Fixed Deposit Of Corporate Debtor Cannot Be Withheld After Resolution Plan Approval If No Claim Filed: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has recently held that a fixed deposit forming part of the corporate debtor's assets in the Information Memorandum cannot be withheld after approval of a resolution plan when no claim asserting lien or security was filed during the corporate insolvency resolution process.

A coram of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra held that claims not asserted during CIRP stand extinguished once the resolution plan is approved under the Insolvency and Bankruptcy Code, 2016.

The appeal arose from an order of the National Company Law Tribunal (NCLT) Ahmedabad dated December 12, 2024, rejecting an application filed by the successful resolution applicant, Mangalam Global Enterprise Limited, seeking liquidation of a fixed deposit dated March 9, 2017, amounting to Rs 42 lakh along with accrued interest.

The fixed deposit had been created in 2017 and stood in the name of the corporate debtor, H.M. Industrial Private Limited, along with Catalyst Trusteeship Limited, the debenture trustee.

The trustee contended that the fixed deposit had been created as security for 600 rated, unlisted, redeemable non-convertible debentures issued in 2017 and therefore could not be released.

The NCLT rejected the application, holding that the fixed deposit was akin to margin money kept as security to meet obligations arising out of the issue of debentures. Aggrieved by the decision, the successful resolution applicant approached the appellate tribunal.

Before the NCLAT, the appellant submitted that the fixed deposit formed part of the assets of the corporate debtor and that fixed deposit receipts were reflected in the Information Memorandum under the head of current investments. It further pointed out that the balance sheets of the corporate debtor also reflected the FDRs as assets.

The appellant argued that no lien or charge had been marked on the fixed deposit and that neither the debenture trustee nor the debenture holders had filed any claim during the CIRP. It was further submitted that once a resolution plan is approved, all claims not forming part of the plan stand extinguished.

Opposing the plea, the debenture trustee submitted that the fixed deposit had been created as security pursuant to debenture trustee documents and that as trustee for the debenture holders it was entitled to enforce the security.

Examining the balance sheets, the Information Memorandum and an affidavit filed by Bank of Baroda, the tribunal noted that the bank had clearly stated that no lien had been created on the fixed deposit and that it was merely acting as custodian of the deposit.

The tribunal also noted that the fixed deposit certificate itself contained columns titled “Lien Noted On” and “Lien Cancelled On”, both of which were blank.

Based on these records, the appellate tribunal held that although the fixed deposit was not individually mentioned in the Information Memorandum, the fixed deposit receipts were reflected in the Information Memorandum and included the fixed deposit dated March 9, 2017.

“Thus, when we look holistically at the balance sheet of the Corporate Debtor as on 31.03.2018 as appearing in the Information Memorandum read with the contents of the affidavit in reply by Respondent No.2-Bank of Baroda before the Adjudicating Authority in IA No. 665 of 2023, we are inclined to agree with the Appellant that the FD of 09.03.2017 even though not specifically mentioned in the Information Memorandum, the FDRs did figure in the Information Memorandum including the FD of 09.3.2017. Thus to answer the first part of the question outlined by us, we are of the considered view that the FD of 09.03.2027 of Rs 42 lakhs alongwith accrued interest thereon formed part of the asset of the Corporate Debtor,” the tribunal held.

Rejecting the contention that the fixed deposit was akin to margin money, the tribunal observed that there was no basis to claim that any encumbrance existed over the deposit in favour of the respondent.

It further held that neither lien nor charge had been endorsed on the deposit and that the audited balance sheets of the corporate debtor did not even reflect the debentures as liabilities.

“Unlike margin money, which is specifically segregated for a designated beneficiary, the FD was never placed in a trust-like structure and therefore remained an asset of the Corporate Debtor,” the tribunal observed.

The tribunal also noted that the respondent had failed to file any claim during the CIRP.

It held that once a resolution plan is approved, all claims not forming part of the plan stand extinguished.

“Moreover, when the resolution plan was never challenged and had attained finality, the claim of Respondent No. 1 with respect to FD of 09.03.2017 not having been made before approval of the plan, the said FD becomes an asset of the Corporate Debtor which could not have been interfered with by the Adjudicating Authority,” the tribunal said.

Holding that the resolution plan cannot be altered after having been approved by the committee of creditors with a 97.20 percent voting share for claims that had not been pursued by the respondent, the appellate tribunal allowed the appeal and set aside the NCLT order.

It directed Bank of Baroda to liquidate the fixed deposit dated March 9, 2017, and transfer the amount of Rs 42 lakh along with accrued interest to the debtor company.