Matured Deposits Cannot Be Treated As Automatically Renewed Without Proof Of Actual Renewal: NCLT Allahabad

The National Company Law Tribunal (NCLT) at Allahabad has ruled that a corporate debtor cannot rely solely on an automatic-renewal clause in deposit certificates to claim that matured deposits were not payable.

It must produce material showing that the deposits were actually renewed in accordance with the terms of the certificates.

“Therefore, the mere existence of a clause providing for automatic renewal does not, in itself, establish that the deposits in question were actually renewed. The Corporate Debtor, having raised the specific plea of automatic renewal, has not placed on record material demonstrating that the maturity instructions in respect of the deposits claimed by the Applicants did not provide for repayment and that the respective deposits were consequently renewed in accordance with Clause 5 of the Deposit Confirmation Certificate,” a bench comprising Judicial Member Praveen Gupta and Technical Member Ashish Verma observed.

The order came on a Section 7 application filed jointly by 34 depositors against Koras Pin Savings Financial Services Nidhi Limited. The applicants had deposited different amounts with the company under Deposit Confirmation Certificates. The total amount claimed to be in default was ₹1.04 crore, with the dates of default ranging from November 14, 2021, to December 20, 2023.

The applicants claimed that the deposits had matured and become repayable. They issued demand notices between December 6 and December 8, 2023, seeking repayment.

The corporate debtor argued that the deposits had been automatically renewed under the certificates and therefore had not become due. It also contended that the amounts were merely investments and did not constitute financial debt.

The certificates provided that repayment or renewal would follow the maturity instructions recorded with the company. In the absence of such instructions, the deposits would be automatically renewed for the same tenure at the prevailing interest rate.

The tribunal noted that the applicants' demand for repayment showed their intention to seek repayment rather than renewal. The corporate debtor, however, had not produced material showing that the applicants had not given repayment instructions or that the deposits were actually renewed after maturity.

“In the absence of such material, the plea of automatic renewal cannot, by itself, be accepted to defeat the Applicants' claim of default,” the tribunal observed.

The tribunal also rejected the argument that the deposits were merely investments. The certificates showed that the amounts were accepted as term deposits for specified periods, with provision for repayment or renewal and payment of interest. The arrangement had the commercial effect of borrowing and therefore constituted financial debt under Section 5(8) of the IBC.

The tribunal further rejected the objection to the joint filing. Section 7 of the IBC permits a financial creditor to initiate CIRP individually or jointly with other financial creditors. Since the applicants had independent claims and their aggregate default exceeded the ₹1 crore threshold under Section 4, the application was maintainable.

The tribunal admitted the application and initiated CIRP against the corporate debtor.