Tuesday 10 November 2020

UCO Bank, vs. G. Ramachandran, RP M/s. Sai Regency Power Corporation Pvt. Ltd - Adjustment of FDR's in loans of CD & Group Companies not permitted..

NCLAT (03.11.2020) in UCO Bank, vs. G. Ramachandran, RP M/s. Sai Regency Power Corporation Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 761 of 2020] held that  Once CIRP was initiated and Section 14 of IBC applied such adjustment by Appellant cannot be maintained. When CIRP was initiated, the Appellant Bank could not have adjusted the amounts as has been done in this matter.

 Facts of the case; Corporate Debtor had opened two FDRs with the Appellant Bank. Appellant bank sanctioned two car loans to the corporate debtor & two demand loans to group companies against the security of the said two FDR’s. 

Appellant Bank was required to refund Rs. 2,27,94,706/- which had been adjusted during CIRP by the Appellant Bank from Fixed Deposits of the Corporate Debtor M/s. Sai Regency Power Corporation Pvt. Ltd. against the outstanding amount in relation to vehicle loans and demand loans taken by group companies.

 

Excerpts of the order;

# 2. Heard Learned Counsel for the Appellant and the Learned Counsel for the Respondent. Learned Counsel for the Appellant is submitting that the Respondent/Resolution Professional filed the Application before the Adjudicating Authority (NCLT, Special Bench, Chennai) having M.A. No. 39 of 2020 in IBA/92/2019 and claimed that the Appellant Bank was required to refund Rs. 2,27,94,706/- which had been adjusted during CIRP by the Appellant Bank from Fixed Deposits of the Corporate Debtor/M/s. Sai Regency Power Corporation Pvt. Ltd. against the outstanding amount in relation to vehicle loans and loans taken by group companies. The Learned Counsel submitted that the Adjudicating Authority has passed impugned order directing the Appellant to restore the credit to the Corporate Debtor’s account so as to facilitate the Resolution Plan. 


# 5. The Learned Counsel for the Appellant then states that the Corporate Debtor had opened two FDRs with the Appellant Bank and had approached for sanction of two car loans. The Appellant Bank had sanctioned the vehicle loans and the Company was regularly paying monthly instalments. It is stated that group companies of Corporate Debtor M/s. Kamang Dam Hydro Power Pvt. Ltd. and M/s. J.R. Power Pvt. Ltd. approached the Appellant Bank for sanction of demand loans for which the Corporate Debtor offered two FDRs as security. For the demand loans all the documents were submitted and executed by the Corporate Debtor in 2011. According to the Appellant in good faith the Bank sanctioned demand loans of Rs. 50,00,000/- to one of the group company by mane M/s. Kamang Dam Hydro Power Pvt. Ltd. and another demand loan to another Group company by name M/s. J.R. Power Pvt. Ltd. It is claimed that in good faith, the Appellant appropriated the amounts as the Appellant was secured creditor and could appropriate the FDs and set of amounts due. It is stated that the Appeal claims that the Appellant was not aware of the CIRP proceeding.


# 6. Learned Counsel for the Appellant relies on Section 173 of IBC to submit that there is provision of mutual credit and set of. She also refers to Section 36 (4) (b) of the IBC to submit that set of and appropriation could be accepted.


# 7. The Learned Counsel for the Respondent submits that Section 173 and Section 36 would be relevant during the stage of liquidation proceedings and not during pendency of CIRP. He states that Liquidation Order is not yet passed in the matter though period as provided under Section 12 of IBC is over.


# 8. The Learned Counsel for the Respondent refers to the Impugned Order where the Adjudicating Authority relied on Indian Overseas Bank Vs. Mr. Dinkar T. Venkatsubramaniam and in which this Tribunal had made observations that once moratorium has been declared, it is not open to any person including the Financial Creditor and the Appellant Bank to recover any amount from the account of the Corporate Debtor, nor it can appropriate any amount towards its own dues.


# 10. It is apparent that CIRP was initiated on 27th March, 2019 and later on, the Respondent found that the Appellant Bank had adjusted certain amounts which it could not, considering Section 14 of IBC. The Respondent on 06th December, 2019, wrote to the Appellant Bank Letter Annexure A-2 which reads as under: …...


# 11. The facts and developments are apparent from the above letter and considering the provisions of Section 14, we have no doubt that the impugned order as passed by the Adjudicating Authority is required to be maintained. Once CIRP was initiated and Section 14 of IBC applied such adjustment by Appellant cannot be maintained. Lack of knowledge of initiation of CIRP would not be relevant. When CIRP was initiated, the Appellant Bank could not have adjusted the amounts as has been done in this matter.


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Disclaimer:

The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.

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