2022 (2) TMI 421 - AT - Insolvency and Bankruptcy

Escrow Accounts: Fixed Deposits Allowed Temporarily, Supreme Court Directs Maintenance

Union of India Versus Infrastructure Leasing and Financial Services Ltd. & Ors., Infrastructure Leasing and Financial Services Ltd. Versus Union of India & Ors., Somany Provident Fund Institution Versus Union of India Through Ministry of Corporate Affairs & Anr., Creative Security and Management Services Pvt. Ltd. Versus Union of India & Ors. And Rapid MetroRail Gurgaon Ltd. & Anr. Versus Union Bank of India & Ors.

The Tribunal allowed the creation of fixed deposits in nationalized banks from Escrow Accounts for six months with auto-renewal. The Supreme Court ... Creation of fixed deposits from the monies received in the Escrow Accounts of RMGL and RMGSL with the relevant escrow bank (with whom the escrowed amounts are currently deposited) - Seeking direction that creation of such fixed deposits would not amount to an appropriation of the monies lying in the respective Escrow Account - HELD THAT:- The matter being pending, this Tribunal does not lack any jurisdiction to issue any direction but the question which we have to consider is as to whether the amount which is lying in the Escrow Account should be directed to be kept in the fixed deposits in a Nationalised Bank. As noticed above, after the judgment of the Hon’ble Supreme Court on 26.03.2020, an Application was filed in the Hon’ble Supreme Court seeking clarification to the same effect that the order does not prohibit keeping the account in the fixed deposits which Application was rejected. Since Applications are already fixed on 24.02.2022 for consideration of the interim distribution and appropriation, we see no necessity to direct that the amount to be kept in the fixed deposits in a Nationalised Bank. We recall our order dated 01.12.2021 for keeping the amount in fixed deposits and prayers in I.A No. 2404 of 2021 as on date cannot be granted - Application disposed off. Issues:1. Application for creation of fixed deposits from monies in Escrow Accounts.2. Clarification of order regarding fixed deposits by Hon'ble Supreme Court.3. Jurisdiction of NCLAT to issue directions on Escrow Account funds.4. Interim distribution and appropriation of funds in Escrow Accounts.5. Application for modification of order to file Section 7 application.Analysis:1. The Application (I.A. No. 2404 of 2021) sought the creation of fixed deposits from monies in the Escrow Accounts of two entities. The Tribunal, in an interim order, allowed the creation of fixed deposits in nationalized banks for a period of six months with auto-renewal clause. Canara Bank and Union Bank of India filed a reply stating that the amount in Escrow Accounts belongs to lenders and should not accrue interest as it is a debt amount directed to be deposited by the Supreme Court.2. The Hon'ble Supreme Court rejected applications seeking clarification on the permissibility of creating fixed deposits from Escrow Account funds. The direction from the Supreme Court stated that the Escrow Account should be maintained as such, subject to orders from NCLAT or competent authority. Other applications were filed by banks seeking appropriation of funds in Escrow Accounts.3. The Tribunal considered its jurisdiction to direct the placement of Escrow Account funds in fixed deposits in nationalized banks. While acknowledging the pendency of matters related to interim distribution and appropriation of funds, the Tribunal decided not to grant the prayer for fixed deposits. The Tribunal emphasized that the matter required further consideration during hearings on appropriation or interim distribution of funds.4. Several parties, including banks and claimants, had filed applications for appropriation of funds in Escrow Accounts. The Tribunal decided to close certain applications and a contempt case due to the pending matters related to interim distribution and appropriation. Applicants were given liberty to renew their prayers during future considerations on fund distribution.5. An application (I.A. No. 296 of 2022) sought modification of a previous order to allow the filing of a Section 7 application against specific respondents. The Tribunal issued notice and scheduled the application for further hearing. The Tribunal instructed the Respondent to file a reply within two weeks and set a hearing date for the application. The Tribunal also allowed adjournment requests in related proceedings.Overall, the judgment addressed various applications related to the creation of fixed deposits from Escrow Account funds, the jurisdiction of NCLAT, and the interim distribution and appropriation of funds, ensuring a thorough analysis of each issue presented before the Tribunal.