Lien Cannot Cover Group Company Debts When CD Has No Liability: NCLAT Orders ICBC to Release ₹27.60 Cr FD [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has dismissed an appeal filed by Industrial and Commercial Bank of China (ICBC) and upheld the order of the National Company Law Tribunal (NCLT), Mumbai Bench, directing the bank to release a fixed deposit of ₹27.60 crore belonging to Reliance Communication Infrastructure Ltd. (RCIL).

The dispute revolved around whether ICBC could retain the FD under a lien to secure loans advanced to other Reliance Group companies, despite RCIL itself having no outstanding liability to the bank.

The facts date back to March 2017, when RCIL opened a fixed deposit with ICBC and simultaneously issued a lien letter authorising the bank to place a lien on the FD. Corporate Insolvency Resolution Process (CIRP) against RCIL commenced in September 2019 on an application filed by the State Bank of India.

Want a deeper insight into the Income Tax Bill, 2025? Click here

The Interim Resolution Professional (IRP) and subsequently the Resolution Professional (RP) repeatedly requested ICBC to release the FD, noting that RCIL had not availed any credit facilities from the bank.

ICBC refused, claiming the lien extended to secure foreign currency facilities granted to Reliance Infratel Ltd. (RITL) and Reliance Communications Ltd. (R.Com). The RP approached the NCLT, which directed ICBC to lift the lien and release the FD with interest. ICBC challenged this order before the appellate tribunal, arguing that the lien letter covered obligations of group companies and that Section 171 of the Indian Contract Act entitled banks to exercise a general lien over securities.

ICBC contended that the commercial intent of the lien was to allow risk management across group entities, and that the secured creditor’s rights were not extinguished under CIRP.

The Tribunal rejected these arguments. The three-member bench comprising Ashok Bhushan (Judicial member), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) closely examined the lien letter dated 27 March 2017. Clause (1) of the letter authorised ICBC to hold securities for “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 in connection with credit facilities provided to us by you.”

The tribunal emphasised that the term “us” referred only to RCIL, the signatory corporate debtor, and could not be expanded to include group companies. Since RCIL had not availed any facility from ICBC, either singly or jointly, the lien could not be enforced against its FD for debts of RITL.

The tribunal also considered Clause (10) of the lien letter, which allowed ICBC to consolidate accounts and set off the CD's liabilities. Again, the Tribunal held that this clause applied only to liabilities of RCIL itself, not to third-party debts.

Referring to the Supreme Court’s ruling in Syndicate Bank v. Vijay Kumar (1992), the bench reiterated that a banker’s general lien applies only where the customer owes a debt. In the present case, no liability existed against RCIL, making ICBC’s reliance on Section 171 untenable.

NCLAT further noted that the resolution plan for RCIL had already been approved in December 2023, with ICBC as an assenting creditor.

The FD formed part of the assets earmarked for distribution under the plan, which is binding on all stakeholders. ICBC’s refusal to release the FD violated Sections 17 and 18 of the Insolvency and Bankruptcy Code, which require financial institutions to act on the instructions of the RP and hand over assets of the corporate debtor. The appeal filed by ICBC was dismissed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates