Tribunal rules against creditor adjusting Fixed Deposit Receipt during insolvency process

The Tribunal ruled in favor of the Resolution Professional, holding that the Financial Creditor could not adjust the Fixed Deposit Receipt (FDR) against a Bank Guarantee (BG) during the Corporate Insolvency Resolution Process (CIRP) and moratorium period. The Tribunal directed the Financial Creditor to credit the FDR amount to the Corporate Debtor's bank account for the CIRP proceedings, emphasizing that such adjustment was prohibited under Section 14 of the Insolvency and Bankruptcy Code (IBC).

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Issues: Adjustment of FDR during CIRP and moratorium period

Analysis:
1. The application was filed by the Resolution Professional (RP) of a company under Corporate Insolvency Resolution Process (CIRP) seeking a decision on whether the Financial Creditor (FC) can adjust the Fixed Deposit Receipt (FDR) against a Bank Guarantee (BG) during the moratorium period. The RP requested the Tribunal to direct the FC to credit the amount of FDR to the bank account of the Corporate Debtor (CD) for the CIRP proceedings.

2. The background revealed that the CIRP against the Corporate Debtor commenced on 15th May 2018, with the RP appointed subsequently. The FC in question, Allahabad Bank, had issued FDRs against a bank guarantee for the CD. Despite realizing the money against the bank guarantee, the FC did not credit the amount of FDR to the CD's account.

3. The FC released the amount of the FDR into the CD's current account during the moratorium period and subsequently filed revised claims without adjusting the FDR amount. The RP highlighted the FC's failure to transfer the FDR amount during the moratorium, which is prohibited under Section 14 of the Insolvency and Bankruptcy Code (IBC).

4. The FC argued that the FDR was part of the security provided by the CD for various financial facilities, and as the CD's loan account was not classified as Non-Performing Asset (NPA) until the initiation of CIRP, the FDR was not adjusted towards the bank's dues initially.

5. The RP raised concerns about the FC's adjustment of the FDR during the moratorium period, citing Section 14(1)(c) of the IBC, which prohibits actions like transferring or disposing of the CD's assets during the moratorium.

6. After considering the contentions of both parties and reviewing the provisions of Section 14 of the IBC, the Tribunal held that the FC, being a member of the Committee of Creditors (COC), cannot adjust the FDR in the claim after discharging the bank guarantee during the CIRP and moratorium period.

7. Consequently, the Tribunal allowed the RP's application, directing the FC not to adjust the FDR in the claim after discharging the bank guarantee and to transfer the FDR amount to the CD's bank account to facilitate the continuation of the CIRP proceedings.

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