Emphasising the principle of finality of an approved resolution plan and the ‘clean slate’ doctrine, as established by the Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. Vs Edelweiss Asset Reconstruction Co. Ltd. [(2021) 9 SCC 657], the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that once a resolution plan is approved by the Adjudicating Authority, all claims which are not part of the plan stand extinguished. This ensures that the successful resolution applicant can start with a ‘fresh slate’ without the threat of ‘surprise claim’.
The NCLAT ruled that since the Respondent No. 1 in the present case has failed to file its claim regarding the purported lien over the Fixed Deposits (FD) during the Corporate Insolvency Resolution Process (CIRP), any such claim was extinguished upon the approval of the resolution plan. Consequently, the FD, being an unencumbered asset of the Corporate Debtor, could not be interfered with after the plan had been approved and implemented.
The NCLAT Clarified that the approved plan could not be altered based on claims that were not pursued in time. Therefore, the Successful Resolution Applicant (SRA – Mangalam Global Enterprise Limited) for the Corporate Debtor (H.M. Industrial Private Limited) was entitled to the liquidation of the FD and the transfer of its proceeds. The NCLAT therefore, directed Bank of Baroda to liquidate the FD and transfer the amount with accrued interest to the Appellant.
The Division Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) observed that while the Information Memorandum did not list the FD individually, it reflected a consolidated amount for FDRs under ‘Current Investment’ in the balance sheet. Further, an affidavit from Bank of Baroda (Respondent No. 2) confirmed the existence of the Rs. 42 lakh FD. Based on a holistic view of the Information Memorandum and the bank’s affidavit, the NCLAT concluded that the FD was indeed an asset of the Corporate Debtor.
The Tribunal gave significant weight to an affidavit filed by Bank of Baroda, which unequivocally stated that the bank had not created any lien on the Said FD and was merely its custodian. Also, a physical examination of the FD receipt showed that the columns designated for ‘Lien Noted on’ and ‘Lien Cancelled on’ were left blank, indicating no lien was ever marked. The Tribunal thus concluded that Respondent No. 1 had failed to provide any document to prove that a lien or charge was created on the FD, making its claim untenable.
The NCLAT distinguished the FD from margin money, and noted that the FD was not drawn in favour of the bank but in the joint names of the Corporate Debtor and the Debenture Trustee. It was never earmarked for a specific purpose, such as security for a Letter of Credit or Bank Guarantee, and was not placed in a trust-like structure. Therefore, it remained an asset of the Corporate Debtor and could not be treated as margin money.
Briefly, the Corporate Debtor (H.M. Industrial Private Limited) entered the Corporate Insolvency Resolution Process (CIRP) and the Resolution Professional (RP) shared an Information Memorandum which included the assets and liabilities of the Corporate Debtor. The Successful Resolution Applicant’s (SRA – Mangalam Global Enterprise Limited) resolution plan was approved by the Committee of Creditors (CoC) with a 97.20% vote share and subsequently by the Adjudicating Authority. The dispute arose when the SRA, upon discovering an FD in the Corporate Debtor’s name with Bank of Baroda, requested Catalyst Trusteeship Limited to remove its lien.
Catalyst Trusteeship Limited refused removal of lien, claiming it was a trustee for debenture holders and the FD was security against debentures issued by the Corporate Debtor. The SRA argued that since Respondent No. 1 had not filed any claim during the CIRP, its claim was extinguished upon the approval of the resolution plan. The National Company Law Tribunal (NCLT), however, held that the FD was akin to margin money and rejected the SRA’s application. Hence, an appeal was filed by the Successful Resolution Applicant for the Corporate Debtor, against an order of the NCLT, whereby it had rejected the SRA’s application seeking the liquidation of a Fixed Deposit (FD) of ₹42 lakhs and the transfer of the proceeds to the SRA.
Appearances:
Senior Advocate Navin Pahwa, along with Advocates Asav Rajan, Ajay Sharma and Kashish Chadha, for the Appellant
Advocates Mily Ghosal and Shrijit Pillai, for the Respondent
