Tribunal bars bank from redeeming fixed deposits in insolvency case, directs transfer to debtor

The Tribunal ruled in favor of the Resolution Professional, holding that fixed deposits made by the Corporate Debtor could not be redeemed by the Respondent Bank during the Corporate Insolvency Resolution Process. The Tribunal determined that the fixed deposits were not equivalent to a performance guarantee exempted under the Insolvency and Bankruptcy Code, as they were provided as security against a loan facility. Therefore, the Respondent Bank's claim of lien and set off was dismissed, and the bank was directed to transfer the amount payable on closure of the fixed deposits to the Corporate Debtor's account with another bank.

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Issues:
1. Whether fixed deposits made by the Corporate Debtor can be redeemed during Corporate Insolvency and Resolution Process.
2. Whether the right of lien and set off accrued to the Respondent Bank can be exercised against a company under Insolvency governed by the Code.
3. Whether fixed deposits given as security against a loan facility can be equated with a performance guarantee exempted under the Code.

Analysis:
1. The Resolution Professional (RP) filed an application against the Respondent Bank for the closure of fixed deposits belonging to the Corporate Debtor under the Insolvency and Bankruptcy Code, 2016. The Respondent Bank refused to redeem the fixed deposits, claiming priority over them due to security provided against loan facilities availed by the Corporate Debtor.

2. The contention between the Applicant and the Respondent Bank revolved around whether the fixed deposits should be treated on par with Performance Bank Guarantee under the Code. The Respondent Bank argued that the fixed deposits were part of security agreements and could be adjusted against the debt due, while the RP contended that the right of lien and set off cannot be exercised during Corporate Insolvency Resolution Process.

3. The Tribunal analyzed the nature of the fixed deposits and concluded that they were not akin to a performance guarantee exempted under the Code. The fixed deposits were made to maintain debt security ratio and were considered as security against the loan facility availed. Therefore, the right of lien and set off claimed by the Respondent Bank was not applicable during the Corporate Insolvency Resolution Process.

4. The Tribunal emphasized that the exemptions under the Code only applied to performance guarantees and not to all types of security interests. The Respondent Bank's reliance on previous judgments related to non-insolvency cases was deemed inapplicable to the present situation governed by insolvency proceedings under the Code.

5. Consequently, the Tribunal directed the Respondent Bank to transfer the amount payable on closure of the fixed deposits to the Corporate Debtor's account with another bank. The application filed by the RP was allowed, affirming that the fixed deposits could not be redeemed by the Respondent Bank during the Corporate Insolvency Resolution Process.

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