NCLT Mumbai Rules, Bank Can Classify Corporate Debtor's Account As Fraud During CIRP, Such Classification Is Not Hit By S.14 Of IBC
Pranav B Prem
The Mumbai Bench of the National Company Law Tribunal (NCLT), consisting of Justice Virendrasingh Bisht (Retd.), Judicial Member, and Shri Prabhat Kumar, Technical Member, has held that the classification of a corporate debtor’s bank account as "fraud" by a creditor bank, even during the continuation of the Corporate Insolvency Resolution Process (CIRP), is a permissible act under the banking framework and does not amount to a violation of the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The judgment was delivered in IA No. 3028 of 2025 filed under Section 60(5) of the IBC by the Resolution Professional (RP) of Rolta India Limited, challenging a communication dated 25.03.2025 issued by Union Bank of India, a member of the Committee of Creditors (CoC). The letter in question notified the RP that the account of the Corporate Debtor had been classified as a fraud based on the findings of a Forensic Audit Report prepared by BDO India LLP.
The applicant contended that such a classification during the CIRP is hit by Section 14 of the IBC, which imposes a moratorium on the institution of suits, continuation of pending proceedings, enforcement of security interests, and recovery of property by the owner or lessor. It was argued that the bank, despite being an active CoC member, had proceeded with a unilateral administrative action that could prejudice the CIRP and affect the chances of successful resolution. The RP emphasized that a resolution plan had already been approved with 100% voting share by the CoC on 22.04.2024, and the matter was pending for final consideration before the Adjudicating Authority.
In reply, Union Bank of India submitted that the classification of the corporate debtor’s account as fraud is a regulatory obligation under the Reserve Bank of India’s Master Directions on Frauds (2016) and is grounded in the findings of the forensic audit conducted by BDO India LLP. The bank clarified that such classification does not fall within the ambit of Section 14, as it neither involves the initiation of legal proceedings nor enforcement of any security interest or recovery of property.
After considering the submissions, the Tribunal held that the object of Section 14 of the IBC is to maintain the corporate debtor as a going concern and to ensure that no coercive action is taken against it during the CIRP. However, the Tribunal made it clear that Section 14 does not bar administrative actions taken by financial creditors in compliance with RBI guidelines. It noted that the classification of an account as fraud is distinct from legal recovery actions and does not interfere with the corporate debtor's day-to-day operations or the CIRP process.
The Bench further noted that the classification was done pursuant to a detailed forensic audit, which revealed serious irregularities. The RP was also given adequate opportunity to respond to the audit findings and had submitted comments to the bank. The communication dated 25.03.2025 merely informed the RP of the outcome of the bank's internal review and the consequent fraud tagging. The Tribunal held that this action cannot be construed as an initiation of legal proceedings or enforcement under Section 14.
It also observed that Union Bank of India had not filed any new claim after the classification nor had it initiated any separate proceedings based on the fraud classification. The only act was the issuance of a regulatory communication in furtherance of its obligations under RBI guidelines. The Tribunal emphasized that the IBC framework is not intended to shield corporate debtors from regulatory scrutiny, especially when fraud or mismanagement is alleged and backed by audit findings.
Referring to relevant judicial precedents, the Tribunal reiterated that the Adjudicating Authority is tasked with facilitating the CIRP in a transparent manner and does not have jurisdiction to interfere with regulatory compliance measures undertaken by financial institutions under directions of a statutory regulator like the RBI.
Accordingly, the NCLT dismissed the application and held that the letter dated 25.03.2025 issued by Union Bank of India, classifying the corporate debtor’s account as fraud, is valid and does not attract the bar under Section 14 of the IBC. The Tribunal concluded that “no relief can be granted in the present IA”, and disposed of IA No. 3028 of 2025 without any order as to costs.
Cause Title: Union Bank Of India V. Rolta India Limited
Case No: IA(I.B.C)/3028(MB)2025 (NEW IA) In C.P. (IB)/530(MB)2020
Coram: Sh. Prabhat Kumar [Technical Member], Justice Virendrasingh Bisht (Retd.) [Judicial Member]
