TMI Blog2021 (5) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... of moratorium for its day-to-day functioning. Section 14 of the I B Code overwrites any other provision contrary to the same and any amount due prior to the date of CIRP cannot be appropriated during the moratorium period. It is seen from the record that payments due under the LCs have been made out of the funds of the Corporate Debtor as is established from the reduction of liabilities under non-fund based facilities. Adjusting of the Claims by the Appellant Banks during the CIRP out of the funds of the Corporate Debtor results in unjust enrichment of the Banks and further, crediting amounts towards non-fund and fund based accounts during the moratorium period is against the provisions of Section 14 of the Code. The non-Applicants are directed to release the title deeds for effective implementation of the terms of the Resolution Plan as provided for under Section 31 of the Code - application allowed. - COMPANY APPEAL (AT) (INSOLVENCY) NO. 590 OF 2020 & I.A. No. 156 of 2020 - - - Dated:- 28-5-2021 - [Justice Anant Bijay Singh] Member (Judicial) And [Ms. Shreesha Merla] Member (Technical) For the Petitioner : Mr. Rajiv Ranjan, Sr. Advocate alongwith Dr. Sudhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Adjudicating Authority while passing the aforenoted directions observed as follows; 8. The 3rd Respondent, Bank of India in its reply has stated that the Corporate Debtor does not have any current account. Bank of India never appropriated any amount of the cash credit account of the Corporate Debtor. However, the erstwhile Resolution Professional himself has remitted some amount in the credit of the cash credit account. Hence, there is no contravention of Section 14 and Section 17 (1) of the Insolvency and Bankruptcy Code, 2016. In respect to the claim of ₹ 25.32 crores as on 18.07.2019, which included fund-based outstanding of ₹ 12.86 crores and NFB outstanding or ₹ 12.46 crores. The respondent further states that there is no question of appropriation of any amount. However, the erstwhile Resolution Professional had paid the amount and settled the dues. 9. The 4th respondent, the State Bank of India in its reply states that they have recalled the loan accounts on 21.03.2017 much before the initiation of the Corporate Insolvency Resolution Process. The State Bank of India further states that the Corporate Debtor does not maintain any current accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India 590.95 1,236.22 1,827.17 Central Bank of India 36.50 1,383.39 1,419.89 Syndicate Bank -- 326.87 326.87 State Bank of India 99.61 500.17 599.78 Total 727.06 3,446.65 4,173.71 Submissions on behalf of the Learned Counsel for the Appellant. The Corporate Debtor was granted fund based (Cash Credit Hypothecation Facility CCHF ) and non-fund based facilities (Bank guarantee/LC Facility) of credit through a consortium of lenders comprising the Appellant Banks namely Bank of India (the lead Bank), State Bank of India, Central Bank of India and Syndicate Bank since 13.09.2011. The Corporate Debtor created first charge over its Fixed Assets and Current Assets. This Tribunal vide an Order dated 09.08.2017 directed the Resolution Professional to keep the Company as a goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Bank of India 1329.28 1277.48 2606.76 3. State Bank of India 147.07 1905.54 2052.61 4. Syndicate Bank 323.07 436.33 759.40 (v) That all the member banks allowed operation in the account as per the direction of the Hon ble NCLAT s order dated 09.08.2017. [Minutes of COC meetings, Annexure R-2, R-3 Pg 20-34 of Rejoinder] (vi) That the banks allowed continuous operations in the company s account through which the company was also routing all the business cash in the normal course of its business. The bills under letter of credit facility maturing during the CIRP were also honoured by the erstwhile RP from the revenue generated by the Corporate Debtor. In the course of these operations, the Corporate Debtor s outstanding dues under the said accounts got gradually liquidated through its surplus cash flows accruing out of its increasing cash profits. As the corporate debtor company was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit Facilities with all the Banks. Mr. Bhuvan Madan, the Resolution Professional, had requested the Banks to reverse the amounts remitted by the previous IRP while discharging his duties as per the provisions of IBC. The lenders consortium noted that the operation in the accounts was allowed as per the directions of this Tribunal vide an Order dated 09.08.2017 and the credit was received in the normal course of business. It was the commercial decision of the erstwhile RP to reduce the fund based exposure to the minimum and to hold liquidity cash without any earning to reduce the interest expense s. The Corporate Debtor made a profit of ₹ 54.92 Crs., as on 31.03.2018 and ₹ 27.43 Crs. as on 31.03.2019, which shows that the Corporate Debtor had enough liquidity to maintain the Company as a going concern. The Respondent filed CA (IB) No. 92/CTB/2019 alleging that the amount received by the Appellants were preferential transactions as defined under Section 43 of the IBC and that the Appellant has violated Section 14 of IBC. Since, amount received by the Appellants were directly re mitted by the Respondent and there was a conscious business decision to reduce t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Syndicate Bank 0.47 cr Bank of India 2.63 cr State Bank of India 0.86 cr Central Bank of India 0.76 cr Total 4.69* crores (approx. 10.31% ofthe total cash component) As per the security holding the Bank should have get ₹ 31.30 Crs. but only ₹ 4.69 Crs. was allocated which is against the spirit of IBC. The admitted claim amount of dissenting Secured Creditors is ₹ 27.54 Crs. against the cash component arrived at ₹ 31.30 Crs. and therefore, the total admitted claim of the dissenting Creditors can be met from the available cash components and no amounts need be reversed. The sharing pattern was never made a part of the Resolution Plan and the RP put his own interpretation in devising the distribution pattern which is against the spirit of the Code. Submissions on behalf of the Learned Counsel for the Respondent: Once moratorium under Section 14 of the Code has been declared, it is not open to any person including the Financial Creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Counsel strenuously submitted that unilateral appropriation of amounts is in violation of Section 17(1)(d) and Section 28 of the Code. Section 17(1)(d) provides that the Financial Institutions shall act on the instructions of the Resolution Professional with respect to working capital facilities. Section 28 of the Code provides that the Resolution Professional during the CIRP cannot take certain decisions without the prior approval of the CoC and hence, such transfers are not valid as no prior approval of the CoC was taken by the erstwhile IRP. Assessment: 4. For better understanding of the case the chronological order of events material to the case is detailed as hereunder; Date Events On 13.09.2011 Ferro Alloys (Corporate Debtor) was granted Fund based [Cash Credit Hypothecation Facility] and Non-Fund based facilities [Bank Guarantee/ LC Facility] by the Appellant Banks. On 06.07.2017 NCLT, Kolkata passed an order for commencement of Corporate Insolvency Resolution P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On 30.01.2020 NCLT, Cuttack approved the Resolution Plan submitted by Sterlite Power Transmission Limited. On 02.03.2020 NCLT Cuttack allowed the Application filed by the Respondent and directed the Appellant Banks to reverse the amounts within 5 weeks. [Page 45] 5. This Tribunal in Company Appeal (AT) (Insolvency) No. 272 of 2020 preferred by the unsuccessful intervenor seeking direction for reconsideration of the Resolution Plan , has dismissed the Appeal vide an Order dated 08.06.2020 observing that it is a settled proposition of law that approval and rejection of Resolution Plan depends upon the commercial wisdom of the CoC, which involves evaluation of the Resolution Plan based on its feasibility and such commercial wisdom of the CoC with the requisite voting majority is non-justiciable and dismissed the Appeal . 6. This Tribunal in Company Appeal (AT) (Insolvency) Nos. 207-208 of 2020, arising out of the Impugned Order dated 30.01.2020, passed by the Adjudicating Authority, National Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o keep the Company a going concern. 9. The Resolution Professional, Mr. Bhuvan Madan after assuming charge as the RP requested the Banks to resume the working capital limits and to reimburse all the amounts which were appropriated. It is the stand of the Appellants that the Corporate Debtor did not maintain any Current Account from the date of commencement of the CIRP and hence, the question of appropriation from the Current Account does not arise. Since the Company was a going concern, and generating Profits it did not have any issue in servicing the bills under LC. Since the Company has not been issued any fresh LCs, the liability under LC became NIL. It was strenuously argued by the Learned Counsel for the Appellant that the ratio of Andhra Bank V/s. M/s. F.M. Hammerle Textiles Ltd. in Company Appeal (AT) (Insolvency) No. 61 of 2018 is squarely applicable to the facts of this case, as it was held in that Order dated 13.07.2018 that the Creditors may chose not to file claim if the NFB Facilities have not matured and decide to submit claim on its maturity after the completion of moratorium period subject to survival of the Corporate Debtor . 10. It is the Respondent s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts nor can they prohibit the Corporate Debtor from withdrawing the amount as available on the date of moratorium for its day-to-day functioning. Section 14 of the I B Code overwrites any other provision contrary to the same and any amount due prior to the date of CIRP cannot be appropriated during the moratorium period. It is seen from the record that payments due under the LCs have been made out of the funds of the Corporate Debtor as is established from the reduction of liabilities under non-fund based facilities. 14. This Tribunal in Company Appeal (AT) No. 267 of 2017 in Indian Overseas Bank V/s. Mr. Dinakar T. Venkatsubramaniam Resolution Professional for Ambtek Auto Ltd. held as follows:- Once Moratorium has been declared, it is not open to any person including Financial Creditor and the Appellant Bank to recover any amount from the account of the Corporate Debtor , no it can appropriate any amount towards its own dues 15. It is also noted that the amounts were honored partly by margin held as FDR and partly by funds of the Corporate Debtor deposited in its Cash Credit Accounts. We are of the view that merely because the Corporate Debtor had eno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l dated 31.12.2020 Bank of India cited Issuance of No Objection Certificate by Canara Bank as the ground for non- release of the title deeds. 20. In the Reply filed by the Consortium of Lenders on 09.02.2021, it was submitted that as the Appeal challe nging the reversal of the amounts, the subject matter of the Impugned Appeal, is pending before this Tribunal, it would be against the interest of the Consortium of Lenders to release the title deeds. 21. At this juncture, it is relevant to reproduce Section 31 of the Code:- 31. Approval of Resolution Plan --- (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub- section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. (2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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