2017 (11) TMI 1184 - Tri - Companies Law

Corporate insolvency process - respondent bank informed the applicant that the amount available in the current account of the corporate debtor is not an asset of the corporate debtor inasmuch as the dues of the corporate debtor in the books of respondent bank exceeds the amount available in the balance in the current account and therefore they exercised the rights of set off and appropriated the amount towards the dues payable to the bank. Held that - It is not required to discuss the matter so minutely in the present case because any amount lying in the current account of the corporate debtor has to be placed at the disposal of the resolution professional without any scope of an adjustment in the manner the respondent has tried to do. With regard to the opening of the current account in the Hosur branch which was not to the knowledge of the bank itself especially the Rajiv Circle Branch New Delhi because of the mischief committed by the corporate debtor it is contended that the corporate debtor added the word M/S. before its name while opening the current account in the Hosur branch and provided different Id code with the introduction of a local trader and that is why the current account could be opened in the Hosur branch which otherwise could not have been done. For the aforesaid mystery it is for the bank to take appropriate action by holding an enquiry but from the current account which the bank itself says that it had no prior knowledge there was no scope of set off after appointment of the interim resolution professional. In view of the above the application filed by the resolution professional is partly allowed and the respondent bank is directed to deposit the amount which was lying in the credit of the current account of corporate debtor in Hosur branch as on 29.08.2017 in the account of the corporate debtor maintained in the Corporation Bank after leaving an amount of 60, 000/- in the account of the corporate debtor as per letter dated 01.09.2017 Annexure A-11 (Colly) already sent by the applicant to the respondent. The applicant/resolution professional is further at liberty to take appropriate proceedings against the key managerial persons who had issued the cheques for withdrawal of the huge amount even after the appointment of the resolution professional and the respondent to hold an enquiry into the alleged mischief committed by the Corporate Debtor and take further steps as may be necessary.

Issues Involved:
1. Violation of moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016.
2. Compliance with instructions from the Interim Resolution Professional (IRP) under Section 17 of the Code.
3. Appropriation of funds by the respondent bank.
4. Actions against key managerial persons of the corporate debtor.

Issue-wise Detailed Analysis:

1. Violation of Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016:
The petition under Section 7 of the Insolvency & Bankruptcy Code, 2016, filed by the financial creditor was admitted on 24.07.2017, and a moratorium was declared. The moratorium included prohibitions on instituting or continuing suits, transferring assets, and recovering property. The respondent bank appropriated funds from the corporate debtor's account, arguing that the funds were not an asset of the corporate debtor due to the debtor's dues exceeding the available balance. However, the tribunal found that this action violated the moratorium, as the funds should have been at the disposal of the resolution professional.

2. Compliance with Instructions from the Interim Resolution Professional (IRP) under Section 17 of the Code:
The IRP, appointed on 27.07.2017, instructed the respondent bank to freeze all debit transactions and not to allow any cheque payments without the IRP's instructions. Despite these instructions, the corporate debtor withdrew significant amounts from the account after the IRP's appointment. The tribunal emphasized that, under Section 17(1)(d) of the Code, financial institutions must act on the IRP's instructions, and the respondent bank failed to comply with these instructions by allowing withdrawals and not freezing the account as directed.

3. Appropriation of Funds by the Respondent Bank:
The respondent bank argued that appropriating the funds was not a violation of the moratorium, as it was a set-off against the corporate debtor's dues. The tribunal rejected this argument, stating that any amount in the corporate debtor's current account must be placed at the disposal of the resolution professional. The tribunal directed the respondent bank to deposit the appropriated funds back into the corporate debtor's account, leaving a balance of ?60,000 as per the IRP's instructions.

4. Actions Against Key Managerial Persons of the Corporate Debtor:
The tribunal noted that the corporate debtor's key managerial persons violated the mandate of the law by withdrawing funds after the appointment of the IRP. The tribunal allowed the resolution professional to take appropriate proceedings against these individuals. Additionally, the tribunal instructed the respondent bank to hold an enquiry into the corporate debtor's misconduct, such as opening a current account with a false declaration and routing funds improperly.

Conclusion:
The tribunal found that the respondent bank violated the moratorium and failed to comply with the IRP's instructions. The bank was directed to deposit the appropriated funds back into the corporate debtor's account and to conduct an enquiry into the corporate debtor's misconduct. The resolution professional was permitted to take action against the corporate debtor's key managerial persons for their violations. Compliance with the order was mandated within fifteen days.

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