Bank's Appropriation Of Corporate Debtor's Fixed Deposit During CIRP Violates Moratorium: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has recently held that the unilateral liquidation and appropriation of a corporate debtor's fixed deposit by a bank during insolvency proceedings amounts to an impermissible recovery action barred by the moratorium.

“Section 14 of the Code imposes a complete bar on any action to recover, foreclose, or enforce any security interest against the assets of the Corporate Debtor once the CIRP has commenced and the moratorium under Section 14 has kicked in,” the tribunal observed.

It added, “The unilateral liquidation of a fixed deposit and its adjustment towards alleged dues constitutes a recovery action and enforcement of security interest, which is expressly prohibited during the moratorium period.”

A coram of Judicial Member Ashish Kalia and Technical Member Sanjiv Dutt allowed an application filed by the resolution professional of E-Commerce Magnum Solution Ltd against Yes Bank Ltd. It further directed the bank to reverse the appropriation and transfer Rs 73.7 lakh, including interest, to the CIRP account of the corporate debtor.

The application arose from the CIRP initiated against E-Commerce Magnum Solution Ltd on July 1, 2024, on a petition filed by J.C. Flowers Asset Reconstruction Pvt Ltd. Yes Bank stated that it had sanctioned credit facilities aggregating to Rs 500 crore on September 28, 2018, and relied on a set-off letter executed on November 28, 2018.

The bank further stated that on January 6, 2025, it appropriated Rs 73,73,068.90 from a fixed deposit held by the corporate debtor, adjusting the amount towards outstanding dues of Rs 1.75 crore payable by a group company of the corporate debtor. The debtor maintained both a bank account and a fixed deposit with Yes Bank.

The resolution professional informed the bank on November 18, 2024, of his appointment and requested closure of the account and transfer of available funds to the CIRP account. However, by an email dated December 2, 2024, Yes Bank informed us that it proposed to appropriate the fixed deposit amount of ₹69,21,682 against alleged dues of group entities, citing inter-se comfort arrangements.

Rejecting the bank's justification, the tribunal held that while the contractual documents were executed prior to the commencement of CIRP, the actual act of appropriation was carried out after the moratorium had come into force. Observing that the moratorium imposes a complete bar on recovery, foreclosure, or enforcement of security interests against the assets of the corporate debtor, the tribunal held the appropriation to be void in law.

Accordingly, Yes Bank was directed to transfer Rs. 73,73,068.90 to the CIRP account of the corporate debtor along with all consequential compliance.