Libertatem Magazine

Financial Institutions To Act on Instructions of Interim Resolution Professional: Supreme Court

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The appeal was filed against the order passed by the Guwahati High Court where an interlocutory application was allowed whereby the respondent could operate its bank account maintained with the ICICI Bank in Bhubaneshwar and unfreeze the bank account of its creditors upon which lien had been created.


An application was filed against the National Plywood Industries Limited under Section 7 of the Insolvency and Bankruptcy Code (IBC). The appellant had been appointed as the Interim Resolution Professional. A moratorium was passed within the meaning of Section 14 of the IBC. By an order dated 08.11.19, the appellant came to be appointed as the Resolution Professional. The respondent on the other hand, who claimed to be an operational creditor laid down a claim before the appellant for the amounts due to it from the Corporate Debtor. The former Managing Director of the Corporate Debtor questioned the order of NCLT admitting the application under Section 7 of the IBC. An interlocutory application was filed by the former Managing Director of the Corporate Debtor for seeking an injunction restraining the Respondents from intervening in the operation of the Corporate Debtor and to disperse the cost of the CIRP which was disposed of. The appellant claimed that the former Managing Director of the Corporate Debtor conspired and engaged in an illegal transaction of ₹32.5 lakhs with the respondent without the authority from the appellant and violating Section 14 of IBC. 


The appellant’s counsel contended that the finding of the High Court is contrary to the documents of the Respondent. It was highlighted by the counsel that the impugned order was contrary to Section 14 of the IBC. It was contended that the purpose of the moratorium would be defeated if members of the previous management of the Corporate Debtor are at liberty to transfer the funds of the same. The counsel reiterated that with the appointment of Appellant as the Resolution Professional under Section 25 (2) of the IBC, the respondent is to take custody and control of all the assets of the Corporate Debtor as he was a related party of the Corporate Debtor.

The counsel for the respondent contended that the respondent is indeed a related party. He stated that the respondent was a supplier of raw material to the Corporate Debtor. Therefore, goods worth more than Rs.2 crores have been supplied by him to the Corporate Debtor. Moreover, a sum of more than Rs.39 lakhs is further due from the Corporate Debtor to the Respondent. The business relationship between the Respondent and Corporate Debtor had existed for more than 15 years. The counsel stated that the orders were placed by the Corporate Debtor for approximately Rs. 30 lakhs. 


The court observed that it is clear that the assets of the company would include the amount lying to the credit in the bank accounts. There cannot be any dispute that after the order under section 14 was passed, a sum of ₹32.50 lakhs had been remitted into the account of the Respondent company. There was also no doubt that the Respondent has had business relations with the Corporate Debtor for more than 15 years and that the amount remitted in his account represented the price of the materials supplied to the Corporate Debtor. Apart from this amount a sum of rupees more than ₹39 lakhs was still due. The court stated that the role of the insolvency professional is neatly carved out. From the date appointment of the Interim Resolution Professional, the management of the affairs of the Corporate Debtor is vested in the Interim Resolution Professional. The impact of the moratorium involves the prohibition of alienating, transferring or disposing by the Corporate Debtor of any of its assets. The Resolution Professional is bound to take prior approval of the Committee of Creditors in matters covered by Section 28 of the IBC.


The impugned order was modified by the court, the Respondent was allowed to operate its account subject to first remitting Rs 32.50 lakhs which stood paid to it by the management of the Corporate Debtor. The court stated that the assets of the Corporate Debtor shall be strictly managed in terms of the provisions of the IBC. The Appellant as RP would bear in mind the provision of Section 14 (2A) and the object of IBC. The court clarified that the judgement wouldn’t stand in the way of the Respondent seeking its claim regarding its entitlement to a sum of Rs.32.50 lakhs and any other sum from the Corporate Debtor in accordance with the law. 


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