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TMI Blog2022 (1) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... lication filed by the Resolution Professional (Respondent No. 1 herein) against 'Kotak Mahindra Bank Limited' under Section 60 (5) of the Insolvency and Bankruptcy Code, 2016 (for short IBC) 'for closure of its Fixed Deposit in A/c. No. 7511872416 and 7511874557 on the ground that since Corporate Insolvency Resolution Process has been initiated against the Corporate Debtor' was allowed IA-2069(PB)/2020 and further, the Respondent Bank i.e. the Appellant herein was directed to transfer the amount payable (including interest accrued thereon) on closure of Fixed Deposits in account Nos. 7511872416 and 7511874557 to TRA A/c No. 0127103000016223 held by the Corporate Debtor with IDBI Bank, Videocon Tower, 1st Floor, E-1, Jhandewalan Extension, New Delhi-110055. 2. The facts giving rise to this Appeal are as follows: i) The Respondent No. 1 filed an Application in the month of May, 2020, against the Appellant Bank bearing IA No. 2069(PB)/2020 (Annexure A-3 at page 53 to 177 of the Appeal Paper Book) praying for directions to the Appellant Bank to close the Fixed Deposits in Account Nos. 7511872416 and 7511874557 placed by the Respondent No. 2 company with the Appellant and further to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Corporate Debtor, a fixed deposit of Rs. 75,00,000/- was credited into current account no. 503011008601 styled as "Amtek Crankshafts (India) Limited" along with interest. ix) The Corporate Debtor requested to create a fresh fixed deposit of Rs. 75,00,000/- for 91 days by debiting current account no. 503011008601 styled as "Amtek Crankshafts (India) Limited and another FDR for a sum of Rs. 15,00,000/- was also created by ACIL in order to support the debt security ratio with a right of set off to be exercised at that relevant point of time. The said FDRs were never encashed and were always left with the Bank since 2009. The Bank has exercised the general lien over these FDRs along with the right of set off. The value of these FDRs were never appropriated with the Loan Account, since the right to set off can be exercised only at the time of final demand and the payment to be made. The Appellant Bank has lien over these FDRs till such time the right to set-off is exercised by the Bank while appropriating the amount and since then both FDR continued to be with Appellant Bank till date in form of security for the loan advances. x) Further case is that the limit of credit facility gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporate Debtor failed to repay the outstanding amount and various defaults were committed by them and therefore, the account of the Corporate Debtor has been declared as NPA in the Books of the Appellant Bank as on 31.03.2017 as per guidelines of Reserve Bank of India. xvi) The Appellant Bank in view of various defaults committed by the Corporate Debtor and the account of the Corporate Debtor being declared NPA, issued a Loan Recall Notice dated 22.09.2017 whereby the Appellant Bank recalled the facilities extended to the Corporate Debtor and demanded payment of Rs. 205,84,10,198.70/- as on 24.08.2017, together with further interest and other charges thereon at the contractual rates upon the footing of compound interest from 25.08.2017 within seven days from receipt of the Loan Recall Notice. xvii) The Corporate Debtor has failed to pay the outstanding amount and the current outstanding Financial Debt as on 01.06.2020 in Rs. 401,54,10,733.70/- xviii) The Ld. NCLT passed an order commencing Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor on 08.08.2018 and appointed Mr. Ravinder Loonkar, the Respondent No. 1 herein, as the Interim Resolution Professio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. xxii) The Respondent No. 1, replied to the letter dated 11.11.2019 issued by the Appellant Bank vide the letter dated 05.12.2019 wherein the Applicant claimed that the Fixed Deposits in Account No. 7511872416 and 7511874557 are free of any such lien/charge as claimed by the Appellant Bank and no lien/charge has ever been created over the Fixed Deposits by the Corporate Debtor. xxiii) The Appellant Bank vide letter dated 11.12.2019 denied all the contentions raised by the Respondent No. 1 in letter dated 05.12.2019 and further reiterated that Fixed Deposits are forming part of security of the Appellant Bank and the Bank has priority over redemption of such Fixed Deposits for adjustment of debt of Corporate Debtor and further has a right of general lien and therefore the request made by the Respondent No. 1 was rejected. The letter dated 07.01.2020, same request was made by the Respondent No. 1 on such grounds as mentioned therein. The said request made by the Respondent No. 1 was rejected by the Appellant Bank vide reply dated 27.01.2020. xxiv) The Respondent No. 1 once again issued a letter dated 27.01.2020 which was replied by the Appellant Bank on 06.03.2020, reiterating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant Bank. That in terms of Clause 1.1 of the facility Agreement "Additional Security" shall mean such additional security as may be posted pursuant to Clause 10(c) of the Facility Agreement. 5. It is further submitted that in terms of the Clause 10(c) "If, in the opinion of the Bank, the Security constituted by the Security Documents is insufficient or becomes insufficient to cover the Borrower's obligation under this Agreement, the Bank may ask the Borrower to furnish or arrange such additional security as the Bank may determine/stipulate from time to time". 6. It is further submitted that according to clause 18 of the Facility Agreement, the Appellant Bank has the right of set off. That as per the clause, "the borrower agrees without prejudice to all of the Bank's rights and remedies as bankers or otherwise against the Borrower, the Bank shall be entitled to set Bank under any transaction/agreement at any time in satisfaction of payment of any indebtedness or liability of the Borrower under or pursuant of this Agreement". 7. It is further submitted that the Appellant Bank started observing acts of misconduct on part of the Corporate Debtor including breach of term and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of Rs. 97,66,718.40 and FD No. 75118724116 for an amount of Rs. 43,39,304.99. 13. It is further submitted that on 14.08.2019 the Final Resolution Plan was approved by the Committee of Creditors (CoC) by e-voting with a majority of 88.56% and the said Plan was taken on record by the Hon'ble Tribunal vide order dated 16.08.2019. The Appellant Bank has a total voting right of approx. 14.81% in the CoC formed by the Resolution Professional to govern the CIRP of the Corporate Debtor herein and the Appellant Bank had assented for the Resolution Plan being submitted by M/s Ramkrisha Forgings Ltd. and thus the Resolution Plan was approved by the CoC in its commercial wisdom. 14. It is further submitted that the Ld. Adjudicating Authority has failed to consider that the based on the clause of additional security and bank's right of set off as per the terms and conditions of the Facility Agreement duly singed and acknowledged by the Corporate Debtor. 15. It is further submitted that in view of the facts and submissions the impugned order cannot be sustained in the eye of law, therefore the impugned order is set aside and the Appeal be allowed. Submissions on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterally withhold the possession of Fixed Deposits after the commencement of CIRP in view of the Judgment passed by Hon'ble High Court of Bombay in the case of "State Bank of India Vs. Javed Akhtar Hussain and Anr. AIR 1993 130M 87". 24. It is further submitted that even the statement/Certificate of Balance for the Fixed Deposits as on 31.01.2021 and 31.03.2020 issued by the Appellant (at page 67-68 of the Reply Affidavit) do not show or carry any charge or lien over the Fixed Deposits. 25. It is further submitted that the right of lien cannot be exercised over Fixed Deposits since money placed in Fixed Deposit is a debt in the hands of the bank, and therefore a debt cannot be subjected to lien nor a debtor can exercise such a right in view of the Judgment passed by Hon'ble High Court of Kerala in the case of "Union Bank of India Vs. K.V. Venugopalan, 1990 SCC OnLine Ker 12". 26. It is further submitted that once an order of moratorium in terms of Section 14(1)(c) is declared, it creates a bar on enforcement of any security interest in respect of Corporate Debtor. No recovery action in form of lien or set-off can be exercised by banks in discharge/settlement of their pre-CIRP du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Charged Assets. Charged Assets as per Clause 1.1 (at page 81 of the Appeal Paper Book) mean "the assets over which Security is expressed to be created pursuant to any Security Document". The Fixed Deposits were never charged to the Appellant neither originally as "Charged Assets" nor subsequently as "Additional Security", hence the Bank has no right over these Fixed Deposits even when loan is recalled by the Bank. No such charge was registered by the Corporate Debtor or even by the Appellant in terms of Section 77 of the Companies Act, 2013. Order of moratorium in terms of provisions of Section 14(1)(c) is declared, it creates a bar on enforcement of any security interest in respect of Corporate Debtor. No recovery action in form of lien or set-off can be exercised by banks in discharge/settlement of their pre-CIRP dues. The Final Resolution Plan was approved by the Committee of Creditors (CoC) on 14.08.2019 by e-voting with a majority of 88.56% and the said Plan was taken on record by the Ld. Adjudicating Authority vide order dated 16.08.2019. The Appellant Bank has a total voting right of 14.81% in the CoC formed by the Resolution Professional to govern the CIRP of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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