2024 (11) TMI 879 - HC - IBC

Bombay HC allows withdrawal of Rs 20 lakh security deposit after SC releases ICICI guarantee in insolvency matter

The Bombay HC permitted withdrawal of Rs. 20,00,000 deposited as security, along with accrued earnings, following SC's release of ICICI Guarantee in the ... Seeking to withdraw Appeal - seeking permission to withdraw the amount of Rs. 20,00,000/- that had been deposited in this Court pursuant to an interim order, along with accrued earnings thereon - HELD THAT:- The pleadings considered by the Supreme Court in Axis Bank vs. SBS Organics Private Limited and Another [2016 (4) TMI 917 - SUPREME COURT] on the very same question, and the resultant outcome of releasing the ICICI Guarantee, make it clear that security interests over the assets of the corporate debtor in order to secure amounts due from the corporate debtor under a judgement or decree would give way to the provisions of the IBC. The proceedings under the IBC may lead to an approved resolution plan or liquidation of the corporate debtor. Therefore, it is not appropriate to continue to hold the position that the interplay between the rights of a judgement creditor and the implications of insolvency law as existing in 1924 (in terms of Chowthmull) would still apply in 2024, when the IBC governs the field of insolvency and bankruptcy of corporate debtors. The real import of the ruling by the co-ordinate Division Bench in the NAHAR BUILDERS LTD VERSUS HOUSING DEVELOPMENT AND INFRASTRUCTURE LTD [2020 (1) TMI 1704 - BOMBAY HIGH COURT], which was essentially to make the release of the amount deposited under Section 9 of the Arbitration Act, to the judgement creditor in the arbitration proceedings, subject to the provisions of IBC. Since another co-ordinate bench in Rajendra Bansal [2023 (1) TMI 306 - BOMBAY HIGH COURT] proceeded to release funds deposited by a corporate debtor to the judgement creditor on its reading of CHOWTHMULL MAGANMULL VERSUS THE CALCUTTA WHEAT AND SEEDS ASSOCIATION [1924 (5) TMI 5 - CALCUTTA HIGH COURT] and Nahar Case, it is clarified that the ruling in RAJENDRA PRASAD BANSAL VERSUS RELIANCE COMMUNICATION LIMITED [2023 (1) TMI 306 - BOMBAY HIGH COURT] applies only to the parties in that case, although the statement of law as contained therein, has been overtaken, as explained above. Since the Supreme Court has conclusively released the ICICI Guarantee in this very case, no question of law remains for reference to any larger bench. Taking into account the decision of the Supreme Court in respect of the ICICI Guarantee, and that too based on similar pleadings made by the parties before the Supreme Court; and also taking into account the provisions of the IBC and its implications for decree holders, the monies deposited in this Court are indeed assets under the ownership of the Applicant-Appellant, with possession being in the hands of the Court. No meaningful purpose would be served in continuing with the deposit, since even if the Appeal were to fail, the Respondent would need to be subjected to the CIRP run by the Committee of Creditors through the Resolution Professional. If the resolution attempts fail, the Respondent’s rights under the Impugned Judgement would be subject to the waterfall mechanism for distribution of liquidation proceedings, stipulated under the IBC. The monies or any other asset deposited by a corporate debtor in court prior to commencement of CIRP by way of security (to protect against execution of any judgement or decree), would not cease to be the asset of the corporate debtor - the monies deposited by the Applicant-Appellant in this Court constitute assets owned by the Applicant-Appellant although they are not in possession of the Applicant-Appellant - the Applicant-Appellant is permitted to withdraw Appeal No. 597 of 2016, and indeed withdraw the amounts deposited in this Court in these proceedings, along with all earnings thereon. Refund of Court fees shall be processed as per Rules. Appeal disposed off. Issues Involved:1. Withdrawal of Appeal and Deposited Amounts2. Corporate Insolvency Resolution Process (CIRP) and Moratorium under IBC3. Ownership and Possession of Deposited Assets4. Impact of Supreme Court's Decision on ICICI Guarantee5. Interpretation of Section 14 and Section 231 of IBC6. Relevance of Previous Judgments and Legal PrecedentsIssue-wise Detailed Analysis:1. Withdrawal of Appeal and Deposited Amounts:The Applicant sought to withdraw Appeal No. 597 of 2016 and the Rs. 20,00,000/- deposited in court. The court allowed the withdrawal of the appeal and the deposited amounts, including accrued earnings, as the Applicant had undertaken to do so before the Supreme Court. The court recognized the deposited cash as an asset of the corporate debtor, subject to the resolution process under the IBC.2. Corporate Insolvency Resolution Process (CIRP) and Moratorium under IBC:The Applicant, a corporate debtor, was undergoing CIRP, initiated by an order from the National Company Law Tribunal (NCLT), triggering a moratorium under Section 14 of the IBC. The moratorium prohibits enforcement actions against the corporate debtor, including execution of judgments or decrees. The court emphasized that the execution of the Impugned Judgment is prohibited during the moratorium, and the judgment creditor must make claims through the CIRP process.3. Ownership and Possession of Deposited Assets:The court clarified that assets deposited in court by a corporate debtor remain the property of the debtor, despite being out of its possession. The court distinguished between ownership and possession, stating that deposited assets are still owned by the corporate debtor and form part of the liquidation estate under the IBC. The judgment creditor's security interest over the deposited amount does not alter the ownership of the asset.4. Impact of Supreme Court's Decision on ICICI Guarantee:The Supreme Court had allowed the withdrawal of the ICICI Bank Guarantee, which was provided as security during the appeal. The court noted that this decision, based on similar pleadings, indicated that security interests over the corporate debtor's assets must yield to the provisions of the IBC. The decision was pivotal in determining the release of the deposited amounts in the present case.5. Interpretation of Section 14 and Section 231 of IBC:The court analyzed Section 14 of the IBC, which imposes a moratorium on enforcement actions against the corporate debtor, and clarified that Section 231, which ousts civil court jurisdiction, was not relevant to the present matter. The court emphasized that the moratorium restricts enforcement actions, including withdrawal of deposited amounts, during the CIRP.6. Relevance of Previous Judgments and Legal Precedents:The court reviewed previous judgments, including Rajendra Bansal, Chowthmull, and Nahar HDIL Case, to address the Respondent's contention that deposited assets do not belong to the corporate debtor. The court distinguished these cases, noting that the IBC's provisions supersede earlier legal principles. The court highlighted the Supreme Court's decision in Chettiar, which supports the view that deposited assets remain the property of the depositor.Conclusion and Directions:The court concluded that the deposited amounts are assets of the corporate debtor and allowed their withdrawal by the Applicant. The Respondent's rights under the Impugned Judgment are subject to the IBC's provisions, including the CIRP and potential liquidation proceedings. The court directed the release of the deposited amounts to the Applicant within two weeks, subject to procedural compliance, and disposed of the appeal as withdrawn. The judgment underscores the IBC's comprehensive framework governing insolvency and the prioritization of collective creditor interests.