IRP, RP Cannot Authorise Recovery Barred By IBC Moratorium: NCLT Indore

The Indore bench of the National Company Law Tribunal (NCLT) has recently held that Bank of India violated the IBC moratorium by appropriating ₹16.49 crore from a company's cash credit account during its Corporate Insolvency Resolution Process (CIRP).

The amount was used to discharge letters of credit (LCs) issued before the insolvency commencement date.

Holding that the bank had recovered its own pre-CIRP dues during the moratorium, the tribunal directed it to reverse the appropriation. It was also directed to credit the amount to the corporate debtor's account within four weeks.

A bench of Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta rejected the bank's defense that the transactions were authorised by the erstwhile Interim Resolution Professional (IRP).

The court observed, "That the erstwhile IRP may have authorised or acquiesced in the individual debit entries for the sake of continuing the LC arrangement does not, in our view, alter this character: neither the IRP nor the RP has the power to sanction a recovery that Section 14 of the Code itself prohibits, and an authorisation which has the effect of enabling one creditor to prefer itself over similarly placed creditors cannot cure the resulting contravention of the moratorium merely because it carries the erstwhile IRP's imprimatur."

CIRP against Bhatia Global Trading Ltd. commenced on May 23, 2017. Bank of India filed a claim of ₹43 crore, of which ₹40 crore was admitted by the IRP. The bank later informed consortium member State Bank of India that no dues remained outstanding and did not submit any claim after liquidation began in May 2020.

In February 2021, Liquidator Prawincharan Prafulcharan Dwary sought reversal of nearly ₹40 crore appropriated from the Corporate Debtor's cash credit account. The bank admitted to making the debit entries but said they were authorised by the IRP. It also argued that the moratorium did not apply to non-fund-based LC facilities and that the application was barred by limitation.

The Liquidator later confined his claim to ₹16.49 crore relating to five LCs issued before the insolvency commencement date. He argued that the bank had recovered pre-CIRP dues from the corporate debtor's own account and that the IRP's approval could not validate a transaction barred by the IBC.

The court agreed. It found that the bank had used money from the corporate debtor's own account to recover liabilities that had already formed part of its admitted CIRP claim.

It distinguished the judgments relied on by the bank, noting that they dealt with performance bank guarantees and margin money, not direct recovery from the corporate debtor's account.

Rejecting the bank's objections on maintainability and limitation, the court held that the liquidator was acting to protect the Corporate Debtor's assets and that such applications could be filed during liquidation.

It partly allowed the application and directed Bank of India to refund ₹16.49 crore within four weeks. No relief was granted for LCs opened during CIRP because that part of the claim was not pressed.