Facts: The petitioner company, Morarjee Textiles Ltd., was embroiled in a dispute with respondent no.3, D.C. Weaving Mils Pvt. Ltd., regarding a work order. An award was passed by the MSME Facilitation Council in favor of the respondent for approximately Rs.13.44 crores. The petitioner challenged this award via a writ petition. The High Court initially stayed the award on the condition of depositing 75% of the amount. On appeal, the Supreme Court modified this, directing a bank guarantee for 60% of the principal, which was subsequently encashed and deposited with the High Court Registry. During the pendency of these proceedings, the National Company Law Tribunal (NCLT) admitted an insolvency application against the petitioner under Section 7 of the IBC and declared a moratorium under Section 14. Both the Resolution Professional (RP) and the respondent filed applications seeking withdrawal of the deposited funds.
Procedural Posture: The matter was heard by the Nagpur Bench of the Bombay High Court to determine the disposal of the writ petition and the competing claims over the deposited funds following the commencement of the Corporate Insolvency Resolution Process (CIRP).
Issue: Whether the amount deposited in the Court Registry (derived from the encashment of a bank guarantee furnished as a condition for a stay) constitutes an asset of the corporate debtor to be managed by the RP, or if it belongs to the decree-holder (respondent no.3) as a secured or specific payment?
Holding: The Court held that the deposited amount remains an asset of the corporate debtor and must be released to the Resolution Professional for payment to creditors in accordance with the IBC.
Reasoning: The Court reasoned that money deposited in court as security pursuant to a court order does not result in a transfer of title to the judgment creditor. Such a deposit serves as security for the potential dismissal of an appeal and remains an asset of the corporate debtor even if the deposit occurred post-commencement of CIRP. The Court distinguished the present case from precedents where bank guarantees were encashed under consent orders or achieved finality before insolvency. Since the moratorium under Section 14 of the IBC prohibits the continuation of suits or execution of decrees against the corporate debtor, and because the respondent had already submitted its claim as a creditor to the RP, the funds must be governed by the priority of payments under the IBC rather than being released directly to one specific creditor.