Amount in 'No Lien Account' Forms Part of the Corporate Debtor's Assets and Cannot Be Retained by the Bank During CIRP Due to Moratorium

NCLAT held that the amount in the 'No Lien Account' formed part of the corporate debtor's assets and could not be retained by the bank during the CIRP due to the moratorium under Section 14 of the IBC.

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), reviewed an appeal and observed that the amount lying in the 'No Lien Account' belonged to the Corporate Debtor. This amount had been deposited to demonstrate bona fide intentions under a failed One Time Settlement (OTS) proposal. Upon the initiation of the Corporate Insolvency Resolution Process (CIRP), the amount became part of the Corporate Debtor's assets under Section 18(f) of the Insolvency and Bankruptcy Code (IBC), 2016, which the IRP/RP was duty-bound to take control of. The Bank was not permitted to retain or appropriate the amount due to the moratorium imposed under Section 14 of the IBC.

The present appeal was filed against the order dated 03.05.2021 passed by the Adjudicating Authority (NCLT, Ahmedabad Bench) in I.A. No. 696 of 2020, wherein the Tribunal allowed the application seeking the release of ₹1 Crore held in a “No Lien Account” by the Appellant, Bank of India. The Corporate Debtor, M/s Jaybharat Textiles & Real Estate Ltd., was admitted into the Corporate Insolvency Resolution Process (CIRP) on 03.01.2020, and the Interim Resolution Professional (IRP) was appointed to take control of the Corporate Debtor's assets as per Section 18 of the Insolvency and Bankruptcy Code, 2016 (IBC). Despite multiple requests, the Appellant refused to release the said amount, prompting the Resolution Professional to file the application for its release.

The Appellant, in defence, argued that the ₹1 Crore was not the Corporate Debtor's asset as the cheque originated from Wellworth Apparels Pvt. Ltd. and contended that under the explanation to Section 18, assets owned by third parties could not be claimed. It further claimed a banker’s lien over the amount, asserting its statutory right. The Corporate Debtor, however, had paid this amount to demonstrate its bona fide intention towards a One-Time Settlement (OTS), which ultimately did not materialize. The Respondent argued that the amount remained unadjusted and, therefore, continued to be an asset of the Corporate Debtor. The Tribunal noted that the bank had not utilized the funds and held that, post-CIRP initiation, the amount fell within the ambit of the Corporate Debtor’s assets under Section 18(f) of the IBC.

Relying on precedents, including Bank of India v. Vinod Kumar P. Ambavat, REEDLAW 2022 NCLAT Del 09560 and the Hon’ble Supreme Court’s decision in Kut Energy Pvt. Ltd., the Tribunal concluded that the amount lying in the “No Lien Account” belonged to the Corporate Debtor. Since the moratorium under Section 14 had commenced, the bank could not appropriate or withhold the funds. It emphasized that the IRP/RP was duty-bound to take custody of the said asset for CIRP purposes. The NCLAT upheld the decision of the Adjudicating Authority, affirming that the ₹1 Crore was indeed an asset of the Corporate Debtor and dismissed the appeal, finding no merit in the bank’s arguments.

Mr. Ashish Rana, Advocate represented the Appellant.

Mr. Milan Singh Negi, Mr. Nikhil Kumar Jha and Ms. Aakriti Gupta, Advocates appeared for the RP.

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REEDLAW 2024 NCLAT Del 12534