NCLT allows debit from ‘suspense account’ for a company under CIRP

Varun Marwah

While the NCLAT has previously held that monies from a corporate debtor’s account cannot be appropriated by a financial creditor once Corporate Insolvency Resolution Process (CIRP) is initiated, the Allahabad Bench of the NCLT recently passed an order allowing  such appropriation.

However, the withdrawal was made from the suspense account maintained by the bank.

CIRP against Uniworld Sugars Private Limited (Corporate Debtor) was initiated on May 25, 2018  based on a filing made by an operational creditor. Before CIRP was triggered, however, an Asset Sale Agreement was entered into between the Corporate Debtor and its joint venture partner. A Joint Lenders Forum (JLF) meeting  in 2017 agreed with terms of the Asset Sale Agreement, offering a portion of the proceeds to the lenders.

The Corporate Debtor also requested that its current account with IDBI bank be converted into no-lien, Trust and Retention Account (TRA), which will be utilised for (i) crediting amounts received from sugar sale proceeds under the Asset Sale Management and, (ii) making payments to lenders from the proceeds. Before CIRP was triggered, IDBI Bank, being the lead bank, froze the TRA and stopped all transactions. It also transferred a sum of Rs. 32.4 lakh to the suspense account from the TRA Account, one month prior to initiation of CIRP. After CIRP was triggered, this money was appropriated by IDBI as lead bank charges.

The Resolution Professional of the Corporate Debtor approached the NCLT against this debit of Rs. 32.4 lakh made by IDBI Bank from the suspense account. It was argued that IDBI retained this amount under the pretext of releasing to JM Financial, but later adjusted towards its own lead bank fee. The sum was deducted by IDBI against the invoice for lead bank charges for the Financial Year of 2017-18. The RP pleaded before the NCLT that this money be restored back to the Corporate Debtor.

The RP relied on NCLAT ruling in State bank of India vs Debashish Nanda, where it was held that “it is not open for any person including ‘Financial Creditors’ and the appellant bank to recover any amount from the account of the ‘Corporate Debtor’, nor can it appropriate any amount towards its own dues”

The NCLT, however, found that the money was not appropriated by IDBI after commencement of CIRP from the corporate debtor’ account. Since the money was debited from the ‘TRA account’ before initiation of CIRP, the NCLT found the appropriation to be valid. The money was appropriated from the ‘suspense account’, towards lead bank fee charges, after CIRP was initiated. The NCLT further found no merit in the RP’s argument that the money was debited under the pretext of payment to be made to JM Financial since there was no evidence to substantiate this claim. The NCLT held,

Transfer of amount from Suspense Account maintained by respondent bank or any other account is an internal arrangement made by the banker. Corporate Debtor/ applicant has nothing to do with their internal arrangement. The banker might have transferred or might not have transferred the amount to any other account from the suspense account prior to commencement of the CIRP.

The NCLT further held that the bank has the right to adjust the amount towards the lead bank charges due to it for the period prior to commencement of the CIRP from the suspense account. Since the amount was not debited from the account of the Corporate Debtor after the commencement of CIRP, the decision relied upon by the applicant,  was found to be inapplicable.

The application was accordingly dismissed. The NCLT, however, gave liberty to the RP to raise a dispute over the quantum of lead bank charges.

(Read order)

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