Freezing Bank Accounts Of Corporate Debtor During Insolvency Violates Moratorium: NCLT Ahmedabad

The National Company Law Tribunal (NCLT) at Ahmedabad has held that freezing a company's bank accounts during insolvency violates the moratorium under the Insolvency and Bankruptcy Code, directing IDBI Bank to lift all liens and restore operations in the accounts of Wind World (India) Ltd.

Setting out the effect of such action, the Ahmedabad bench of the tribunal, comprising Judicial Member Shammi Khan and Technical Member Sanjeev Sharma, said, “Due to lien and subsequent freezing of the balance in the account results into nonavailability of the money in the bank account for the functioning of the Corporate Debtor. Issue of direction for creating the lien on the bank accounts results into execution and enforcement of a decree or order of the court of law which action is expressly prohibited by an order of moratorium under section 14 of the Code. We hold that any action that affects the implementation of the moratorium is an issue affecting the insolvency resolution of the Corporate Debtor and within the powers of this Tribunal under section 60(5) of the IBC, 2016 read with Rule 11 of the NCLT Rules."

The case arose after the resolution professional of Wind World (India) Ltd moved the tribunal, stating that several of the company's bank accounts had been frozen on the instructions of the Mining Engineer in Jaisalmer. The company had already been admitted into insolvency, and a moratorium was in force, barring recovery and enforcement actions.

The resolution professional said the freeze crippled day-to-day functioning. Funds in the accounts could not be accessed for operational expenses, affecting the company's ability to run as a going concern. It was argued that once insolvency begins, all claims must be dealt with within the resolution process and cannot be enforced separately.

IDBI Bank did not dispute placing liens on the accounts. It said it acted on directions issued by the mining authorities and was bound to comply. At the same time, it acknowledged that the situation raised issues under the insolvency framework and left the matter to the tribunal.

The Mining Engineer defended the action by pointing to recovery proceedings under mining and revenue laws. It argued that such orders fall in the realm of public law and cannot be examined by the insolvency tribunal, which has limited jurisdiction.

The tribunal rejected this objection. It said there is a clear distinction between determining dues and enforcing them. Authorities may assess liabilities, but recovery steps cannot continue once the moratorium is in place.

The bench noted that freezing the accounts effectively set aside funds for one authority outside the collective insolvency process. That approach, it said, disrupts the framework under which all creditors are to be treated in an orderly and equitable manner.

On jurisdiction, the tribunal clarified that it was not examining the correctness of the mining demand, but whether enforcing that demand during insolvency was permissible. Since the issue directly affects the resolution process, it held that it had the power to decide it.

Holding the bank's action unsustainable, the tribunal directed that all liens be removed and the accounts be made fully operational so the company can continue its business during insolvency.

It did not decide whether the mining department's dues qualify as secured debt, leaving that issue open.

Summing up, the tribunal observed, "The moratorium under Section 14 is intended to preserve the assets of the Corporate Debtor and maintain it as a going concern. Any action resulting in freezing of bank accounts or restricting access to funds strikes at the core of the insolvency resolution process and cannot be permitted.”