Kuldeep Verma vs Canara Bank

Per: Harish Chander Suri, Member (T)

The Court convened by video conference on 04/12/2020.

By way of this application, Mr. Kuldeep Verma, the Resolution Professional has inter alia submitted that CIRP of the Corporate Debtor had commenced on 18^th September, 2019 and Mr. Shashi Agarwal was initially appointed as Insolvency Resolution Professional (IRP) but since he resigned and withdrew from the CIRP of the Corporate Debtor, vide order dated 19^th February 2020, he was relieved by this Tribunal and the present RP was appointed in I.A.No. 165/KB/2020 on that very day.

In the present application, the RP has sought directions to Canara Bank, the respondent herein to reverse the debit entries wrongfully made which are stated to be to the tune of Rs. 8.75 Lakhs and credited the same to Bank Accounts of the Corporate Debtor. It has been further prayed that punitive steps should also be taken against the Respondent Bank under section 74(2) of the Code for having violated the provisions of moratorium under Section 14 of the Code.

It is stated by the applicant that the Corporate Debtor had 3 types of Bank Account with the Respondent Bank namely:-

a. Account No. 2213201020629 Current Account-General,

b. Account No. 2213261050319 Open Cash Credit,

c. Account No. 2213256050227 Over Draft- General

It is stated that the Respondent Bank transferred a sum of Rs.8,75,740/- of the Corporate Debtor without any authority after the onset of moratorium, whereas it was not entitled to deal with the assets of the Corporate Debtor without instructions from the IRP/RP appointed by this Adjudicating Authority, particularly when the RP vide its letter dated 3^rd June,2020 had called upon the Respondent Bank to reverse the transactions and to credit back the account of the Corporate Debtor to the tune of Rs.8,75,740/- but in spite of the said email dated 3^rd June, 2020 followed by reminder emails dated 15^th June 2020, 20^th June 2020, 17^th July 2020, 18^th July 2020 and 6^th August 2020, since the Bank had refused to reverse the transactions in violation of the moratorium, action under section 74(2) of the Code has been prayed for against the Respondent Bank.

The Applicant has further submitted that the Respondent Bank had reduced its liability in the OD (Overdraft) credit facility from Rs.87.94 Lakhs to Rs.86.66 Lakhs by debiting the account of the C.D, which is a clear violation of Section 14 of the Code. It is stated that the cash at Bank is an asset of the CD and the Bank, a creditor of the CD, has dealt with an asset of the CD in violation of Section 14 of the Code. The Respondent had even debited a sum of Rs.1,26,335/- on 23^rd September,2020, after the commencement of the CIRP on 18^th September, 2019. The Respondent Bank also debited the OD (Overdraft) account from September, 2019 till May 2020 even though they were aware that the CIRP had already commenced and they were not entitled to charge interest or increase liability of the CD or reduced the assets of the CD. It is stated that increase in liability tantamounts to reduction of corresponding assets and that the charging of interest after the commencement of moratorium is also a violation of Section 14 of the Code.

Learned counsel for the RP during the course of arguments submitted that the Bank has reversed the debits to the tune of Rs.5.20 Lakhs but has failed to reverse the interest/debits for the remaining Rs.3.55 Lakhs and such an action in debiting the amount and inaction in not reversing the entry is a clear violation of Section 14 and 74 of the Code. It is stated that the Respondent Bank has failed to justify why they have reversed only Rs.5.20 Lakhs and not the entire amount. The contention of the Bank that it had enforced 3^rd party security to settle the debits which were levied by the Bank after the moratorium, has no force because the Bank has no authority to levy such interest and the Bank has done so unauthorisedly.

The Respondent Bank in its reply affidavit and during the course of arguments submitted that the Bank had extended credit facility to the Corporate Debtor in the nature of Overdraft loan to the limit of Rs.86.68 lakhs against two securities being Canara HSBC Policy standing in the name of Mr. Rajiv Dhamija to the tune of Rs.56,75,289.41 and another being FDR (Fixed Deposit) standing in the name of one Mr. Digbijoy Dhar to the tune of Rs.45,84,834.38.

It is submitted by the Respondent that as per the terms of sanction, a sum of Rs.1,26,335/- was debited on account of interest for the month of August,2019 before the moratorium period had actually commenced.

It is stated that one of the borrowers of the company had intimated the Bank on 10^th November 2019 that the company had gone under CIRP vide order dated 18^th September 2019 and moratorium under section 14 had been declared from that date. It is further stated that the Bank had charged interest @ 15.50% on the Overdraft account of the Corporate Debtor to the tune of Rs.7,55,586/- but as soon as the Bank came to know about the CIRP declared on 18^th September 2019, by way of abundant caution, it reversed a sum of Rs.5,20,691.30 out of the total interest of Rs.7,55,586/- on 27^th May 2020 in the Overdraft account. The same would be reflected from all the Loan account statement for the period from 1^st September, 2019 to 15^th June 2020. It is submitted by the respondent bank that squaring off and making adjustment of the interest from the securities credited by 3^rd party is not barred under Section 14 of the Code. The provisions under Section 14(c) of the Code prohibits enforcement of security interest credited in respect of the Company’s property but does not bar enforcement and /or recovery from the security interest created by the Corporate Debtor in respect of the property standing in the name of the third parties and therefore, the Bank has not indulged in any kind of illegal activities or unauthorisedly debited the Bank account of the CD. It is submitted that despite lawfully liquidating the said dues and interest from the securities pledged by the 3^rd party Directors, the Respondents Bank, in order to avoid any further complexities, reversed substantial portion of interest in the Overdraft account of the Corporate Debtor.

It is submitted that the sum of Rs.1,26,335/- had been unintentionally debited on 23^rd September, 2019 being the interest for the month of August,2019 as per regular course of business by the Bank from the current account of the CD as the Bank had no knowledge of the moratorium.

It is not in dispute that the Bank had reversed the debit to the tune of Rs.5,20,691.30 out of the total interest of Rs.7,55,586/- on 27^th May 2020 in the Overdraft account. It is also not in dispute that a sum of Rs.1,26,335/- had been offered by the Bank to be revered but the RP had not accepted the offer and wanted the Bank to reverse the total remaining amount debited earlier.

To substantiate its claim, the applicant has referred to and relied upon the orders passed by the Hon’ble Appellate Tribunal, relevant excerpts whereof are reproduced as under:-The Hon’ble Appellate Tribunal in its order dated 21.03.2018 in Company Appeal (AT) Insolvency No. 49 of 2018 held as follows:-

We have heard Ld. Counsel for the parties at length and are of the view that in view of the provisions of the Code and the principle of law laid down by the Hon’ble Appellate Tribunal, the Bank could not have debited any amount from the Corporate Debtor’s account after the order of moratorium had been passed. The Bank cannot be allowed even to contend that the information regarding the CIRP of the Corporate Debtor reached the Bank at a later stage. Since the moratorium came into effect immediately i.e. on 18^th September 2019, the date of receipt of order by the Bank has no relevancy, as sought to be claimed by the Bank. Once the moratorium is declared, it is not open to any person including the Financial Creditor i.e. the Bank herein to recover any amount from the account of the Corporate Debtor nor can it appropriate any amount towards its own dues.

In our view, since the action of the Bank in debiting the accounts of the Corporate Debtor was in violation of Section 14 of the Code, the Bank is liable to reverse the entry into the account of the Corporate Debtor, along with the interest having accrued thereon as per the nature of deposit.

So far as the question of entitlement of the Bank to adjust the interest from the Security interest created by the 3^rd party for the debts of the Corporate Debtor company is concerned, though the Bank claims to be right in doing so, in our view the Bank could not have done so as it was not free to touch the amount lying in any of the accounts of the CD or making any adjustments to its benefit and to the detriment of the CD.

We, therefore, direct the Bank to act accordingly and make reverse entries even for the remaining amount as aforesaid with interest, as the same was done after the onset of moratorium i.e. after 18^th September, 2019.

I.A. No.853/KB/2020 is disposed of in the aforesaid directions.

The Registry is directed to send e-mail copies of the order forthwith to all the parties inclusive of the Counsel.

Urgent certified copies of this order, if applied for, be supplied to the parties upon compliance of all requisite formalities.