NCLAT Directs ICBC to Release Lien on Reliance Communications Fixed Deposit
Bank's Lien Limited to Corporate Debtor's Liabilities; Tribunal Orders Release of Funds with Interest
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has directed the Industrial and Commercial Bank of China Limited (ICBC) to remove the lien marked on a fixed deposit belonging to Reliance Communication Infrastructure Limited, the Corporate Debtor (CD), amounting to Rs. 27.60 crores. The judgment, delivered by a bench comprising Justice Ashok Bhushan, Chairperson, Barun Mitra, Member (Technical), and Arun Baroka, Member (Technical), underscored that a bank's right to exercise a lien over fixed deposits is restricted to the liabilities of the customer (corporate debtor) and cannot be extended to liabilities of group companies unless explicitly agreed upon in the contract.
The dispute arose when ICBC refused to release the fixed deposit, citing liabilities of Reliance Infrastructure Limited (RITL), a group company of the CD. The resolution professional (RP) for the CD, Anish Niranjan Nanavaty, challenged ICBC's refusal, arguing that the bank's lien was limited to the CD's liabilities, as per the letter of lien dated 27th March 2017. The RP emphasized that the CD had not availed any credit facilities from ICBC, and thus, the fixed deposit should be released to fulfill the obligations under the Corporate Insolvency Resolution Process (CIRP).
The tribunal meticulously analyzed the provisions of Section 171 of the Indian Contract Act, 1872, and the contents of the lien letter, concluding that the expression "us" in the letter referred solely to the CD and did not extend to other group companies. It was determined that the bank's lien could not apply to debts owed by third parties unless the contract explicitly included such terms. The tribunal dismissed ICBC's appeal, affirming the adjudicating authority's decision to direct the bank to release the lien and the funds along with interest.
The judgment has significant implications for banking practices concerning lien rights and the interpretation of contractual terms in insolvency proceedings. It reinforces the principle that lien rights are bound by the specific contractual provisions and cannot be broadly applied across group entities without express agreement.
Bottom Line:
A bank's right to exercise lien over fixed deposits is limited to the liabilities of the customer (corporate debtor) and cannot be extended to liabilities of group companies unless explicitly agreed upon in the contract.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016; Indian Contract Act, 1872, Section 171
