ATTACHEMENT OF CURRENT ACCOUNT AFTER APPROVAL OF RESOLUTION PLAN

Resolution plan

One of the principal objects of Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) is providing for revival of the corporate debtor and to make it a going concern. The Code is a complete Code in itself. Upon admission of petition under Section 7 there are various important duties and functions entrusted to Resolution Professional and Committee of Creditors. The Resolution Professional is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by Resolution Professional as well as Committee of Creditors. In the negotiations that may be held between Committee of Creditors and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After Committee of Creditors approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in sub-section (2) of Section 30(2) of the Code. Only thereafter, the adjudicating authority can grant its approval to the plan. It is at this stage that the plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The legislative intent behind this is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans would go haywire and the plan would be unworkable.

Issue

The issue to be discussed in this article is as to whether the current account of the corporate debtor can be attached after the approval of resolution plan by the NCLT with reference to decided case law.

Case law

It is observed from the provisions of Section 31 of the Code that once the resolution plan is approved it will be binding on all stakeholders. Therefore the attachment of current account after the approval of resolution is not a valid one. In ‘Shirdi Industries Limited Mars Auto Studio v. Shirdi Industries Limited’ - 2024 (3) TMI 1048 - the Bombay High Court upheld the same.

In the above case the respondent had filed Petition on 04.03.2016 before the Micro and Small Enterprises Facilitation Council (‘MSEFC’ for short) for recovery of sum of Rs. 2,87,500/-. The Applicant was thereafter, subjected to the Corporate Insolvency Resolution process (‘CIRP’ for short) and by order dated 12.12.2017, passed by the National Company Law Tribunal (‘NCLT’ for short), Mumbai Bench. The resolution plan submitted by the Insolvency Resolution Professional entitling the Respondent to 15% of the claim amount was approved. In the meanwhile, the Applicant was directed by award dated 3rd March, 2018, passed by the MSEFC, to pay the Respondent a sum of Rs. 2,87,500/- along with interest till realization of the amount by the Respondent.

The respondent directed the applicant to pay the amount as per the award. The applicant informed the respondent that the CIRP was going on and forwarded the copy of NCLT admitting CIRP against the applicant. The respondent filed an execution petition before the High Court for the recovery of the amount Rs. 873159.10. The applicant filed an interim application before the High Court seeking to set aside the warrant of attachment in respect of the current account no. 1112016583 with Kotak Mahindra Bank standing in the name of the Applicant to the extent of Rs. 8,73,159.70.

The applicant informed the Directorate of Industries / Office of the Joint Director of Industries, Mumbai Region about its readiness and willingness to pay the dues of the Respondent as per the approved resolution plan and the same was also sent to the Respondent. According to the resolution plan approved by NCLT the dues of operational creditors as on 18.05.2017 shall be paid @ 15%. This amount shall be payable in 8 installments commencing from June 2022 till March 2014 without any interest. In the present case the amount payable is Rs. 43,125/-.

In the execution petition filed by the respondent the High Court was of the opinion that it would be appropriate that the respondent moves an application either before the Resolution Professional or before the National Company Law Tribunal as may be permissible under the provisions of Insolvency and Bankruptcy Code, 2016. The High Court was also no agreeable to the argument of the respondent that the respondent is now required to accept the meager amount of Rs. 45,000/- which is assigned in favor of the applicant to be received by the applicant in the year 2022 when the decree itself is for an amount of about Rs .8 Lakhs (principal amount and interest).

As per the directions of the High Court, the respondent approached the NCLT, Mumbai by application M. A. 718 of 2020 seeking declaration that the order dated 12.12.2017, passed by the Tribunal approving the resolution plan was not binding upon the Respondent. The NCLT, Mumbai has dismissed the Miscellaneous Application filed by the Respondent on 16.01.2024 holding that in terms of settled law the claim of the Respondent is to be dealt with in accordance with the approved resolution plan.

The applicant paid Rs. 62,539/- to the respondent as paid by the Resolution Professional according to the approved resolution plan. Therefore the applicant prayed before the High Court to set aside the warrant of attachment as the dues of the Respondent as per the approved resolution plan have been paid. The respondent was of the view that the payment of Rs. 62539/- by the applicant in accordance with the resolution plan, nothing would survive in the Execution Application and prayed that the High Court may pass the appropriate orders.

The High Court considered the submissions made by the parties. The High Court analyzed Section 31 of the Code. The High Court observed that under Section 31 of the Code, it is provided that if the NCLT is satisfied that the resolution plan as approved by the committee of creditors under section 30 of the Code meets the mandate of the Code, the NCLT approves the resolution plan and once the plan is approved, it shall be binding on all the parties including the corporate debtors, its employees, members, creditors, guarantors and all other stakeholders including government authorities. Once the resolution plan has been approved/sanctioned by the NCLT, it is binding on all the stakeholders.

The High Court further observed that the order dated 16.01.2024, seeking recall of the sanctioned resolution plan dated 12.12.2017 by the NCLT has also been dismissed and the NCLT apart from holding that it has no power to recall the order dated 12.12.2017, has observed that in terms of settled law, the claim of the Respondent is to be dealt with in accordance with the approved resolution plan. The Applicant has discharged its liability in accordance with the approved resolution plan and paid an amount of Rs. 62,539/-, which it was permitted to paid in eight equally installments commencing from June, 2022 till March, 2024.

The High Court set aside the warrant of attachment on the said current account.