All Assets Reflected In Balance Sheet Of Corporate Debtor Form Part Of Liquidation Estate U/S 36 Of IBC, Rules NCLAT
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Arun Baroka (Technical Member), has held that all assets reflected in the balance sheet of a Corporate Debtor form part of the liquidation estate under Section 36 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal ruled that such assets cannot be distributed to any creditor outside the mechanism prescribed under Sections 52 and 53 of the Code. It further directed that any asset realised by a creditor during liquidation must be returned to the liquidator.
Factual Background
M/s Vegan Colloids Ltd (Corporate Debtor) was admitted into Corporate Insolvency Resolution Process (CIRP) on 21 November 2017 under Section 7 of the IBC. Mr. Anil Kohli was appointed as the Interim Resolution Professional and subsequently as the Resolution Professional. On 10 October 2018, an order for liquidation of the Corporate Debtor was passed and Mr. Kohli assumed the role of liquidator.
During liquidation, the liquidator claimed a sum of ₹4,50,44,500 deposited with Punjab National Bank (Respondent No.1), asserting it formed part of the liquidation estate. As the bank did not refund the amount, an application was filed by the liquidator before the Adjudicating Authority seeking directions to return the amount. The Adjudicating Authority dismissed the application, holding that the sum was paid by guarantors and did not constitute an asset of the Corporate Debtor. This order was challenged in appeal before the NCLAT.
Submissions of the Appellant
The liquidator contended that the amount deposited with the Respondent Bank had been received by the Corporate Debtor during liquidation and paid by the guarantors. It was argued that since the funds had been routed through the Corporate Debtor's account and reflected in its balance sheet, they formed part of the liquidation estate. The appellant emphasized that no creditor can realise any amount for debt satisfaction during liquidation other than through the mechanisms provided under Sections 52 or 53 of the Code.
It was also submitted that the finding of the Adjudicating Authority—that the amount did not belong to the Corporate Debtor—was erroneous as the bank failed to provide any evidence showing that the funds were directly received from the guarantors or their accounts.
Response by the Bank
Punjab National Bank submitted that the payment was made by guarantors, and banks do not maintain separate accounts for borrowers and guarantors. Hence, any payment by a guarantor is adjusted against the borrower’s account. It was further contended that since the Corporate Debtor had not paid the amount directly, the bank was not liable to return it to the liquidator.
Observations by the Tribunal
The NCLAT noted that the bank had relinquished its security interest to the liquidation estate under Section 52 of the IBC. Despite this, it had realised a sum of ₹2.5 crores from the assets of the Corporate Debtor and appropriated the same without intimating the liquidator. The Tribunal held that this action was in contravention of the liquidation process as prescribed under the Code.
Importantly, the Tribunal observed that mere assertions regarding payments by guarantors were not supported by any documentary evidence. It stressed that under Section 36(1) of the IBC, the liquidator must consolidate the assets of the Corporate Debtor into the liquidation estate, and under Section 36(2), hold those assets for the benefit of the creditors. Since the balance sheet of the Corporate Debtor reflected the reduced borrowings during liquidation, the corresponding amount must be treated as its asset.
The Tribunal concluded that any asset owned by the Corporate Debtor or relinquished by a secured creditor must form part of the liquidation estate and be distributed according to Section 53 of the Code.
Decision
Allowing the appeal, the NCLAT set aside the impugned order passed by the Adjudicating Authority. It held that the Respondent Bank had no right to appropriate or retain any asset of the Corporate Debtor during liquidation outside the mechanism prescribed under Sections 52 and 53 of the IBC. The amount realised by the bank must be returned to the liquidation estate.
Appearance
For Appellant: Mr. Abhishek Anand, Mr. Karan Kohli, Ms. Vanshika Dhoot, Advocates
For Respondent: Mr. Ayush Kumar, Ms. Ekta Choudhary, Advocates
Cause Title: Anil Kohli Liquidator of Vegan Colloids Limited V. Punjab National Bank and Ors.
Case No: Company Appeal (AT) (Insolvency) No. 865 of 2023
Coram: Justice Yogesh Khanna [Member (Judicial)], Arun Baroka [Member (Technical)]
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