The NCLT ruled that banks are prohibited from withholding funds of corporate debtors during the Corporate Insolvency Resolution Process (CIRP) based solely on unresolved diversion claims. The directive mandates banks to transfer the fixed deposits to the CIRP account.
NCLT Directs Banks to Transfer Corporate Debtor Funds
The National Company Law Tribunal (NCLT) recently held that banks cannot withhold fixed deposits (FDs) of a corporate debtor during the Corporate Insolvency Resolution Process (CIRP) based on unadjudicated claims of diversion. This ruling emphasizes the protection afforded to corporate debtor assets during insolvency proceedings.
The NCLT highlighted that the mere allegations of fund diversion, which have not been legally adjudicated, do not constitute sufficient grounds for withholding the debtor's assets. It reiterated that the principles of insolvency law are designed to ensure that assets remain available for rehabilitation and resolution.
Implications from this ruling are significant, as they reinforce the legal framework aimed at maintaining the value of the corporate debtor's estate during CIRP, ensuring all stakeholders are treated equitably. Practitioners should be aware that unfounded claims cannot obstruct the transfer of funds, as doing so would contravene established insolvency principles.
Citations
- Case Name (2026) NCLT Order
