2018 (6) TMI 1750 - Tri - Insolvency and Bankruptcy

Tribunal rules against bank in ICICI case, emphasizing debtor's asset protection during moratorium.

The Tribunal ruled in favor of the Interim Resolution Professional (IRP) in a case involving ICICI Bank's debiting of funds from the Corporate Debtor's ... Status of bank account funds as assets of the corporate debtor - prohibition on dealing with assets during moratorium under section 14(1)(b) of the Insolvency and Bankruptcy Code - distinction between creditor's right of recovery and right of disposal - limits of rights conferred on the Interim Resolution Professional under sections 17(1)(d) and 28(1)(e) - invalidity of creditor appropriation of debtor funds after commencement of moratoriumStatus of bank account funds as assets of the corporate debtor - prohibition on dealing with assets during moratorium under section 14(1)(b) of the Insolvency and Bankruptcy Code - distinction between creditor's right of recovery and right of disposal - limits of rights conferred on the Interim Resolution Professional under sections 17(1)(d) and 28(1)(e) - invalidity of creditor appropriation of debtor funds after commencement of moratorium - Monies standing in the corporate debtor's current account are assets of the corporate debtor and appropriation of such monies by a creditor after commencement of moratorium is prohibited and invalid. - HELD THAT: - The Tribunal construed the monies lying in the corporate debtor's current account as the corporate debtor's asset. The essential characteristic of ownership-right of disposal-was applied: while a creditor has a right of recovery as a remedy, it does not have a right of disposal over funds standing to the credit of the corporate debtor. Once the moratorium under section 14(1)(b) of the Code commenced, remedies of creditors against the debtor's assets are suspended. Rights conferred upon the Interim Resolution Professional by sections 17(1)(d) and 28(1)(e) were recognised as supplementary powers to deal with the debtor's accounts but were not a substitute for the moratorium or a basis to limit the scope of section 14. Comparative doctrines of set-off or withholding from foreign insolvency regimes were noted as not part of the Code and therefore not applicable to justify appropriation. Applying these principles to the admitted facts that the respondent bank appropriated amounts from the corporate debtor's current account after the moratorium had been declared, the Tribunal held such appropriation to be hit by section 14 and therefore invalid. The appropriate remedy ordered was reversal of the debits and deposit of the impugned sums into the corporate debtor's account.Appropriation of the corporate debtor's bank account funds by the creditor after commencement of the moratorium is invalid; the respondent bank was directed to reverse the debits and deposit the amounts into the corporate debtor's account.Final Conclusion: The application is allowed: monies debited by the respondent bank from the corporate debtor's current account after the moratorium are held to be assets of the corporate debtor and their appropriation is invalid under the moratorium; the respondent is directed to restore the amounts to the corporate debtor's account. Issues:1. Debiting of funds by ICICI Bank from the Corporate Debtor's account after the declaration of moratorium.2. Interpretation of Section 14(1)(b) of the Insolvency & Bankruptcy Code.3. Rights and duties of the Interim Resolution Professional (IRP) under Sections 17(1)(d) and 28(1)(e) of the Code.4. Determination of whether funds in the Corporate Debtor's account constitute an asset of the Corporate Debtor.5. Validity of ICICI Bank's appropriation of funds from the Corporate Debtor's account against a loan account post moratorium declaration.Analysis:1. The case involves a Miscellaneous Application filed by the Interim Resolution Professional (IRP) concerning ICICI Bank's debiting of funds from the Corporate Debtor's account after the moratorium declaration. The IRP sought relief for the reversal of these transactions, arguing that they contravened the moratorium provisions.2. The core issue revolves around the interpretation of Section 14(1)(b) of the Insolvency & Bankruptcy Code, which prohibits the transfer, encumbrance, or disposal of assets by the Corporate Debtor. The Applicant's counsel contended that the funds in the Corporate Debtor's account are covered under this provision, and any actions contrary to it should be reversed.3. The IRP's rights and duties under Sections 17(1)(d) and 28(1)(e) were also discussed. While acknowledging the IRP's authority over the Corporate Debtor's accounts, it was clarified that these provisions do not grant the IRP the power to override the restrictions imposed by Section 14(1)(b).4. The Tribunal deliberated on whether the funds in the Corporate Debtor's account should be considered as assets of the Corporate Debtor. The argument centered on the right of disposal, with the conclusion that as long as the funds are at the disposal of the Corporate Debtor, they should be treated as the Corporate Debtor's assets.5. Lastly, the Tribunal deemed ICICI Bank's appropriation of funds from the Corporate Debtor's account post moratorium as invalid under Section 14 of the Code. The judgment directed ICICI Bank to deposit the appropriated funds back into the Corporate Debtor's account, emphasizing that creditors lose the right of lien over the Corporate Debtor's assets once the moratorium is in effect.