NCLT Orders Refund of Security Deposit to Hybro Foods Amidst Insolvency Proceedings

Tribunal Directs Respondent to Return Rs. 13.23 Lakh Adjusted Against Electricity Bills During Moratorium Period

In a significant decision by the National Company Law Tribunal (NCLT), Mumbai Bench, Kotak Mahindra Bank Limited has secured a favorable order against Hybro Foods Private Limited regarding the impermissible adjustment of a security deposit during the moratorium period under the Insolvency and Bankruptcy Code, 2016 (IBC). The tribunal has ordered the respondent, Maharashtra State Electricity Distribution Company Limited, to refund a security deposit of Rs. 13,23,102/- that was adjusted against outstanding electricity bills during the moratorium period.

The case, adjudicated by Sh. Mohan Prasad Tiwari and Sh. Charanjeet Singh Gulati, was filed by the Resolution Professional (RP) in charge of Hybro Foods, seeking the refund of the security deposit that was adjusted by the electricity board. The NCLT emphasized that under Section 14 of the IBC, a moratorium period prohibits such adjustments as they interfere with the corporate debtor's assets, which are protected during insolvency proceedings.

The tribunal further highlighted that, according to Section 238 of the IBC, the provisions of the IBC override any other law that is inconsistent with its mandates. Therefore, any regulations or rules that conflict with the IBC's provisions, such as those cited by the Maharashtra Electricity Regulatory Commission (Supply Code Regulations, 2021), would not prevail.

The tribunal’s order mandates the respondent to refund the adjusted security deposit to Hybro Foods' designated account within one month, reinforcing the sanctity of the moratorium under the IBC. This decision underscores the tribunal's commitment to uphold the principles of the IBC, ensuring that the assets of a corporate debtor are not depleted during the critical period of insolvency resolution.

The judgment also addressed other procedural aspects related to the insolvency proceedings, including the duties of suspended directors and compliance obligations of the Resolution Professional. The NCLT directed the suspended directors to cooperate and furnish necessary documents within two weeks, as sought by the RP under Section 19(2) of the IBC.

This ruling serves as a reminder to stakeholders involved in insolvency proceedings to adhere strictly to the provisions of the IBC, particularly the moratorium, which aims to protect the interests of the corporate debtor and its creditors during the resolution process.

Bottom Line:

Adjustment of security deposit against electricity bills during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016, is impermissible, and the adjusted amount must be refunded to the corporate debtor's designated account.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 14, Section 19(2), Section 238.

Kotak Mahindra Bank Limited v. Hybro Foods Private Limited, (NCLT)(Mumbai Bench) : Law Finder Doc Id # 2804461