Fixed Deposit Belongs to RCIL, Not Group Company: NCLAT Delhi Slams Bank’s Lien Claim
Introduction
The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that a bank cannot retain a fixed deposit belonging to one company to recover dues from another, even if they are part of the same group.
Factual Background
Reliance Communication Infrastructure Limited (RCIL) had placed a fixed deposit of Rs. 27.60 crore with the Industrial and Commercial Bank of China (ICBC). The bank refused to release the funds during RCIL’s insolvency, claiming a lien over the FD to recover foreign currency loans it had granted to another group company, Reliance Infrastructure Ltd (RITL).
Procedural Background
The Mumbai Bench of the National Company Law Tribunal (NCLT) directed the bank to lift the lien, which was upheld by the NCLAT. The bank appealed, arguing that the lien clause allowed it to retain the FD for liabilities owed not only by RCIL but also jointly with others, including group companies.
Contentions of the Parties
Appellant: Argued that the lien clause allowed it to retain the FD for liabilities owed by RCIL and its group companies. The bank relied on Section 171 of the Indian Contract Act, 1872, which provides a general lien to banks.
Respondent: Contended that the bank had no jurisdiction to retain the security as RCIL was not part of any facility against which any amount was due. The respondent argued that the lien clause could only apply to debts owed by RCIL directly or jointly.
Reasoning and Analysis
The bench comprising Justice Ashok Bhushan and Members Barun Mitra and Arun Baroka held that the lien clause could only apply to debts owed by RCIL either directly or jointly and not to debts owed solely by another group company. The tribunal observed that the word “us” used in the letter authorizing lien only refers to the corporate entity and not any of its group companies.
Decision
The NCLAT upheld the order of the NCLT, directing the bank to lift the lien and release the funds along with interest.
Implications
The decision clarifies that a bank cannot retain a fixed deposit of one company to recover dues from another group company, even if they are part of the same group. The judgment emphasizes the importance of interpreting contractual terms in their plain and normal meaning.
In this case the appellant was represented by Mr. Abhijeet Sinha, Sr. Adv. With Ms. Jinal Shah, Ms. Palak Nenwani and Mr. Rohit Chopra, Advocates.
Meanwhile the respondent was represented by Mr. Krishnendu Datta, Sr. Adv. with Ms. Anannya Ghosh and Ms. Mrinalini Mishra, Advocates.