Set-Off Of Fixed Deposit Against Overdraft Based On Pre-CIRP Contract Does Not Violate Section 14 Of IBC: NCLT Bengaluru

The National Company Law Tribunal (NCLT), Bengaluru Bench, has held that the set-off of a fixed deposit against an overdraft, based on an untainted contract entered into before the commencement of the CIRP, does not breach Section 14 of the IBC, nor do such deposits form part of the Corporate Debtor's asset pool. This Application has been filed on 05.11.2024 under section 14 and section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal Rules, 2016 by Sh. Shirley Mathew, Resolution Professional of the Sindhu Cargo Services Private Limited (“Corporate Debtor”) seeking reversal of the amount set off by the Bank against the Corporate Debtor's Fixed Deposits. The Applicant submitted that despite the moratorium being in force from 28.05.2024, the Respondent undertook the transactions which constitute direct violations of Section 14 of the Code. The Respondent should have submitted its claim before the IRP in accordance with the provisions of the Code, instead of unilaterally adjusting its dues from the Corporate Debtor's account. It was also submitted that these transactions do not fall within the exceptions under Section 14 of the Code. Such transactions amount to a recovery action by the Respondent after imposition of moratorium and has resulted in unjust enrichment of the Respondent and amount to preferential transactions. Respondent's unilateral debit post-CIRP is an act of “enforcement of security interest” forbidden by Section 14(1)(c), and constitutes a clear wrongful violation. Per contra, the Respondent submitted that the appropriation of the said amount from the fixed deposits of the Corporate Debtor does not violate section 14 of the IBC as it stems from a pre-CIRP arrangement which is duly supported by the letter issued by the Corporate Debtor on 12.01.2022 and Board Resolution. Therefore, the Respondent has not violated section 14 as the interest on the FD was duly adjusted. The Tribunal noted that it is an undisputed fact that the Corporate Debtor has availed of the draft facility of Rs. 4.5 crores against the fixed deposits of Rs. 5 crores lying with the Respondent based on the application dated 12.01.2022 and Board Resolution dated 10.12.2021. Therefore, this transaction was clearly contractual in nature, not a personal deal. It further observed that the legal principle that a contractual set off established before CIRP or on the commencement of the CIRP does not contravene section 14 of the IBC squarely applies in the present case. The adjustment stemmed from a pre-CIRP arrangement between the Corporate Debtor and the Respondent thereby constituting a permissible transactional set off. It concluded that the Bank's set off of the Over Drafts along with accrued interest against the Corporate Debtor's fixed deposits based on an untainted contract entered into before the commencement of the CIRP does not breach section 14 of the IBC and fixed deposit with interest does not form part of the Corporate Debtor's assets pool. Accordingly, the present application was dismissed. Case Title:Sindhu Cargo Services Private Limited Versus Yes Bank Limited Case Number: IA No. 864/2024 In C.P. (IB) No. 71/BB/2023 Judgment Date: 08/07/2025 Click Here To Read/Download The Order

Set-Off Of Fixed Deposit Against Overdraft Based On Pre-CIRP Contract Does Not Violate Section 14 Of IBC: NCLT Bengaluru

Mohd Malik Chauhan

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