2018 (8) TMI 1951 - Tri - Insolvency and Bankruptcy

Bank's Interest Deduction Deemed Unlawful, Must Refund & Release Security Charge

The Tribunal held that the respondent bank was not entitled to deduct interest during the moratorium period as it contravened Section 14 of the Insolvency ... Refund of interest deducted by the respondent - charge of interest during the moratorium period - release of lien on the fixed deposit - control and custody of the fixed deposit. Whether the respondent, viz., Axis Bank Ltd., is legally entitled to interest deducted during the period of moratorium? - section 14(1)(c) of SARFAESI Act - HELD THAT:- The intention of the Legislature appears to be that during the CIR pro-cess no action for recovery should be taken in respect of the properties of the corporate debtor so that the IRP/RP could receive the claims, work out information memorandum and get the properties valued and issue the 'expression of interest' to receive resolution plans from the resolution applicants so that the corporate debtor may get its business/commercial activities revived and revenue could be generated to pay the outstanding debt. In case no 'resolution plan' is received, then, the corporate debtor inescapably would go for liquidation. Thus, under the process of liquidation, the claimants (secured creditors are to be dealt under section 52) could be satisfied as per the waterfall given under section 53 of the I and B Code, 2016 - there appears to be a complete prohibition of the activities as are emanated under section 14 of the I and B Code, 2016, during the period of moratorium. Whether the fixed deposit worth ₹ 50,00,000 is to be treated as security charge on the corporate debtor? - HELD THAT:- The case on hand is that the corporate debtor has obtained overdraft facilities with regard to the fixed deposit of ₹ 50,00,000 which the respondent-bank claims to be the security for extending the facilities to the corporate debtor. But, there is no compliance with the provisions of section 77 of the Companies Act, 2013. Therefore, the respondent-bank cannot be treated as secured creditor in respect of the fixed deposit of ₹ 50 lakhs deposited with the respondent-bank by the corporate debtor. Since a charge has not been created in relation to the fixed deposit worth of ₹ 50 lakhs, therefore, the respondent-bank is not a secured creditor as claimed by it. Thus, the application of the resolution professional is allowed and the respondent-bank is directed to refund the amount of ₹ 3,95,567 being the interest, deducted on the overdraft accounts that were maintained by it and to release the lien on the fixed deposit worth of ₹ 50 lakhs and allow the resolution professional to take control and custody of the fixed deposit and to account the 'interest deducted and fixed deposit' as part of the assets of the corporate debtor. Application allowed. Issues Involved:1. Entitlement of the respondent bank to deduct interest during the moratorium period.2. Treatment of the fixed deposit worth Rs. 50,00,000 as a security charge on the corporate debtor.Issue-wise Detailed Analysis:1. Entitlement of the Respondent Bank to Deduct Interest During the Moratorium Period:The resolution professional filed an application under Rule 11 of the National Company Law Tribunal Rules, 2016 read with Sections 14, 25, 74, and 60 of the Insolvency and Bankruptcy Code, 2016, seeking directions for the respondent bank to refund Rs. 3,95,564 deducted as interest during the moratorium period and to release the lien on the fixed deposit worth Rs. 50,00,000.The Tribunal noted that the moratorium under Section 14 of the IBC, 2016, prohibits any action to foreclose, recover, or enforce any security interest created by the corporate debtor. The purpose of the moratorium is to ensure that all liabilities remain standstill during the Corporate Insolvency Resolution Process (CIRP), allowing the resolution professional to receive claims, work out information memorandums, and issue expressions of interest to revive the corporate debtor's business.The Tribunal referred to various judgments, including the National Company Law Tribunal, Chandigarh Bench in *Dinkar T. Venkatsubramanian v. Indian Overseas Bank* and the National Company Law Appellate Tribunal in *Indian Overseas Bank v. Dinkar T. Venkatasubramanian*, which held that any amount lying in the current account of the corporate debtor must be placed at the disposal of the resolution professional without any adjustment.The Tribunal concluded that the respondent bank's action of deducting interest during the moratorium period was contrary to the provisions of Section 14 of the IBC, 2016. Therefore, the respondent bank was directed to refund the deducted amount of Rs. 3,95,564 and any further interest deducted during the pendency of the application.2. Treatment of the Fixed Deposit Worth Rs. 50,00,000 as a Security Charge on the Corporate Debtor:The resolution professional argued that the respondent bank failed to create a charge on the fixed deposit of Rs. 50,00,000 as required under Section 77 of the Companies Act, 2013. According to Section 77, no charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly registered.The Tribunal referred to the judgment of the Kerala High Court in *Kerala State Financial Enterprises v. Official Liquidator, High Court of Kerala*, upheld by the Supreme Court, which stated that if a charge is not registered, the creditor must be considered unsecured.The Tribunal found that the respondent bank did not comply with the provisions of Section 77 of the Companies Act, 2013, and thus could not be treated as a secured creditor concerning the fixed deposit of Rs. 50,00,000. Consequently, the Tribunal directed the respondent bank to release the lien on the fixed deposit and allow the resolution professional to take control and custody of it.Conclusion:The application by the resolution professional was allowed. The respondent bank was directed to:1. Refund the deducted interest amount of Rs. 3,95,564.2. Release the lien on the fixed deposit worth Rs. 50,00,000.3. Allow the resolution professional to take control and custody of the fixed deposit and account for it as part of the corporate debtor's assets.The order was to be complied with within a week from the date of the order. No order as to costs was made.