Amount Paid Towards One Time Settlement Is An Asset Of The Corporate Debtor: NCLAT Delhi

Actif Corporation Limited proposed a OTS with Bank of India and to show its commitment towards the settlement furnished a cheque of INR 1 Crores to the Bank with a request to keep the same in a no lien account. It was also agreed that the amount will be adjusted after the approval of the settlement.

Subsequently, settlement did not materialize between the parties and Corporate Insolvency Resolution Process was initiated against Actif Corporation by NCLT Ahmedabad. The Resolution Professional moved an application before the NCLT seeking direction against the Bank of India to release the amount held in the "no lien account" and the same was allowed by the NCLT vide its order dated 19.01.2021.

Contentions Of Appellant

It was contended on behalf of the Bank of India that the amount is not recorded in the balance sheet of the Corporate Debtor and cannot be construed as the asset of the Corporate Debtor. It was also submitted that the explanation to Section 18(f) of the Code provides that the assets of the Corporate Debtor shall not include assets owned by third party and in possession of the Corporate Debtor under a trust or a contractual agreement.

Contentions Of Resolution Professional

Resolution Professional contended that the amount lying in a "no lien account" is not owned by the bank and also in the absence of approval of the settlement proposal, Bank have no right over the said amount. It was also submitted that there was an understanding between the Corporate Debtor and Bank that the said money cannot be utilized by the bank until approval of the settlement plan.

Finding/Decision

The Bench noted that admittedly, the amount was paid to show bona fide towards the settlement plan which was subsequently not approved by the bank and the Corporate Debtor made a categorical request that the said amount shall not be utilized towards interest or principal till the approval of the settlement proposal.

NCLAT observed that as per Section 3(27) of the Code, property includes money and relying upon the same, NCLAT held that once the OTS failed and the CIRP is initiated, the amount lying in the no lien account belongs to the corporate debtor and the Resolution Professional is obliged to take control and custody of the same by virtue of Section 18(f) of the Insolvency and Bankruptcy Code, 2016 and accordingly, dismissed the appeal filed by the Bank of India

Case title: Bank of India v. Vinod Kumar P Ambavat

Counsel for Appellant: Mr. Ashish Rana and Mr. Anurag Kr. Singh

Counsel for Respondent: Mr. Milan Singh Negi

Click Here To Read/Download Order