Case Note & Summary
The Bombay High Court allowed an application filed by the Resolution Professional of Siti Networks Ltd. (corporate debtor) seeking withdrawal of Appeal No. 597 of 2016 and release of Rs. 20,00,000/- deposited in court along with accrued earnings. The appeal challenged a decree of Rs. 15,00,000/- with 24% interest in favor of Rajiv Suri. The corporate debtor had been undergoing Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) since February 22, 2023, with a moratorium under Section 14 IBC in effect. The Supreme Court had already permitted revocation of a related bank guarantee. The Respondent opposed the release, arguing that the deposit was in custodia legis and not an asset of the corporate debtor, and that the moratorium did not apply to proceedings initiated by the corporate debtor. The Court held that the cash deposit was an asset of the corporate debtor, and the moratorium prohibited enforcement of any security interest or execution of any decree against the corporate debtor. The concept of custodia legis did not change ownership. The resolution professional was entitled to take control of the asset for the resolution process. The Court allowed the withdrawal of the appeal and directed the release of the deposited amount with accrued interest to the Resolution Professional, subject to the Respondent's right to participate in the resolution process as a creditor.
Headnote
A) Insolvency Law - Moratorium - Section 14 IBC - Asset of Corporate Debtor - The cash deposit made by the corporate debtor in court is an asset belonging to the corporate debtor, and the moratorium under Section 14 IBC prohibits enforcement of any security interest or execution of any decree against the corporate debtor. The resolution professional is entitled to take control of such asset for the purpose of the resolution process. (Paras 5, 7-9) B) Insolvency Law - Security Interest - Bank Guarantee - Section 14 IBC - The bank guarantee furnished by the corporate debtor as security for the decretal amount is a security interest and an asset of the corporate debtor. The moratorium under Section 14 IBC prohibits its invocation or enforcement, and the resolution professional is entitled to have it revoked and released. (Paras 5, 7-9) C) Civil Procedure - Custodia Legis - Ownership - The concept of custodia legis does not change the ownership of the asset; the asset remains the property of the corporate debtor. The court holds the asset only as a custodian, and upon withdrawal of the appeal, the asset must be returned to the corporate debtor. (Paras 7-9) D) Insolvency Law - Resolution Professional - Duty - Section 25 IBC - The resolution professional has a duty to take control and custody of all assets of the corporate debtor, including cash deposits and bank guarantees furnished in legal proceedings. The resolution professional must act in the best interests of the corporate debtor and its creditors. (Paras 5, 7-9)
Issue of Consideration
Whether the cash deposit of Rs. 20,00,000/- made by the corporate debtor in court pursuant to an interim order in an appeal can be released to the resolution professional during the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, and whether the appeal can be withdrawn.
Final Decision
The Court allowed the application, permitting withdrawal of Appeal No. 597 of 2016 and directing the release of the deposited amount of Rs. 20,00,000/- along with accrued interest to the Resolution Professional of Siti Networks Ltd. The Respondent is entitled to enforce his rights in accordance with law, including participating in the resolution process as a creditor.
Law Points
- Moratorium under Section 14 IBC prohibits enforcement of security interests and execution of decrees against corporate debtor
- bank guarantee as security interest is an asset of corporate debtor
- custodia legis does not alter ownership of asset
- resolution professional has duty to take control of all assets
