Tribunal rules 'no lien account' funds belong to Corporate Debtor, Bank's claim dismissed

The Tribunal upheld the Adjudicating Authority's decision, ruling that the amount held in the 'no lien account' belonged to the Corporate Debtor. The Bank's claim over the Rs.1 Crore amount, deposited for the OTS Proposal, was dismissed as the money was to be utilized only after plan approval. The Tribunal emphasized that the Bank had no right over the funds once the Corporate Insolvency Resolution Process commenced, citing provisions of the Insolvency and Bankruptcy Code, 2016. The Appeal was rejected, affirming that the money in question was the property of the Corporate Debtor.

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Issues:
Appeal arising from Impugned Order dated 19.01.2021 allowing Interim Application for release of Rs.100 Lakhs held in 'no lien account' for CIRP of 'Corporate Debtor Company'. Dispute over ownership of Rs.1 Crore paid by Corporate Debtor to show commitment towards OTS Proposal.

Analysis:

1. The Appeal challenged the Adjudicating Authority's decision to allow the Interim Application seeking the release of Rs.100 Lakhs held in a 'no lien account' for the Corporate Insolvency Resolution Process (CIRP). The Adjudicating Authority observed that the amount was to be utilized upon approval of the resolution plan and was not to be adjusted towards interest or principal until then. The Bank had not adjusted this amount in the loan account of the Corporate Debtor before the commencement of CIRP, indicating that the bank agreed to no lien on this amount until the OTS proposal was approved. The Adjudicating Authority held that the amount in the 'no lien account' belonged to the Corporate Debtor and should be dealt with by the Resolution Professional as per the provisions of the Insolvency and Bankruptcy Code, 2016.

2. The Appellant Bank argued that the Rs.1 Crore amount came from a third party and was not recorded in the Balance Sheet as an asset. They contended that the amount did not belong to the Corporate Debtor as it was received under a contractual arrangement with a third party. The Bank asserted its statutory right of 'Bankers Lien' over the money held in the 'no lien account' and claimed that the amount became its asset after the OTS proposal failed. The Bank maintained that the amount was paid to show the Corporate Debtor's bona fide in pursuance of a Settlement Proposal and was not part of the Corporate Debtor's assets.

3. The Respondent/Resolution Professional argued that the amount in the 'no lien account' did not belong to the Bank as it was deposited by the Corporate Debtor to show commitment towards the OTS Proposal. Despite repeated requests, the Bank did not release the amount, leading to the Resolution Professional filing the Interim Application. The Respondent emphasized that the Bank had no right over the money in the 'no lien account' as it was deposited by the Corporate Debtor through another company for the OTS. The Respondent relied on a Supreme Court judgment to support their argument regarding the nature of such deposits.

4. The Tribunal considered the contentions of both parties and analyzed the nature of the Rs.1 Crore amount deposited in the 'no lien account'. The Tribunal noted that the amount was paid by the Corporate Debtor to show commitment towards the OTS Proposal and was not to be utilized until the plan was approved. As the OTS proposal failed, the amount in the 'no lien account' belonged to the Corporate Debtor. The Tribunal referenced relevant provisions of the Insolvency and Bankruptcy Code, 2016, regarding the control and custody of assets by the Resolution Professional. The Tribunal dismissed the Appeal, finding no illegality or infirmity in the Adjudicating Authority's order, and upheld that the amount in the 'no lien account' belonged to the Corporate Debtor.

5. The Tribunal concluded that the Bank's claim that the money in the 'no lien account' belonged to them was baseless, emphasizing that the amount deposited by the Corporate Debtor for the OTS Proposal was to be treated as the property of the Corporate Debtor. The Tribunal's decision was based on the understanding that the amount in question was not to be utilized by the Bank until the approval of the OTS Proposal, and therefore, the Bank had no right over the money once the CIRP had commenced.

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