Judgement on lien of FD by banks for recovery of pre-cirp dues

Summary:

No recovery action in form of lien or set-off can be exercised by banks in discharge/settlement of their pre-CIRP dues.

Facts of the case :

1. 1. The CIRP of the Corporate Debtor (ACIL Ltd) was initiated on 08.08.2018

2. The Corporate Debtor maintained two fixed deposits with the Appellant Bank amounting to Rs. Rs. 97.66 lakhs and 43.39 lakhs

3. On 21.08.2018 the RP of ACIL Ltd requested the Appellant Bank to close the fixed deposit placed by the Corporate Debtor and transfer those funds to TRA Account held by the Corporate Debtor with the Appellant Bank.

4. The Appellant Bank submitted its financial claim i.e. Form- C on 27.08.2018  to the RP, declaring the debts of the Corporate Debtor. It was also mentioned that the Fixed deposits are forming part of security of the Appellant bank and Bank has priority over redemption of such fixed deposit for adjustments of debts of the Corporate Debtor.

1. The following were the observations made by NCLT and upheld by NCLAT :
   2. a. The Fixed deposits were never charged to the Appellant neither originally as “Charged assets” nor as “additional security”.
   4. b. No charge was registered by the Corporate Debtor or by the Appellant in terms of Section 77 of the Companies Act, 2013.
   6. c. Imposition of order of moratorium creates a bar on enforcement of security interest in respect of the Corporate Debtor.
   8. d. The FDR’s sought to be realized by the RP are covered under approved resolution plan by the COC.

Conclusion :

The Hon’ble NCLAT upheld the order passed by Hon’ble NCLT that the recovery actions in form of lien or set off cannot be exercised by the Banks in view of their pre-CIRP dues.