NCLAT held that the Liquidator cannot invoke NCLT jurisdiction under Section 60(5) of the IBC for debt recovery and upheld the refund of margin money.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and held that the proceedings under Section 60(5) of the IBC cannot be invoked by the Liquidator for debt recovery, as such claims must be pursued through appropriate legal channels, and the refund of margin money does not constitute a disputed debt requiring adjudication in summary proceedings.
The National Company Law Appellate Tribunal (NCLAT) adjudicated an appeal challenging the order dated 08.01.2024, passed by the National Company Law Tribunal (NCLT), Mumbai Bench, directing the return of ₹18.10 crores to the Corporate Debtor, EPC Construction (India) Ltd. The dispute arose from the Corporate Debtor’s arrangement with the Appellant regarding a Performance Bank Guarantee (PBG) of ₹21.17 crores, secured through a lien on fixed deposits. The Corporate Debtor had transferred ₹18.10 crores to the Appellant as margin money; however, due to the initiation of the Corporate Insolvency Resolution Process (CIRP) on 20.04.2018, no further payments were made. Following the release and surrender of the PBG in March 2021, the Liquidator sought the refund of ₹18.10 crores, issuing a legal notice on 09.07.2022. The Appellant failed to respond, leading to the Liquidator’s application before the NCLT.
The Appellant, in its belated response before the NCLT, questioned the maintainability of the application but did not dispute the transactions. The NCLT rejected the jurisdictional objection and directed the Appellant to return the amount, holding that no adjudication by a Civil Court was necessary. On appeal, the Appellant reiterated its jurisdictional challenge, arguing that the Liquidator should have pursued recovery through a competent Civil Court under Section 35(1)(k) of the Insolvency and Bankruptcy Code (IBC), 2016, rather than through proceedings under Section 60(5). Additionally, the Appellant contended that the Corporate Debtor owed it ₹16.35 crores and that the amount had been adjusted against this liability.
The NCLAT, after reviewing the contentions and legal precedents, reaffirmed that proceedings under Section 60(5) of the IBC could not be invoked for debt recovery and relied on the ruling in Ramchandra D. Choudhary v. Bansal Trading Company and Others, which held that debt recovery matters could not be adjudicated in summary proceedings under the Code. However, the Tribunal distinguished the present case, clarifying that the Liquidator was not seeking debt recovery but rather the refund of margin money, which was a distinct contractual obligation. The Tribunal emphasized that the Appellant had failed to raise its claim before the RP or Liquidator and had not disputed the liability before the NCLT. The belated attempt to introduce additional documents at the appellate stage was also rejected.
Accordingly, the NCLAT upheld the NCLT’s order, affirming the Liquidator’s right to seek a refund of ₹18.10 crores and dismissed the appeal. It concluded that the Appellant’s objections were without merit and that the amount rightfully belonged to the Corporate Debtor’s estate for equitable distribution in liquidation.
Mr. Abhijeet Sinha, Sr. Advocate with Mr. Raheel Patel, Mr. Himanshu Satija, Mr. Harsh Saxena, Mr. Shevaaz Khan and Ms. Ridhi Ranjan, Advocates, represented the Appellant.
Mr. Abhishek Swaroop, Mr. Aditya Vikram Singh and Ms. Shreya Chandhok, Advocates, appeared for the Respondent.
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