Corpus fund for insolvency resolution cannot be attached by any authority

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Corpus fund for insolvency resolution cannot be attached by any authority

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The corpus fund arranged by the Committee of Creditors under the National Company Law Tribunal’s (NCLT) directions towards the cost of corporate insolvency resolution process (CIRP) cannot be attached by any authority, including the Enforcement Directorate, as it is not an asset of the corporate debtor, according to a ruling by the Tribunal’s Mumbai bench.

ICICI Bank vs Gitanjali Gems

In the matter of ICICI Bank versus Gitanjali Gems, the Tribunal observed that the company, being a corporate debtor, is under insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC) in respect of a petition filed by the bank.

After the Committee of Creditors (CoC) voted in favour of creating an initial corpus of ₹10 crore towards CIRP cost, the CoC members pooled the funds to create the same.

Referring to an apprehension that was raised that the Enforcement Directorate, Department of Revenue, Ministry of Finance, Mumbai, vide an order of July 31, 2018/June 25, 2018, made provisional attachment of the assets by invoking the provisions of Prevention of Money Laundering Act, 2002, the Tribunal said: “The corpus fund so arranged is under the directions of NCLT, Mumbai Bench, to facilitate the insolvency proceedings.

“The asset now so generated is in compliance of the order of the Code, therefore, not to be attached by any other authority under law. This is not an asset of the defaulter company, hence, otherwise also beyond attachment by Directorate of Enforcement.” The Tribunal directed the resolution professional to open an account for the CIRP purpose of Gitanjali Gems, if deemed fit, under ‘No Lien Account’ not subject to control of any authority or bank.

Escrow Account

This bank account will be operated as an Escrow Account under the control and supervision of the NCLT, Mumbai Bench, along with the members of the CoC. The Tribunal elaborated: “Needless to mention the withdrawals are therefore to be ratified and also to be verified by the members of the Committee of Creditors.

“Thereafter, the decision in this regard of CoC to be placed before the Adjudicating Authority to seek permission of withdrawal.”

Source- Business Line.