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2020 (11) TMI 193 - AT - Insolvency and BankruptcyRefund of amount which had been adjusted during CIRP by the Appellant Bank from Fixed Deposits of the Corporate Debtor - restoration od credit to the Corporate Debtor s account so as to facilitate Resolution Plan - HELD THAT - It is apparent that CIRP was initiated on 27th March, 2019 and later on, the Respondent found that the Appellant Bank had adjusted certain amounts which it could not, considering Section 14 of IBC. The facts and developments are apparent from the above letter and considering the provisions of Section 14, we have no doubt that the impugned order as passed by the Adjudicating Authority is required to be maintained. Once CIRP was initiated and Section 14 of IBC applied such adjustment by Appellant cannot be maintained. Lack of knowledge of initiation of CIRP would not be relevant. When CIRP was initiated, the Appellant Bank could not have adjusted the amounts as has been done in this matter. Appeal dismissed - decided against appellant.
Issues:
1. Condonation of delay in filing appeal due to lockdown and extension granted by Supreme Court. 2. Adjustment of funds by the Appellant Bank during Corporate Insolvency Resolution Process (CIRP). 3. Application of Sections 173 and 36 of the Insolvency and Bankruptcy Code, 2016 (IBC). 4. Interpretation of moratorium under Section 14 of IBC and its implications on creditor actions during CIRP. Issue 1: Condonation of Delay The Appellant sought condonation of delay in filing the appeal due to the lockdown and the Supreme Court's extension. The delay was considered in light of the circumstances, and it was held that the delay, if any, deserved to be condoned, leading to the disposal of the application. Issue 2: Adjustment of Funds The Respondent/Resolution Professional filed an application claiming that the Appellant Bank adjusted funds from the Corporate Debtor's Fixed Deposits against outstanding amounts related to loans. The Adjudicating Authority directed the Appellant to restore the credit to the Corporate Debtor's account to facilitate the Resolution Plan. The Appellant argued good faith in appropriating the amounts due to being a secured creditor, but the Respondent contended that such actions were not permissible during CIRP under Section 14 of IBC. Issue 3: Application of Sections 173 and 36 of IBC The Appellant relied on Sections 173 and 36 of IBC regarding mutual credit, set-off, and appropriation. However, the Respondent highlighted that these provisions are more relevant during liquidation proceedings, not CIRP. The Respondent also referenced a previous order emphasizing that during the moratorium, no party, including financial creditors, can recover or appropriate funds from the Corporate Debtor's account. Issue 4: Interpretation of Moratorium under Section 14 of IBC The Resolution Professional notified the Appellant Bank of the moratorium in effect during CIRP, instructing the release of funds appropriated by the Bank. The Tribunal upheld that once CIRP is initiated and Section 14 of IBC applies, actions such as fund adjustments by the Appellant Bank are impermissible. Lack of awareness of CIRP initiation was deemed irrelevant, emphasizing the strict application of Section 14. Consequently, the appeal was dismissed, and no costs were awarded. The judgment underscores the criticality of adhering to the provisions of the IBC, particularly during CIRP, emphasizing the restrictions imposed by the moratorium under Section 14. It clarifies the limitations on creditor actions and the significance of timely compliance with legal directives, even in cases of alleged good faith actions by the creditor.
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