2017 (12) TMI 1035 - AT - Insolvency and Bankruptcy

Corporate insolvency procedure - Held that - We do not accept the submissions made on behalf of the Appellant in view of the fact that after admission of an application under Section 7 of the I&B Code , once moratorium has been declared it is not open to any person including Financial Creditors and the appellant bank to recover any amount from the account of the Corporate Debtor, nor it can appropriate any amount towards its own dues. If the Corporate Debtor has borrowed some amount from the Appellant- Indian Overseas Bank and the Appellant- Indian Overseas Bank come within the definition of Financial Creditor as defined in Section 5(7) of the I&B Code , it is always open to the Appellant- Indian Overseas Bank to file its claim before the Interim Resolution Professional for getting the amount back. If the Appellant claims to be Financial Creditor and files such claim before the Interim Resolution Professional showing the principal amount and interest thereon, the Interim Resolution Professional will consider the same and the Appellant being Financial Creditor may be taken in the Committee of Creditors . We find no merit in this appeal, therefore, we are not inclined to interfere with the impugned order dated 13th October, 2017.

Summary

Issues:
1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for Corporate Insolvency Resolution Process.
2. Moratorium declared under Section 14(1) of the I&B Code.
3. Instructions to financial institutions under Section 17(1)(d) of the I&B Code.
4. Dispute regarding transfer of funds by Indian Overseas Bank to Corporate Debtor.
5. Appellant's claim and opposition to transferring funds to Corporate Debtor.
6. Interpretation of the I&B Code regarding financial creditors' rights during moratorium.
7. Appeal against the order directing transfer of funds to Corporate Debtor.
8. Decision on the appeal and directions to the Appellant.

Analysis:
1. The Corporation Bank, a Financial Creditor, filed an application under Section 7 of the I&B Code against the Corporate Debtor, which was admitted, and moratorium was declared by the Adjudicating Authority. The moratorium included restrictions on suits, asset transfers, security enforcement, and property recovery against the Corporate Debtor.
2. Section 17(1)(d) required financial institutions to act on the Interim Resolution Professional's instructions regarding the Corporate Debtor's accounts. The Indian Overseas Bank, a Financial Creditor, was asked to transfer funds to the Corporate Debtor's account at Corporation Bank.
3. Despite reminders, the Indian Overseas Bank did not transfer the funds, arguing that the amount in the Corporate Debtor's account was not an asset to be released. The Adjudicating Authority rejected this argument, directing the fund transfer, leading to the appeal by the Indian Overseas Bank.
4. The Appellant reiterated its position that the funds in the Corporate Debtor's account were not subject to release, being borrowed funds, and should be appropriated towards its dues.
5. The Tribunal ruled that during the moratorium, no entity, including Financial Creditors like the Appellant bank, could recover or appropriate funds from the Corporate Debtor's account.
6. The Tribunal clarified that the Appellant could file a claim as a Financial Creditor with the Interim Resolution Professional to recover the amount, be considered in the Creditors Committee, and participate in the resolution process.
7. The appeal was dismissed, directing the Appellant to transfer the funds to Corporation Bank and allowing the Appellant to raise its claim with the Interim Resolution Professional for consideration in the Creditors Committee.
8. The Appellant was instructed to transfer the funds by a specified date, and the appeal was disposed of without costs, maintaining the Adjudicating Authority's order.