2025 (11) TMI 609 - AT - IBC

Bank held a secured financial creditor where non-fund facilities backed by liened fixed deposits; RP must classify it

ICICI Bank Ltd. Versus Resolution Professional of Darjeeling Organic Tea Pvt. Ltd.

Appellant sought classification as a secured financial creditor; RP refused pending production of sanction letters. NCLAT held that the adjudicating ... Appellant is secured financial creditor or not - seeking direction against the respondent to modify the status of the appellant from an unsecured financial creditor to secured financial creditor - despite the request made by the RP, appellant has not provided sanction letter to the RP - HELD THAT:- The direction of the adjudicating authority to release the amount which was in deposit with the Bank, which were security of the ICICI Bank could not be sustained. Further from the facts which has been brought on the record, it is clear that the non-fund based facility extended on basis of cash collateral by way of fixed deposit, which are part of the record. It is already noted the application of the corporate debtor for sanction of the non-fund based facility. In the present case, when facilities was extended on fixed deposit and the counsel for the Bank submits that there is no separate sanction order, the insistence of RP to submit several sanction order was not necessary. The details of the fixed deposit were already provided to the RP. All fixed deposit contained the endorsement of lien in favour of the Bank. The Bank has fully proved that it is secured financial creditor of the corporate debtor and RP was required to classify the appellant as secured financial creditor. It is found that there is no applicability of the said judgement in the present case. From the materials on the record, no waiver can be inferred on the part of the Bank with regard to release of the amount which are kept in the fixed deposit of the bank which are security of the Bank for non-fund based facility extended to the corporate debtor. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a financial creditor that extended an overdraft facility secured by cash collateral in the form of fixed deposits is a 'secured financial creditor' for the purposes of the CIRP when its claim Form-C and underlying documents expressly record the security interest. 2. Whether the Resolution Professional (RP) may, by filing an application for release/transfer of funds lying in the corporate debtor's bank accounts, obtain release of fixed deposits that are subject to an enforceable lien in favour of a financial creditor, prior to classifying that creditor as secured. 3. Whether any statements in the financial creditor's pleadings or by its counsel (including references to possible relinquishment of security if status is retained) operate as a waiver, concession, or estoppel permitting release of secured cash collateral to the CIRP bank account. 4. Whether the RP was obliged to accept production of sanction letters or other documents before classifying the creditor as secured, and whether failure to produce such documents justified the RP treating the creditor as unsecured. ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: Status as 'Secured Financial Creditor' Legal framework: Classification of creditors into secured and unsecured under the Insolvency and Bankruptcy Code and CIRP Regulations depends on existence and proof of security interest over assets of the corporate debtor; Form-C requires disclosure of security interests and related particulars. Precedent Treatment: The Court applied settled principles that security interests evidenced by contractual documentation and endorsements creating lien are determinative of secured status; no existing precedent cited was followed or overruled beyond general reference to waiver jurisprudence (discussed infra). Interpretation and reasoning: The Court examined the claim Form-C which expressly identified the overdraft facility as secured by specific fixed deposit accounts and reviewed the loan/fixed deposit documentation (including Clause 12 of the fund-facility application) which: (a) created a security interest and charge over specified FDs in favour of the bank; (b) recorded express waiver of depositor rights and an enforceable lien/paramount lien clause; and (c) prohibited assignment of the FD except to the bank. Those contractual endorsements and the recorded cash collateral were held to demonstrate an existing and enforceable security interest. Ratio vs. Obiter: Ratio - Where a financial creditor's claim form and attendant documents record a security interest (cash collateral by way of fixed deposits) with endorsements of lien and attendant contractual undertakings, the RP must classify the creditor as a secured financial creditor absent valid contrary proof. Obiter - Observations on the sufficiency of 'sanction letters' as categorically unnecessary when security details are already placed on record. Conclusion: The creditor proved secured status; the RP was required to classify it as a secured financial creditor. The adjudicating authority's failure to do so was unsustainable. ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: Release/Transfer of Fixed Deposits to CIRP Account Legal framework: During CIRP, security interests of financial creditors continue to subsist and may be dealt with only in accordance with the resolution process and applicable regulations; RP's powers to transfer or dispose of assets are subject to rights of secured creditors and the contractual nature of their security. Precedent Treatment: The Tribunal relied on contractual evidence rather than novel precedent; it distinguished any implied authority of RP to commandeer secured cash collateral absent extinguishment or relinquishment of the secured creditor's rights. Interpretation and reasoning: The Court found that the RP filed an application seeking transfer of funds without first classifying the creditor as secured and without demonstrating that the creditor had relinquished its security. The bank had provided details of the FDs and had repeatedly asserted the security interest. Paragraph 10 of the bank's application was construed not as consent to immediate release but as an acknowledgement that the bank could relinquish security for the purposes of resolution provided it retained secured status - a conditional statement, not a unilateral waiver. Consequently, the direction in the impugned order to release specific FD amounts to the CIRP account was viewed as unsupported because it removed assets that were demonstrated to be bank security. Ratio vs. Obiter: Ratio - A direction by the adjudicating authority to release funds that constitute cash collateral securing a financial creditor cannot be sustained where the creditor has established an enforceable security interest and has not validly waived that security. Obiter - Comments on procedural prudence that RP need not insist on formal sanction letters where security documentation is already on record. Conclusion: The impugned directions to release the fixed deposits were set aside; the RP's application seeking transfer of those funds was dismissed insofar as it sought release of secured cash collateral. ISSUE-WISE DETAILED ANALYSIS - ISSUE 3: Waiver, Concession, and Estoppel from Pleadings/Oral Statements Legal framework: Waiver and estoppel require clear and unequivocal conduct or agreement by the party purported to waive a right; statutory or contractual rights may be waived by conduct or agreement but waiver must be pleaded and proven. Precedent Treatment: The Court considered reliance placed by the RP on general authorities addressing waiver and acquiescence but held them inapplicable absent clear evidence of surrender of the specific secured interest. Interpretation and reasoning: The Court reviewed the bank's application and in particular paragraph 10, determining that it did not constitute an admission or unconditional concession to release the underlying fixed deposits; rather it contemplated a conditional relinquishment aligned with retaining the bank's secured status. The alleged oral concession by counsel before the adjudicating authority (seeking to retain item No. 3 and purportedly allowing release of items Nos. 1, 2 & 4) was examined in the context of the recorded submissions; the Court found no clear, unequivocal waiver of security entitling the RP to immediate release. Consequently, no estoppel or binding concession was established that would permit transfer of secured funds. Ratio vs. Obiter: Ratio - Absent a clear, unambiguous waiver or agreement evidenced by the creditor to relinquish a security interest, neither counsel's remarks nor conditional statements in pleadings amount to waiver or estoppel permitting release of secured cash collateral. Obiter - The Court remarked that counsel's isolated remarks cannot be equated with contractual surrender of rights where documentation contradicts such a surrender. Conclusion: No waiver, concession or estoppel was established; the creditor's security interest remained effective and could not be ordered released on the basis relied upon by the RP and the adjudicating authority. ISSUE-WISE DETAILED ANALYSIS - ISSUE 4: Necessity of Sanction Letters / Documentary Proof and RP's Classification Obligation Legal framework: The RP must classify creditors based on available material; statutory forms (Form-C) and accompanying documents that disclose security interests are relevant and may suffice to establish secured status. The RP may seek further particulars but cannot disregard clear documentary proof of security. Precedent Treatment: The Court declined to require formal tender of separate sanction orders where the security relationship and fixed deposit endorsements were on record and adequately proved. Interpretation and reasoning: The Court reasoned that the RP's insistence on multiple sanction letters was unnecessary because the claim form and FD documentation already evidenced the security and lien. The availability of specific FD details and the loan application clause creating and describing the lien were sufficient for classification. Therefore, the RP's failure to classify the creditor as secured on that basis was incorrect. Ratio vs. Obiter: Ratio - Where a claim form and accompanying documentation demonstrably establish a security interest, the RP must classify the creditor as secured; demanding further sanction letters is not essential to displace an evident security interest. Obiter - Practical guidance that RP should verify documents but cannot ignore clear contractual evidence. Conclusion: The RP should have classified the creditor as a secured financial creditor based on the record; the creditor's application to be treated as secured was correctly allowed by the appellate Court. FINAL CONCLUSIONS The adjudicating authority's directions to release specified fixed deposits that served as cash collateral for the bank's facilities were unsustainable. The financial creditor had established an enforceable security interest by disclosure in Form-C and by contractual documentation, and no admissible waiver or concession justified release. The RP's application for transfer of the secured funds was dismissed and the financial creditor was directed to be treated as a secured financial creditor. The Court ordered parties to bear their own costs.