2019 (8) TMI 1586 - Tri - IBC

Tribunal Upholds 40 Crore Release to Debtor, Citing No Bank Lien; Exercises Power to Prevent Legal Process Abuse.

The NCLT imposed a moratorium under Section 60(5) of the IBC, 2016, restraining the respondent-corporate debtor from disposing of assets before the main ... Direction to respondent-corporate debtor not to withdraw/utilize/dispose of the amount - HELD THAT:- It is not in dispute that petition, filed by the applicant under Section 7 of the Code against the respondent-corporate debtor is pending on the file of this Tribunal for a substantial period and is now listed for admission/hearing on 05.09.2019 - It is also to be seen that the Hon'ble Apex Court, vide its judgment dated 20.08.2019 [2019 (8) TMI 903 - SUPREME COURT] categorically directed that the amount deposited by the respondent be returned to it within two weeks along with interest, if any, accrued thereon. The order now passed by the Debt Recovery Tribunal is in compliance of the said order of the Hon'ble Apex Court. Hence, the applicant cannot retain the said amount with it and it should credit/transfer the said amount to the account of the respondent-corporate debtor, as per the above referred orders. In view of NUI Pulp and Paper Industries case [2019 (9) TMI 843 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], this Tribunal is empowered to pass any appropriate interim order, as may be necessary, for meeting the ends of justice or to prevent abuse of the process of the Tribunal, in exercise of its inherent powers under Rule 11 of the 2016 Rules. This Tribunal in exercise of the powers conferred under Rule 11 of the 2016 Rules, restrain the respondent-corporate debtor and its Directors from alienating, encumbering or creating any third party interest on the assets or any legal right or beneficial interest therein, except withdrawal of the legitimate expenses required for carrying out the day to day expenses, till 05.09.2019 - Application disposed off. Issues Involved:1. Imposition of moratorium under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 prior to admission of the main petition.2. Dispute over the release of a deposited amount of Rs. 40 Crores by the respondent-corporate debtor.3. Applicability of Section 171 of the Indian Contract Act 1872 regarding lien over the deposited amount.4. Authority of the Adjudicating Authority to pass interim orders under Rule 11 of the National Company Law Tribunal Rules, 2016.Imposition of Moratorium:The petitioner, a financial creditor, filed an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking a moratorium before the admission of the main petition. The petitioner expressed concerns that the respondent-corporate debtor might dispose of Rs. 40 Crores deposited in its account, potentially violating various sections of the Code. The Tribunal had to decide whether to impose a restraint order on the respondent-corporate debtor pending the admission of the main petition.Dispute Over Deposited Amount:A series of legal actions, including challenges before the Debt Recovery Tribunal and High Court, led to the deposit of Rs. 40 Crores by the respondent-corporate debtor with the petitioner-financial creditor. However, subsequent judgments by the Hon'ble Supreme Court and Debt Recovery Tribunal directed the release of this amount to the respondent-corporate debtor. The Tribunal had to address the conflicting orders and determine the rightful ownership of the deposited amount.Applicability of Section 171 of Indian Contract Act 1872:The Hon'ble Supreme Court clarified that the petitioner-bank did not have a lien over the deposited amount of Rs. 40 Crores under Section 171 of the Indian Contract Act 1872. The Court emphasized that the deposit was not towards debt satisfaction but to show bona fides, and hence, the respondent-corporate debtor was entitled to withdraw the deposited sum.Authority to Pass Interim Orders:The National Company Law Appellate Tribunal's judgment in NUI Pulp and Paper Industries case established that the Adjudicating Authority could pass interim orders under Rule 11 of the 2016 Rules to prevent abuse of the Tribunal's process. The Tribunal, considering the conflicting judgments and the pending main petition, exercised its inherent powers to restrain the respondent-corporate debtor from disposing of assets until a specified date. This decision was made to prevent potential misuse and abuse of the legal process.This detailed analysis of the judgment highlights the complex legal issues surrounding the imposition of a moratorium, ownership of a deposited amount, the application of lien laws, and the authority of the Adjudicating Authority to pass interim orders in insolvency cases.