Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that a bank cannot retain a fixed deposit belonging to one company to recover dues from another, even if both companies belong to the same corporate group. The Bench comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member), and Arun Baroka (Technical Member) dismissed an appeal filed by the Industrial and Commercial Bank of China (ICBC), upholding the order of the National Company Law Tribunal (NCLT), Mumbai Bench, which had directed the bank to lift the lien on a fixed deposit belonging to Reliance Communication Infrastructure Limited (RCIL).

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Background of the Case

The corporate debtor, Reliance Communication Infrastructure Limited (RCIL), had opened a fixed deposit (FD) of Rs. 27.60 crores with ICBC on March 27, 2017. On the same day, RCIL issued a letter requesting the bank to mark a lien against the FD for any amounts “which may be due from us to you, whether singly or jointly with another or others.” Subsequently, the Corporate Insolvency Resolution Process (CIRP) was initiated against RCIL on September 25, 2019, upon an application filed by the State Bank of India under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

After the commencement of CIRP, the Interim Resolution Professional (IRP), and later the Resolution Professional (RP), Anish Niranjan Nanavaty, requested the release of the FD, stating that RCIL had not availed any credit facilities from ICBC. Despite repeated communications, the bank refused to release the funds, asserting that it had exercised a lien to secure dues owed by another Reliance group entity—Reliance Infratel Limited (RITL)—to which ICBC had extended certain foreign currency facilities. The RP approached the NCLT, which, on January 2, 2024, allowed the application and directed ICBC to remove the lien and release the funds along with applicable interest. Aggrieved by this order, the bank filed an appeal before the NCLAT.

Appellant’s Arguments

ICBC contended that the lien letter dated March 27, 2017 was executed to secure obligations not only of RCIL but also of related group entities, such as RITL. It was argued that the clause authorizing the lien extended to “any other moneys now due or which may at any time be due from us to you, whether singly or jointly with another or others,” thereby encompassing group company debts. The bank further relied on Section 171 of the Indian Contract Act, 1872, asserting that it possessed a general banker’s lien entitling it to retain the FD as security for the dues of RITL. ICBC maintained that as a secured creditor, it was not obliged to participate in RCIL’s insolvency process or release the deposit during CIRP.

Respondent’s Submissions

On the other hand, the RP argued that RCIL and RITL were distinct legal entities, and the lien could not extend to debts owed by another company without express contractual provision. The FD, being an asset owned by RCIL, fell within the custody and control of the RP under Section 18 and Section 17(1)(d) of the IBC, which require financial institutions to act on the instructions of the insolvency professional. It was emphasized that no loan or credit facility had ever been extended to RCIL by ICBC. Therefore, the bank’s attempt to retain the FD to recover dues of RITL was contrary to law. The RP further noted that ICBC had participated in the CIRP of RITL and other Reliance entities but had never asserted a claim based on this lien letter in those proceedings.

Findings of the NCLAT

After analyzing the lien letter and rival submissions, the Appellate Tribunal upheld the findings of the NCLT. It noted that the expression “us” used in the lien letter referred specifically to the corporate debtor (RCIL) and not to its group companies. The Tribunal observed: “The CD being a corporate entity described itself by the use of the expression ‘us’. The said expression cannot be expanded to mean that it refers to all Group Companies. When a letter is written by a corporate entity, use of the expression ‘us’ for the entity is both natural and correct.”

The NCLAT further held that the clause authorizing lien for dues “singly or jointly with another or others” could apply only to situations where the corporate debtor itself was a party to the liability, either individually or jointly with others. Since no facility was ever granted to RCIL, nor was it a co-borrower with any other entity, ICBC had no legal right to retain the FD. Referring to Clause (10) of the lien letter, which dealt with the bank’s general right of set-off, the Tribunal held that it too applied only to accounts and liabilities of the same customer, not to debts of other group companies.

The Bench also examined Section 171 of the Indian Contract Act, holding that a bank’s general lien is exercisable only in respect of amounts due from the same customer, and cannot be extended to third-party or group company liabilities. The Tribunal relied on precedents such as Syndicate Bank v. Vijay Kumar (1992) 2 SCC 330, where the Supreme Court clarified that a banker’s lien applies to securities deposited by a customer in the ordinary course of banking business only when there are amounts due from that customer. The NCLAT also referred to decisions of the Karnataka High Court (Vijaya Bank v. Naveen Mechanised Construction Pvt. Ltd., ILR 2004 KHC 993) and Orissa High Court (Alekha Sahoo v. Puri Urban Co-operative Bank Ltd., 2004 SCC OnLine Ori 25), reiterating that Section 171 authorizes banks to retain securities only for debts owed by the same account holder.

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Decision

Concluding that ICBC’s action was unjustified, the Appellate Tribunal observed: “The action of the Bank in not releasing the FD opened by the Corporate Debtor on 27.03.2017 on the pretext that there are dues of another Group Company, RITL, is unjustified. The letter of lien authorized the Bank to retain securities only for any amount due on the Corporate Debtor, either singly or jointly with another or others.”  The NCLAT held that since no dues existed against RCIL, the bank had no jurisdiction to retain the fixed deposit and was obligated to release the funds along with accrued interest.Accordingly, the appeal was dismissed, and the order of the NCLT, Mumbai Bench, directing ICBC to lift the lien and release the funds of Rs. 27.60 crore, was affirmed.

Appearance

For Appellants: Senior Advocate Abhijeet Sinha with advocates Jinal Shah, Palak Nenwani and Rohit Chopra

For Respondents: Senior Advocate Krishnendu Datta with advocates Anannya Ghosh and Mrinalini Mishra

Cause Title: Industrial and Commercial Bank of China Limited v Anish Niranjan Nanavaty & Ors

Case No: Company Appeal (AT) (Insolvency) No.69 of 2024

Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member), Arun Baroka (Technical Member)