Appeal for Delay Condonation Granted: Bank's Fund Adjustment Deemed Impermissible under IBC Sections

The appeal for condonation of delay in filing due to lockdown and Supreme Court's extension was granted. The Appellant Bank's adjustment of funds during CIRP was deemed impermissible under Section 14 of IBC, directing restoration of the Corporate Debtor's account. Sections 173 and 36 of IBC were found more relevant in liquidation proceedings. The Tribunal upheld the moratorium's strict application, dismissing the appeal and emphasizing compliance with IBC provisions during CIRP, restricting creditor actions despite good faith claims.

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Issues:
1. Condonation of delay in filing appeal due to lockdown and extension granted by Supreme Court.
2. Adjustment of funds by the Appellant Bank during Corporate Insolvency Resolution Process (CIRP).
3. Application of Sections 173 and 36 of the Insolvency and Bankruptcy Code, 2016 (IBC).
4. Interpretation of moratorium under Section 14 of IBC and its implications on creditor actions during CIRP.

Issue 1: Condonation of Delay
The Appellant sought condonation of delay in filing the appeal due to the lockdown and the Supreme Court's extension. The delay was considered in light of the circumstances, and it was held that the delay, if any, deserved to be condoned, leading to the disposal of the application.

Issue 2: Adjustment of Funds
The Respondent/Resolution Professional filed an application claiming that the Appellant Bank adjusted funds from the Corporate Debtor's Fixed Deposits against outstanding amounts related to loans. The Adjudicating Authority directed the Appellant to restore the credit to the Corporate Debtor's account to facilitate the Resolution Plan. The Appellant argued good faith in appropriating the amounts due to being a secured creditor, but the Respondent contended that such actions were not permissible during CIRP under Section 14 of IBC.

Issue 3: Application of Sections 173 and 36 of IBC
The Appellant relied on Sections 173 and 36 of IBC regarding mutual credit, set-off, and appropriation. However, the Respondent highlighted that these provisions are more relevant during liquidation proceedings, not CIRP. The Respondent also referenced a previous order emphasizing that during the moratorium, no party, including financial creditors, can recover or appropriate funds from the Corporate Debtor's account.

Issue 4: Interpretation of Moratorium under Section 14 of IBC
The Resolution Professional notified the Appellant Bank of the moratorium in effect during CIRP, instructing the release of funds appropriated by the Bank. The Tribunal upheld that once CIRP is initiated and Section 14 of IBC applies, actions such as fund adjustments by the Appellant Bank are impermissible. Lack of awareness of CIRP initiation was deemed irrelevant, emphasizing the strict application of Section 14. Consequently, the appeal was dismissed, and no costs were awarded.

The judgment underscores the criticality of adhering to the provisions of the IBC, particularly during CIRP, emphasizing the restrictions imposed by the moratorium under Section 14. It clarifies the limitations on creditor actions and the significance of timely compliance with legal directives, even in cases of alleged good faith actions by the creditor.

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