Deposit In Pursuance Of One Time Settlement Proposal Remains Corporate Debtor's Asset If Settlement Fails: NCLAT

Brief Facts

The present appeal has been filed against an order passed on May 3, 2021 by which the appellant was directed to release Rs. 1 crore held in a No Line Account. The corporate debtor was admitted into insolvency on January 3, 2020 in pursuance of which the IRP initiated steps to manage the assets of the corporate debtor under section 18 of the code.

Despite requests made by the CoC in its 3^rd meeting and communications of the IRP, the appellant refused to release the funds. Thereafter, the Resolution Professional filed an IA which was allowed by the Adjudicating Authority directing the release of the amount for CIRP purposes.

The appellant submitted that the said amount in the No Lien Account is not the assets of the corporate debtor as it was deposited via a cheque from Wellworth Apparels Private Limited. It was further contended that as per explanation to section 18 of the code, third party owned assets held under trust or contractual arrangements are excluded from the definition of the assets.

It was also argued that the Corporate Debtor has not shown under what capacity this amount of Rs. 1 Crore has been received from Wellworth. Banker's lien over money lying is a statutory right. The money lying in the account is actually asset of the Bank itself.The amount of Rs. 1 Crore was paid for showing the bona-fides of the Corporate Debtor, in pursuance to a settlement proposal.

Per contra, the respondent submitted that the payment was made to Bank of India on account of Jaybharat Textiles & Real Estate Ltd., though the cheque has been issued by Wellworth Apparels Private Limited. The Appellant, Bank of India has not adjusted the said amount of Rs. 1 Crore in its claim, acknowledging thereby that this amount remains the asset of the Corporate Debtor.

It was further submitted that in absence of OTS/Resolution Plan having been approved, the bank has no right to claim this money. The Appellant/Bank by its conduct in not encashing/adjusting the said money has admitted that it has no right over the said money.

Finally, it was submitted that the Respondent denied that the money in “No Lien Account” belongs to the Bank and submitted that it was specific understanding that the said money will not be used until approval of the OTS.

Observations:

The tribunal at the outset observed that once the CIRP was initiated, the amount lying in the “No Lien Account”, which on that date belonged to the Corporate Debtor, by natural corollary is an asset of the Corporate Debtor which the IRP/RP was obliged to take under his control/custody as per provisions of Section 18 of IBC, 2016.Since the moratorium had commenced, on initiation of CIRP on 03.01.2020, the Bank in any case could not have appropriated this money.

In Bank of India Vs. Vonod Kumar P. Ambavat, Resolution Professional (RP) of Actif Corporation Ltd.,2022 the NCLAT has observed that “Once the CIRP was initiated, keeping in view that the OTS had failed, the amount lying in the 'no lien account' belongs to the 'Corporate Debtor' and under Section 18(f) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'The Code'), the IRP/RP is obligated to take control and custody of all the assets and properties of the 'Corporate Debtor'.”

Finally, the tribunal observed that the Adjudicating Authority has rightly held that the said amount of Rs. 1 Crore lying in “No Lien Account” with the Appellant bank is an asset of the Corporate Debtor. The IRP/RP has rightly claimed the said deposit for its utilization in CIRP.

Accordingly, the present appeal was dismissed.

Case Title: Bank of India Rep. Versus Mr. Naren Sheth

Case Number: Company Appeal (AT) (Insolvency) No. 533 of 2021

Judgment Date: 13/12/2024

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