TaxTMI 
TaxTMI 
2025 (10) TMI 125
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....ecessary to be noticed for deciding the Appeal are: (i) The Corporate Debtor ("CD") - Reliance Communication Infrastructure Limited opened an FDR in the Appellant Bank on 27.03.2017. On the same date a letter dated 27.03.2017 was written to the Bank by Reliance Communication Infrastructure Limited asking the Bank to mark a lien against the FD, which may be due from us to you, whether singly or jointly with another or others in connection with credit facility provided to them by the Bank. (ii) The Corporate Insolvency Resolution Process ("CIRP") against the CD commenced on 25.09.2019 on an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "IBC") filed by the State Bank of India ("SBI"). (iii) The Interim Resolution Professional ("IRP") vide letter dated 03.10.2019 informed the Appellant that CD is undergoing a CIRP and Bank need not debit, freeze, block, transfer or appropriate any funds from the accounts of the CD. The IRP wrote an email dated 10.07.2020 to the Appellant that CD - Reliance Communication Infrastructure Limited had not obtained any credit facilities from the Appellant, hence, the amount ....
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....red creditor will not be extinguished under the CIRP. The secured creditor can enforce security outside CIRP. It is not compulsory that a claim should be filed in the CIRP. In the present case, the Appellant did not file any claim in the CIRP of the CD. The Appellant was not required to file any claim in the CIRP of the CD, since it held a valid lien of the CD. The nature of the security is relevant and nomenclature of security is irrelevant. The lien letter being a security provided by the CD on behalf of its related parties also extends to the default of RITL and R.Com., which companies were also admitted in the CIRP during the same period. It is submitted that the Adjudicating Authority exceeded its jurisdiction to enter into lien letter, which was not subject matter of dispute. Learned Counsel for the Appellant in support of his submission relied on various judgments of Hon'ble Supreme Court, this Tribunal and different High Courts, which we shall refer to while considering the submissions in detail. 5. Shri Krishnendu Datta, learned Senior Counsel appearing for Respondent No.1 refuting the submissions of the Appellant submits that the letter dated 27.03.2017 does not entitl....
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....solution Plan, the funds lying in the FDR are required to be utilized for payment to the assenting Financial Creditors, including the Appellant. The Resolution Plan was also assented by the Appellant. The Plan approval order has not been challenged by the Appellant, which deals with the treatment of the FDR. The Resolution Plan is clearly binding on the Appellant also. The resolution process of RITL has also culminated into approval of the Resolution Plan. The Appellant could not enforce any security interest by virtue of moratorium under Section 14. The Appellant has not filed any claim in the CIRP of the CD and NCLT has jurisdiction to adjudicate the issue. The FD was the asset of the CD, which was required to be taken control under Section 17(1)(d) and the Financial Institutions including the Appellant were required to act on the instructions of the IRP, whereas instructions given by IRP was disregarded by the Appellant, violating Section 17(1)(d) of the IBC. 6. We have considered the submissions of learned Counsel for the parties and have perused the records. 7. From the materials on record and the submission made by the parties, following are the undisputed facts and eve....
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....ubject of the letter is as follows: "Subject: Lien and set off Against Fixed Deposit Receipts ("FDR") in the name of Reliance Communications Infrastructure Limited with your Reference: Follo No.00001 and Maturity Date 01/07/2017." 9. The letter addressed to the Bank reads as follows: "Dear Sirs, In consideration of Industrial and Commercial Bank of China Limited, Mumbai Branch having its branch office at 801, 8th Floor, A-Wing, ONE BKC, C-66,G Block, Bandra Kurla Complex, Bandra(E), Mumbai-400051 (hereinafter called "ICBC") having granted / agreeing to grant an extension of the availability period of the facility under the facility agreement dated 14 October 2016 (as amended by the deed of amendment and confirmation, dated 16 December 2016) entered into between Industrial and Commercial Bank of China Limited, Mumbai Branch and Reliance Communications Infrastructure Limited, a company incorporated under the laws of India bearing corporate identification number U64203MH1997PLC166329 with its registered office at H Block 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai, 400710, against the security Interalia of FDR worth Rs. 27,60,00,000/- (Rupees ....
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....ers to the CD only. The CD being a corporate entity it described itself by use of express 'us'. The said use of expression 'us' cannot be expanded to mean that under the said expression all Group Companies were referred to and any amount due from any Group Companies is also included in the expression 'us'. The letter has to be looked into and interpreted in its plain and normal meaning. When a letter is written by a corporate entity, use of expression 'us' for the entity is both, natural and correct. The second interpretation of Clause (1) i.e. whether singly or jointly with another or others in connection with credit facilities provided to us by you, is also clear. The said Clause captures the situation where any facility or any amount is due singly by the CD or jointly with CD with another or others in connections with credit facilities provided to it by Bank. Thus, the credit facilities, which are contemplated, could be -- (a) singly to CD; (b) jointly with CD with another entity; or (c) jointly with CD and others. Thus, the key word in the above Clause is facility should be due on CD, either singly, jointly with another or jointly with others. Thus, the facility should be due o....
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....ability to the Bank owed by the CD. It is not a case of the Appellant that there are any liabilities on the CD or any account of the CD or there are any liabilities in any account of the CD. Thus, Clause (10) has no application in the facts of the present case. The letter dated 27.03.2017, which is a letter authorizing the Bank to mark lien and set off, has to be read as per the plain and natural meaning of the letter and the said letter cannot be read to mean that the CD has authorised the Appellant to withhold securities for any liabilities against its Group Companies. 14. Learned Counsel for both the parties have referred to and relied on judgment of the Hon'ble Supreme Court in (1992) 2 SCC 330 - Syndicate Bank vs. Vijay Kumar and Ors., where the Hon'ble Supreme Court had occasion to consider the concept of Banker's lien and has also dealt with the concept of general lien, which is exercised by the Bank. The above was a case where a Firm namely - M/s Jullundur Body Builders have been enjoying the various credit facilities from the Syndicate Bank, including overdraft facility. Vijay Kumar obtained a Decree against the Firm of Rs. 1,04,441.35 with future interest @ 9%. The Jud....
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....ed by either an express contract or circumstances which show an implied agreement inconsistent with the lien .... ... The lien is applicable to negotiable instruments which are ... remitted to the banker from the customer for the purpose of collection. When collection has been made the proceeds may be used by the banker in reduction of the customer's debit balance unless otherwise earmarked." (emphasis supplied) In Paget's Law of Banking, 8th Edn., p. 498 a passage reads as under: "The Banker's Lien Apart from any specific security, the banker can look to his general lien as a protection against loss on loan or overdraft or other credit facility. The general lien of bankers is part of law merchant and judicially recognised as such." In Brandao v. Barnett [(1843-60) All ER 719 : (1846) 12 Cl & Fin 787 : 8 ER 1622], it was stated as under: (All ER p. 722-H) "Bankers, most undoubtedly, have a general lien on all securities deposited with them, as bankers, by a customer, unless there be an express contract, or circumstances that show an implied contract, inconsistent with lien." The above passages go....
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....djust from the proceeds covered by the aforesaid Deposit Receipt/Certificate or from proceeds of other receipts/certificates issued in renewal thereof at any time without any reference to us, to the said loan/OD account. We agree that the above deposit and renewals shall remain with the Bank so long as any amount on any account is due to the Bank from us or the said M/s Jullundur Body Builders singly or jointly with others." To the same effect is the other letter. The above recital in the letter clearly goes to show that a general lien is created in favour of the appellant Bank in respect of those two FDRs. The Bank is given the authority to retain the FDRs so long as any amount on any account is due from the Judgment-debtor. Thus the appellant Bank had a right to set-off in respect of these FDRs if there was a liability of the Judgment-debtor due to the Bank. In this context it is useful to refer to some passages in the text-books on the scope and meaning of the expression "Banker's lien". 17. The above judgment is clear authority for proposition that Bank exercises general lien on a FDR and the authority to retain the FDRs if any amount is due to the Bank....
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....lien. The evidence of the cash-keeper, which is extremely brief, shows that he at least thought there was nothing special about the plaintiff's loans and that therefore the jewels might be retained until all debts were paid off. It being incumbent on the plaintiff to show that the bank had agreed to give up the general lien to which by law a bank is prima facie entitled, I must say that in my opinion the plaintiff has failed in his proof. There was, it may be observed, no proper issue on the question, and no attempt-made to prove a special contract except by the evidence of the witnesses which was discredited by the Judge. Holding that the bank was entitled to retain the jewels until the other debts owed by the plaintiff wero paid off, I think the suit ought to have been dis- missed. I would accordingly reverse the decree and dismiss the suit with all costs." 21. Another judgment relied by the Appellant is (1995) SCC OnLine All 361 - State Bank of India, Kanpur vs. Deepak Malviya and Ors. The said proceedings also arose out of a suit filed against the SBI for a Decree for redemption. The Trial Court dismissed the suit. One of the issues framed by the Trial Court was, whether....
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....e context, the Hon'ble Supreme Court in paragraphs-41 to 44 held following: "41. Thus, we are presented with a difficult situation, wherein, Appellant 1-Vistra, a secured creditor, is being denied the rights under Section 52 as well as Section 53 of the Code in respect of the pledged shares, whereas, the intent of the amended Section 30(2) read with Section 31 of the Code is to the contrary, as it recognises and protects the interests of other creditors who are outside the purview of the CoC. To our mind, the answer to this tricky problem is two-fold. 41.1. First is to treat the secured creditor as a financial creditor of the corporate debtor to the extent of the estimated value of the pledged share on the date of commencement of the CIRP. This would make it a member of the CoC and give it voting rights, equivalent to the estimated value of the pledged shares. However, this may require reconsideration of the dictum and ratio of Anuj Jain [Jaypee Infratech Ltd. (Interim Resolution Professional) v. Axis Bank, (2020) 8 SCC 401 : (2021) 2 SCC (Civ) 334] and Phoenix ARC [Phoenix ARC (P) Ltd. v. Ketulbhai Ramubhai Patel, (2021) 2 SCC 799 : (2021) 2 SCC (Civ) 540], which....
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....ile resolution applicant - LHG and, as a sequitur, its non- classification as a financial creditor in the CoC of the corporate debtor-Amtek. Though this argument had appealed and had weighed with Nclat, in our opinion is untenable since the resolution plan submitted by erstwhile resolution applicant - LHG did not in any way affect the rights or interests of Appellant 1-Vistra as a secured creditor in respect of the pledged shares. Appellant 1- Vistra has elaborately explained that LHG, etc. were in negotiations with them so as to redeem the pledge and acquire the shares. 44. In view of our aforesaid findings, the impugned judgment [Vistara ITCL (India) Ltd. v. Dinkar Venkatasubramanian, 2020 SCC OnLine NCLAT 654] of Nclat affirming the view [Corpn. Bank v. Amtek Auto Ltd., 2018 SCC OnLine NCLT 24111] taken by the NCLT is partly modified in terms of our directions holding that Appellant 1-M/s Vistra ITCL (India) Ltd. would be treated as a secured creditor, who would be entitled to all rights and obligations as applicable to a secured creditor in terms of Sections 52 and 53 of the Code, and in accordance with the pledge agreement dated 5- 7-2016." 24. The above judgment i....
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....he Code in respect of the pledged shares, whereas, the intent of the amended Section 30(2) read with Section 31 of the Code is too contrary, as it recognises and protects the interests of other creditors who are outside the purview of the CoC. To our mind, the answer to this tricky problem is twofold. First is to treat the secured creditor as a financial creditor of the Corporate Debtor to the extent of the estimated value of the pledged share on the date of commencement of the CIRP. This would make it a member of the CoC and give it voting rights, equivalent to the estimated value of the pledged shares. However, this may require re consideration of the dictum and ratio of Anuj Jain (supra) and Phoenix ARC (supra), which would entail reference to a larger bench. In the context of the present case, the said solution may not be viable as the resolution plan has already been approved by the CoC without Appellant No. 1 Vistra being a member of the CoC. Therefore, we would opt for the second option. The second option is to treat the Appellant No. 1 - Vistra as a secured creditor in terms of Section 52 read with Section 53 of the Code. In other words, we give the option to the successful....
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....Hon'ble Supreme Court dealing with Article 141 and 142 of the Constitution of India enumerated the principles in Paras 8 and 11, which are to the following effect: "8. In our view, the law laid down in Chandi Prasad Uniyal's case, no way conflicts with the observations made by this Court in the other two cases. In those decisions, directions were issued in exercise of the powers of this Court under Article 142 of the Constitution, but in the subsequent decision this Court under Article 136 of the Constitution, in laying down the law had dismissed the petition of the employee. This Court in a number of cases had battled with tracing the contours of the provision in Article 136 and 142 of the Constitution of India. Distinctively, although the words employed under the two aforesaid provision speak of the powers of this Court, the former vest a plenary jurisdiction in supreme court in the matter of entertaining and hearing of appeals by granting special leave against any judgment or order made by a Court or Tribunal in any cause or matter. The powers are plenary to the extent that they are paramount to the limitations under the specific provisions for appeal contained in t....
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....titled to refuse release of the FD, which was opened by the CD on the ground that there are dues against another Group Company RITL. The Adjudicating Authority in the above context has noticed the case of both the parties and after noticing the letter dated 27.03.2017 came to the conclusion that the Appellant Bank was not entitled to withhold the FD on ground of alleged facilities due to RITL. 27. The core question to be answered in this case is as to whether the Appellant was justified in refusing to release the FD, which was opened by the CD on the ground of general lien. 28. Shri Krishnendu Datta, learned Senior Counsel appearing for the Respondent has also relied on judgment of different High Courts to support his submission that Banker's lien only extend to debt owed by the same customer. Reliance has been placed on judgment of High Court of Karnataka reported in ILR 2004 KHC 993 - Vijaya Bank and Ors. vs. Naveen Mechanised Construction (Private) Limited and Ors. The facts of the said case has been noticed in paragraph-2 of the judgment. The Hon'ble High Court has held that Section 171 would enable the Bank to retain the security for repayment of debt borrowed by the sam....
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.... of the Fixed Deposit Receipts had expressly agreed that the Bank would have lien over the fixed Deposit Receipts. In this case, the Supreme Court has not laid down any law that the Bank can exercise its general lien under Section 171 of the Contract Act over the properties of the surety for the liabilities of the principal debtor to the Bank. In S. Vasupalaiah v. The Vysya Bank, Kudagenahalli Branch (supra) and in City Union Bank Ltd. v. C. Thangarajan (supra) cited by Mr. Kanungo, the learned single Judges of the Karnataka High Court and the Madras High Court respectively have referred to the aforesaid decision of the Supreme Court in Syndicate Bank v. Vijay Kumar (supra) and have held that the Bank can exercise lien over the properties of a guarantor or a co-promisor for recovery of the outstanding dues of the principal debtor or the promisor to the Bank. But as we have discussed above, courts in England and in India have held that the Bank can exercise general lien over the properties of a customer for the general balance in such customer's account and not for the general balance of some other customer's account. Unless therefore a customer has expressly agreed that his....