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2021 (5) TMI 921 - AT - Insolvency and BankruptcySeeking direction against the Appellant Banks and Financial Institutions to reimburse all the amounts appropriated by them after the Insolvency Commencement Date - Seeking to resume the working capital limits as available to the Corporate Debtor as on the Insolvency Commencement Date. HELD THAT - As per Section 17(1)(d) of the I B Code, the Financial Institutions maintaining the accounts of the Corporate Debtor have to act on the instructions of the Interim Resolution Professional in relation to such accounts and furnish all information relating to the Corporate Debtor . This Tribunal in a catena of Judgements has held that Banks cannot debit any amounts from the account of the Corporate Debtor Company after the Order of moratorium, as it amounts to recovery of amount - the Banks cannot freeze accounts nor can they prohibit the Corporate Debtor from withdrawing the amount as available on the date of moratorium for its day-to-day functioning. Section 14 of the I B Code overwrites any other provision contrary to the same and any amount due prior to the date of CIRP cannot be appropriated during the moratorium period. It is seen from the record that payments due under the LCs have been made out of the funds of the Corporate Debtor as is established from the reduction of liabilities under non-fund based facilities. Adjusting of the Claims by the Appellant Banks during the CIRP out of the funds of the Corporate Debtor results in unjust enrichment of the Banks and further, crediting amounts towards non-fund and fund based accounts during the moratorium period is against the provisions of Section 14 of the Code. The non-Applicants are directed to release the title deeds for effective implementation of the terms of the Resolution Plan as provided for under Section 31 of the Code - application allowed.
Issues Involved:
1. Reversal of amounts appropriated by banks during the moratorium period. 2. Preferential treatment of certain creditors. 3. Compliance with the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC). 4. Validity of actions taken by the Resolution Professional. 5. Implementation of the approved Resolution Plan. 6. Release of title deeds post-implementation of the Resolution Plan. Detailed Analysis: 1. Reversal of Amounts Appropriated by Banks During the Moratorium Period: The Learned Adjudicating Authority directed the banks (Central Bank of India, Syndicate Bank, Bank of India, and State Bank of India) to reverse the amounts appropriated during the moratorium period. The amounts were ?1,419.89 lakhs, ?326.87 lakhs, ?1,827.17 lakhs, and ?599.78 lakhs, respectively. These directions were issued under Section 14 read with Section 17 and Section 60(5) of the IBC. 2. Preferential Treatment of Certain Creditors: The Resolution Professional argued that the amounts appropriated by the banks constituted preferential treatment over other creditors. The amounts recovered by the banks during the Corporate Insolvency Resolution Process (CIRP) were ?18.27 crores, ?14.19 crores, ?5.59 crores, and ?3.26 crores, respectively. The Tribunal noted that this preferential treatment was not strictly as per Section 43 of the IBC but in terms of giving preference to the banks over other creditors. 3. Compliance with the Moratorium Under Section 14 of the IBC: Section 14(1) of the IBC prohibits actions to foreclose, recover, or enforce any security interest created by the corporate debtor during the moratorium period. The Tribunal emphasized that banks cannot debit any amounts from the account of the corporate debtor after the order of moratorium, as it amounts to recovery of amount. The Tribunal also noted that the banks cannot freeze accounts nor prohibit the corporate debtor from withdrawing the amount available on the date of moratorium for its day-to-day functioning. 4. Validity of Actions Taken by the Resolution Professional: The Tribunal noted that the erstwhile Resolution Professional had remitted amounts towards the credit of the cash credit account, and these payments were made out of the funds of the corporate debtor. The Tribunal held that the act of the banks to adjust the credit balance in the cash credit account towards the debit balance after the CIRP commenced cannot be justified. The Tribunal also stated that adjusting the claims by the banks during the CIRP out of the funds of the corporate debtor results in unjust enrichment of the banks and is against the provisions of Section 14 of the IBC. 5. Implementation of the Approved Resolution Plan: The Tribunal upheld the approval of the Resolution Plan, noting that the commercial wisdom of the Committee of Creditors (CoC) is non-justiciable. The Tribunal observed that the Resolution Plan was in conformity with the provisions of the IBC as provided under Section 30(2) of the Code. The Tribunal dismissed the appeals challenging the approval of the Resolution Plan, stating that there was no material irregularity demonstrated in the CIRP. 6. Release of Title Deeds Post-Implementation of the Resolution Plan: The new management of the corporate debtor sought the release of the title deeds of the immovable properties of the company, which were in possession of Bank of India. The Tribunal noted that the Resolution Plan had been implemented, and the debt had been legally extinguished. The Tribunal directed the non-applicant banks to release the title deeds for effective implementation of the terms of the Resolution Plan as provided under Section 31 of the IBC. Conclusion: The Tribunal dismissed the appeal, upholding the directions for the reversal of amounts appropriated by the banks during the moratorium period. The Tribunal emphasized the importance of compliance with the moratorium under Section 14 of the IBC and held that the actions of the banks constituted preferential treatment over other creditors. The Tribunal also directed the release of title deeds post-implementation of the Resolution Plan, ensuring compliance with Section 31 of the IBC.
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