Bank Violated Moratorium, Ordered to Return Funds & Investigate

The tribunal found that the respondent bank violated the moratorium and failed to comply with the Interim Resolution Professional's instructions. The bank was directed to return the appropriated funds to the corporate debtor's account and investigate the debtor's misconduct. The resolution professional was authorized to take action against the debtor's key managerial persons. Compliance was required within fifteen days.

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Issues Involved:
1. Violation of moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016.
2. Compliance with instructions from the Interim Resolution Professional (IRP) under Section 17 of the Code.
3. Appropriation of funds by the respondent bank.
4. Actions against key managerial persons of the corporate debtor.

Issue-wise Detailed Analysis:

1. Violation of Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016:
The petition under Section 7 of the Insolvency & Bankruptcy Code, 2016, filed by the financial creditor was admitted on 24.07.2017, and a moratorium was declared. The moratorium included prohibitions on instituting or continuing suits, transferring assets, and recovering property. The respondent bank appropriated funds from the corporate debtor's account, arguing that the funds were not an asset of the corporate debtor due to the debtor's dues exceeding the available balance. However, the tribunal found that this action violated the moratorium, as the funds should have been at the disposal of the resolution professional.

2. Compliance with Instructions from the Interim Resolution Professional (IRP) under Section 17 of the Code:
The IRP, appointed on 27.07.2017, instructed the respondent bank to freeze all debit transactions and not to allow any cheque payments without the IRP's instructions. Despite these instructions, the corporate debtor withdrew significant amounts from the account after the IRP's appointment. The tribunal emphasized that, under Section 17(1)(d) of the Code, financial institutions must act on the IRP's instructions, and the respondent bank failed to comply with these instructions by allowing withdrawals and not freezing the account as directed.

3. Appropriation of Funds by the Respondent Bank:
The respondent bank argued that appropriating the funds was not a violation of the moratorium, as it was a set-off against the corporate debtor's dues. The tribunal rejected this argument, stating that any amount in the corporate debtor's current account must be placed at the disposal of the resolution professional. The tribunal directed the respondent bank to deposit the appropriated funds back into the corporate debtor's account, leaving a balance of Rs. 60,000 as per the IRP's instructions.

4. Actions Against Key Managerial Persons of the Corporate Debtor:
The tribunal noted that the corporate debtor's key managerial persons violated the mandate of the law by withdrawing funds after the appointment of the IRP. The tribunal allowed the resolution professional to take appropriate proceedings against these individuals. Additionally, the tribunal instructed the respondent bank to hold an enquiry into the corporate debtor's misconduct, such as opening a current account with a false declaration and routing funds improperly.

Conclusion:
The tribunal found that the respondent bank violated the moratorium and failed to comply with the IRP's instructions. The bank was directed to deposit the appropriated funds back into the corporate debtor's account and to conduct an enquiry into the corporate debtor's misconduct. The resolution professional was permitted to take action against the corporate debtor's key managerial persons for their violations. Compliance with the order was mandated within fifteen days.

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