Bank cannot deduct any amount during moratorium under IBC

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Shubham Budhiraja

LLB, ACS, BCOM(H)

Shubhambudhiraja02@gmail.com , 9654055315

 

Section 7 admitted by NCLT, confirmed by NCLAT and apex court. NCLT approved the plan under section 31. RP filed an application under section 60(5) for directing banks to reverse the amount they deducted during moratorium. NCLT allowed. NCLAT held that banks in the name of regular payments cannot deduct amounts just because a corporate debtor has liquidity. One of terms of the resolution plan creates charge on immovable property of corporate debtors but bank A is not giving back title deed because Bank B is not given NOC. The NCLAT held that the resolution plan once approved is binding on all and thus NOC not required. Hence, revert bank title deed[1].

 

 

(I)                 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’. The 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.

 

(II)               It was also held that 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.

 

(III)             Merely because the ‘Corporate Debtor’ had enough liquidity to run the Company as a going concern, the act of Banks to adjust the credit balance in the Cash Credit Account towards the debit balance after CIRP commenced, cannot be justified. If the Bank argument is accepted, then the act of recovering receivables, under the garb of normal course of business will change the status of all the claims which would be in complete violation of Section 14 of the Code.

 

(IV)             Section 31 of the Code provides that the terms of the ‘Resolution Plan’ is binding on the Company, its employees, creditors and all stakeholders. The debt has been legally extinguished and therefore withholding of the title deeds preventing the Company from being able to create security interest for securing the non-convertible Debentures issued to the Debenture Holders, in terms of the Plan, is unjustifiable.

 


[1] COMPANY APPEAL (AT) (Insolvency) No. 590 of 2020

 

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