professional:
The respondent's written submission included a statement alleging fraud by the RP. The RP’s counsel objected, noting the lack of pleadings to support this claim. The respondent's counsel acknowledged the mistake and withdrew the allegation, which was duly recorded by the Tribunal.

3. Validity of Moratorium Under Section 14 of the IBC:
The Tribunal examined Section 14 of the IBC, which imposes a moratorium on certain actions against the corporate debtor upon the commencement of the Corporate Insolvency Resolution Process (CIRP). The respondent argued that the fixed deposits were exempt from the moratorium under Section 14(3)(b), which pertains to sureties in a contract of guarantee. The Tribunal, referencing the Supreme Court's decision in State Bank of India vs. V. Ramakrishnan and Another, concluded that the respondent's actions were not covered under Section 14(3)(b).

4. Treatment of Fixed Deposits Held as Collateral Security and Margin Money for Bank Guarantees:
- Item No.1 (Collateral Security): The respondent had adjusted a fixed deposit held as collateral security for a loan. The RP argued that this adjustment violated the moratorium. The Tribunal noted a lack of evidence regarding the creation of a charge under Section 77 of the Companies Act, 2013, and thus did not make a definitive ruling on this item.
- Item No.5 (Margin Money for Bank Guarantee): The respondent had encashed a fixed deposit kept as margin money for a bank guarantee, which was invoked post-moratorium. The Tribunal, referencing a decision in Pankaj Khaitan, RP vs. Allahabad Bank, held that the respondent could not retain the fixed deposit and directed its release to the corporate debtor for utilization per the Code.

Judgment:
The Tribunal partially allowed the application:
1. Directed the respondent to release amounts corresponding to Item Nos. 2, 5, 6, 7, 8, and 9, along with any accrued interest, to the corporate debtor's account.
2. Instructed the RP to file an affidavit detailing the utilization of these amounts within two weeks of the Tribunal's reopening post-lockdown.
3. Allowed the RP to pursue remedies for Item No.1 in accordance with the law in the future.

The application (CA No.95/2018) was thus disposed of.