Corporation Bank v. Amtek Auto Ltd.

INSOLVENCY AND BANKRUPTCY CODE, 2016

--Moratorium--Appeal against directions to financial institution to refund amount set-off towards its duesIntimation to financial institution to freeze all debit transactions of corporate debtor--Not adjusted amount lying in credit of account towards ad hoc credit limit granted for current account--When there was a clear instruction from interim resolution professional to financial institution, who maintained accounts of corporate debtor to freeze all debit transactions of the corporate debtor, then the financial institution could not adjust amount lying in credit of account of corporate debtor towards ad hoc credit limit granted for current account.--Petition under section 7 filed by financial creditor was admitted against corporate debtor and declared moratorium in terms of section 14(1). Interim Resolution Professional appointed was functioning as Resolution Professional (RP) as decided by committee of creditors. RP intimated another bank to freeze all debit transactions of corporate debtor. Bank informed the RP that the amount available in the current account of the corporate debtor was not an asset of the corporate debtor, inasmuch as the dues of the corporate debtor in the books of bank exceeded the amount available in the balance in the current account and, therefore, they exercised the rights of set off and appropriated the amount towards the dues payable to the bank. RP contended that action of the bank in setting off the dues from the operational collections violated the declaration of moratorium issued by the Adjudicating Authority. Thus, he filed an appeal to issue the necessary directions to the bank to refund the amount set-off towards its dues from the corporate debtor.Held: Section 17(2)(d) states that the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. There was a clear instruction from the RP to the bank, who maintained accounts of the corporate debtor to freeze all debit transactions of the corporate debtor, therefore, the bank could not adjust amount lying in credit of account of corporate debtor towards ad hoc credit limit granted for current account. Hence, the bank was directed to deposit the amount.