Resolution Professional is only authorized to manage the accounts of one debtor company: NCLAT Chennai

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The National Court of Appeal for Company Law, Chennai Bench, consisting of Judge M. Venugopal (Judicial Member) and Mr Kanthi Narahari (technical member), while ruling on an appeal filed in Beauty Etiole Pvt. Ltd v C. Sanjeevi & Orsheld that the resolution professional is only authorized by law to exercise control over the bank accounts managed by the debtor company and not otherwise.

Background Facts

Beauty Etiole Pvt. (“Appellant”) is a real estate developer, who entered into a joint development agreement with Respondent No. 3 (corporate debtor) for the construction of a multi-storey housing complex comprising 557 apartments on 4.23 acres of land at Perungudi, Chenai. In this regard, the Appellant had borrowed money from Respondent 2 for the project against a secured mortgage.

On 16.06.2021, the Resolution Professional had sent a letter to ICICI Bank and Respondent #2 to freeze four “bank accounts” belonging to the Appellant and use the funds for the aforementioned project. The NCLT Bench had also issued an order dated 01.11.2021 authorizing the payment of wages, loan interest and supplier dues from accounts including the Appellant’s bank account.

The appellant appealed to the NCLAT challenging the order of 01.11.2021 issued by the NCLT Chennai Bench.

The appellant’s claims

The appellant argued that the resolution professional issued the letter dated 06.16.2021 in the mistaken belief that the relevant bank accounts belonged to the debtor company. Reference was made to section 18(1)(f) of the Insolvency and Bankruptcy Code 2016, which provides that the interim resolution practitioner may take control and custody of those assets over which the “Debtor Company” has ownership rights, as shown in the Debtor Company’s balance sheet or its information, usefulness to the securities depositary or any other register that records its ownership of assets, etc.

It was argued that the resolution professional had no authority to freeze the four bank accounts of the appellant who was a third party.

Publish

1. Does the resolution professional have the legal power to freeze a bank account belonging to a third party?

NCLAT Decision

The NCLAT observed that the “Resolution Professional has “no authority” to exercise power over the four “bank accounts” and therefore cannot freeze these “bank accounts” in the considered opinion of this “court.” “

The NCLAT bench held that the resolution professional, in law, only has the power to exercise control over the bank accounts managed by the “debtor company” and not otherwise. Consequently, the decree of 01.11.2021 has been cancelled.

Case title: Beauty Etiole Pvt. ltd. v C. Sanjeevi & Ors., Company Appeal (AT) (CH) (Ins.) No. 316/2021

Appellant’s Counsel : Mr. Ramakrishnan Viraraghavan, Senior Counsel Mr. Chetan Sagar, Lawyer

Counsel for the Respondents : Ms. M. Savitha Devi, lawyer for R2

Click here to read/download the order

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