NCLT Ahmedabad Rules Against Mehsana Urban Co-Operative Bank for Unauthorised Adjustments

Tribunal Orders Refund of Rs. 56 Lakh to Swastik Ceracon Ltd. with Interest, Reinforcing Insolvency Code's Overriding Authority

In a landmark decision, the National Company Law Tribunal (NCLT) Ahmedabad has ruled in favor of Swastik Ceracon Limited, directing Mehsana Urban Co-Operative Bank Ltd. to refund Rs. 56 lakh along with 10% per annum interest for unauthorized adjustments made from the corporate debtor's accounts during and after the Corporate Insolvency Resolution Process (CIRP). The judgment, delivered by the bench comprising Mr. Shammi Khan, Member (J) and Mr. Sanjeev Sharma, Member (T), underscores the supremacy of the Insolvency and Bankruptcy Code, 2016 (IBC) over conflicting statutory provisions.

The tribunal addressed key issues concerning jurisdiction under Section 60(5) of the IBC, the validity of adjustments during the moratorium under Section 14, and the protection of corporate debtor's assets under Section 18. It was held that the adjustments by the respondent bank violated the moratorium imposed during CIRP and were not permissible under Sections 14 and 32A of the IBC, which extinguish pre-CIRP liabilities post-approval of the resolution plan.

The case arose when Swastik Ceracon Limited, the Successful Resolution Applicant, filed an application against the bank's unauthorized deductions from dividend and share accounts during the CIRP and after the resolution plan was approved. The respondent bank contended that it held a statutory first charge over shares and dividends under the Multi-State Co-Operative Societies Act, 2002. However, the tribunal ruled that Section 238 of the IBC, with its overriding effect, nullified any such claims, ensuring the protection of the corporate debtor's estate during insolvency proceedings.

The tribunal also clarified that shares held in the respondent bank qualified as assets of the corporate debtor and were thus protected under the IBC. However, the claim for refund of fixed deposits used as margin money against pre-CIRP invoked bank guarantees was denied, aligning with previous NCLAT precedents.

This judgment reaffirms the IBC's authority in protecting the assets and interests of corporate debtors during insolvency and ensuring compliance with the resolution plan's terms. The tribunal has given the respondent bank 45 days to comply with the refund order.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Adjustments and set-offs by a financial creditor from Corporate Debtor's assets during and post-CIRP are impermissible under Sections 14 and 32A of the Code, with overriding effect of Section 238.

Statutory provision(s): Sections 14, 18, 32A, 60(5)(c), 238 of the Insolvency and Bankruptcy Code, 2016; Sections 55 and 56 of the Multi-State Co-Operative Societies Act, 2002.

Swastik Ceracon Limited. v. Mehsana Urben Co-Operative Bank Ltd., (NCLT)(Ahmedabad) : Law Finder Doc Id # 2812491