Bank Of India vs Mr. Vinod Kumar P. Ambavat Resolution ...

National Company Law Appellate Tribunal Principal Bench, New Delhi COMPANY APPEAL (AT) (INSOLVENCY) No. 214 of 2021 (Arising out of Order dated 19th January, 2021 passed by National Company Law Tribunal, Ahmedabad Bench, Ahmedabad, in IA No. 653/2020 in C.P. (IB) No.- 272/NCLT/AHM/2019).

IN THE MATTER OF:

Bank of India Rep. by Deputy General Mangar

Having its Office at: Asset Recovery Management Branch, First Floor, Bank of India Building, 28, S.V. Road, Andheri (W), Mumbai - 400058. ...Appellant

Versus

Mr. Vinod Kumar P. Ambavat Resolution Professional (RP) of Actif Corporation Ltd.

Having its Office at: 5-B, Ground Floor, Onlooker Building, 14, Sir P.M. Road, Fort, Mumbai - 400001. Email: vinod.ambavat@ajallp.com ...Respondent

For Appellant: Mr. Ashish Rana & Mr. Anurag Kr. Singh, Advocates.

For Respondent: Mr. Milan Singh Negi, Advocate.

JUDGEMENT

[Per; Shreesha Merla, Member (T)]

1. This Appeal arises out of the Impugned Order dated 19.01.2021,

passed by the Learned Adjudicating Authority (National Company Law

Tribunal, Ahmedabad Bench, Ahmedabad), in IA 653/2020 in C.P. (IB) No.-

272/NCLT/AHM/2019, wherein the Adjudicating Authority has allowed the Interim Application preferred by the Resolution Professional ('RP') seeking a

direction to Bank of India/the Appellant herein to release an amount of

Rs.100Lakhs/- held in the 'no lien account' for the purpose of CIRP of the

'Corporate Debtor Company'/'M/s. Actif Corporation Limited'. The

Adjudicating Authority allowed the application observing as follows:

"11. Gone through the application and the reply. It is noted that the Corporate SDebtor, to show their commitment and banafide towards reolution plan (i.e., one time settlement proposal) has furnished a Cheque for Rs.1 Crore to the Respondent/bank on 12.07.2017 along with a letter with a request to keep the poceeds in "No Lien Account" and instructed that the said amount may be adjusted/utilized upon approval of resolution plan (i.e., one time settlement), however, in any case, it should not be adjusted towards interest/other charges/principal till then. The company is committed to bring the balance amount to the extent of 10% as per their commitment once approval is accorded by the lead bank.

12. Before the date of commencemnt of CIRP, the responden tbank has not adjusted this amount in the loan account of the corporate debtor, whereas it has kept the same in a separate account as instructed by the corporate debtor. It shows that the bank has agreed for no lien to this amount till OTS proposal is approved by the bank. Hence, on initiation of CIRP, the amount kept in a separate account as 'No lien Account' by the respondent bank is the asset of the corporte debtor and the RP has to deal with the same as per the provisions of the IB Code."

2. Learned Counsel for the Appellant/Bank of India argued that this

amount of Rs.1Crore/- admittedly has came for a third party viz. M/s. Avazy

Realcom Private Limited and is not recorded in the Balance Sheet as an

asset. The Adjudicating Authority without examining the Balance Sheet

arbitrarily came to the conclusion that Rs.1Crore/- forms an asset of the

'Corporate Debtor'. The explanation to Section 18(f) provides that assets

shall not include assets owned by a third party in possession of the

-2- Comp. App. (AT) (Ins.) No. 214 of 2021 'Corporate Debtor' held under trust or under contractual arrangement

including bailment. The 'Corporate Debtor' has not shown under what

capacity this amount Rs.1Crore/- was received from M/s. Avazy Realcom

Private Limited and if it is under some contractual arrangement then it

would not be an asset of the 'Corporate Debtor'. It is submitted that

'Bankers Lien' over money held in a customer's account is a Statutory Right.

The amount of Rs.1Crore/- was paid for showing the bona fide of the

'Corporate Debtor' in pursuant to a Settlement Proposal. This amount was

delinked from the proposal and was supposed to be put into a 'no lien

account', which is not an account of the 'Corporate Debtor', but an account

of the Bank itself. This amount of Rs.1Crore/- was paid against the 5%

amount of the proposed One Time Settlement ('OTS') Account by a third

party M/s. Avazy Realcom Private Limited. As the Settlement failed, the

amount was not appropriated and the amount individually became an asset

of the Bank.

3. Learned Counsel for the Appellant further submitted that owing to the

conduct and the inability of the RP to discharge his duties, the Appellant

chose his replacement vide I.A. No. 522/2020 which was disposed of on

05.10.2021. It is summitted that the Appellant challenged the Order on the

grounds that Adjudicating Authority failed to appreciate that the related

parties have been admitted as Unsecured Creditors thereby changing the

composition of the COC.

4. Learned Counsel for the Respondent/RP submitted that the

'Corporate Debtor' and the Appellant Bank were discussing OTS terms,

when the 'Corporate Debtor' to show his bona fide deposited an amount of

-3- Comp. App. (AT) (Ins.) No. 214 of 2021 Rs.1Crore/- on 15.07.2017. CIRP was initiated on 26.11.2019. During the

third CoC Meeting on 08.09.2020, the RP appraised the Members that an

amount of Rs.1Crore/- was lying in a 'no lien account' of 'Corporate Debtor'.

Despite repeated requests by the RP, the Appellant Bank did not release the

said amount and hence the RP filed IA 653/2020 seeking directions to

release the said amount. It is argued that the amount lying in the 'no lien

account' is not owned by the Bank. The condition precedent for the amount

to be considered as property of the Bank was the approval of the

OTS/Resolution Plan. However, in the absence of the OTS/Resolution Plan

being approved, the Bank had no right on the said money. The amount of

Rs.1Crore/- was paid at the behest of the 'Corporate Debtor' and hence the

same is to be treated as the property of the 'Corporate Debtor'. The

Appellant Bank itself admits that the amount was paid by the 'Corporate

Debtor' through another Company to show their bona fide towards OTS. The

purpose of the 'no lien account' is to avoid realisation of funds lying in such

an account and therefore the Bank has no right over such money as the

same was deposited with a specific understanding that the said money shall

not be utilised by the Bank until approval of the OTS. The Learned Counsel

relied on the Judgement of the Hon'ble Supreme Court in 'Kut Energy

Private Limited & Ors.' Vs. 'Authorised Officer, Punjab National Bank,

Large Corporate Branch, Ludhiana & Ors.', (2019) SCC OnLine SC

1057, wherein the Hon'ble Supreme Court has held as under:

"11. In the present case the deposit of Rs. 40 crores in terms of the order of the Hogh Court on 11.10.2017 was only to show the bona fides of the appellants when a revised offer was made by them. The deposit was not towards satisfaction of the debt in question and theat is precisely why the High Court had

-4- Comp. App. (AT) (Ins.) No. 214 of 2021 directed that the deposit would be treated to be a deposit in the Registry of the High Court.

12. Going by the law laid down by this Court in Axis Bank the 'secured creditor' would be entitled to proceed only against the 'secured assets' mentioned in the notice under Section 13(2) of the SARFAESI Act. In that case, the deposit was made to amintain an appeal before the DRAT and it was specifically held that the amount representing such deposit was neither a 'secured asset' nor a 'secured debt' which could be proceeded against and that the appellant before DRAT was entitled to refund of the amount so deposited. The submission that the bank had general lien over such deposit in terms of Section 171 of the Contract Act, 1872 was rejected as the money was not with the bank but with the DRAT. In the instant case also, the money was expressly to be treated to be with the Registry of the High Court.

13. On the strength of the law laid down by this Court in Axis Bank, in our view, the appellants are entitled to withdraw the sum deposited by them in terms of said order dated 11.10.2017. Their entitlement having been established, the claim of the appellants cannot be negated by any direction that the money may contrinute to be in deposit with the Bank."

5. It is contended that the 'Claim' of the Bank that money lying in 'no

lien account' of the 'Corporate Debtor' are assets of the Bank, is baseless.

6. Heart both sides at length.

7. The brief point that falls for consideration in this Appeal is whether

the amount of Rs.1Crore/- lying in the 'no lien account' belongs to the

Appellant Bank. At the outset, it is relevant to note that this amount was

admittedly paid by the 'Corporate Debtor' pursuant to an OTS Proposal on

15.07.2017 to show its bona fide. It is not in dispute that the OTS, as

proposed, did not materialise and the amount of Rs.1Crore/- was parked in

the 'no lien account' maintained with the Bank. CIRP was initiated on

26.11.2019. Despite repeated requests of the RP, the Appellant Bank did not

-5- Comp. App. (AT) (Ins.) No. 214 of 2021 release the said amount. At this juncture, it is relevant to reproduce the

letter dated 12.07.2017, addressed by the 'Corporate Debtor' to the Bank

enclosing the check of Rs.1Crore/- stating as follows:

-6-

Comp. App. (AT) (Ins.) No. 214 of 2021 -7- Comp. App. (AT) (Ins.) No. 214 of 2021 (Emphasis Supplied)

-8- Comp. App. (AT) (Ins.) No. 214 of 2021

8. From the aforenoted letter, it is clear that the said amount was to be

adjusted/utilised upon approval of the Resolution Plan and was not to be

adjusted towards 'Interest' or 'Principal' till then. Prior to the

commencement of CIRP, this amount was not adjusted by the Bank towards

the loan account of Bank as the OTS Proposal had failed. Once the CIRP

was initiated, keeping in view that the OTS had failed, the amount lying in

the 'no lien account' belongs to the 'Corporate Debtor' and under Section

18(f) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to

as 'The Code'), the IRP/RP is obligated to take control and custody of all the

assets and properties of the 'Corporate Debtor'. Further, the Bank could not

have appropriated this money once the period of Moratorium has

commenced on 26.11.2019. As per Section 3(27), 'Property' includes money

and therefore RP's action of claiming the money lying in the 'no lien account'

of the 'Corporate Debtor' is within the provisions of Section 18(f) of the Code.

The contention of the Learned Counsel for the Appellant Bank that the

Bankers lien over the money held in a customer's account is a Statutory

Right, is unable, keeping in view the facts of the attendant case and also

that CIRP had commenced on 26.11.2019, and having regard to the fact

that the amount was deposited with a specific understanding that the

amount shall not be used by the Bank until approval of OTS. Admittedly,

the said amount was paid at the behest of the 'Corporate Debtor' by a third

party and it was lying with the Bank for more than five years.

9. The submission of the Learned Counsel for the Appellant that an

Appeal against IA 522/2020 was also preferred regarding the conduct of the

-9- Comp. App. (AT) (Ins.) No. 214 of 2021 RP is of no relevance to the facts of this case and therefore we do not

consider it fit to make any observations regarding that issue.

10. For all the aforenoted reasons, we are of the considered view that

there is no illegality or infirmity in the Order of the Adjudicating Authority

and therefore this Appeal fails and is accordingly dismissed. No order as to

costs.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical) NEW DELHI 15th September, 2022 Himanshu

-10- Comp. App. (AT) (Ins.) No. 214 of 2021