Treatment of Undisclosed Assets Post-CIRP: NCLAT Rules on FDRs as Corporate Debtor Property

The intersection of corporate insolvency resolution and the discovery of undisclosed assets post-resolution often creates complex legal battlegrounds. When a Successful Resolution Applicant (SRA) takes over a Corporate Debtor, the guiding principle is usually the "clean slate" theory, which extinguishes prior unprovided liabilities. However, a critical legal question arises when the situation is reversed: What happens to assets belonging to the Corporate Debtor that were never documented in the Information Memorandum during the Corporate Insolvency Resolution Process (CIRP)?

This precise legal conundrum was recently addressed by the National Company Law Appellate Tribunal (NCLAT), New Delhi, in the landmark judgment of SPS Steels Rolling Mills Limited Vs Central Bank of India. The tribunal was tasked with determining the rightful ownership of Fixed Deposit Receipts (FDRs) discovered only after the resolution plan had been fully implemented.

This comprehensive analysis delves into the factual matrix, the statutory framework governing Information Memorandums under the Insolvency and Bankruptcy Code, 2016, and the appellate tribunal's rationale in distinguishing between unprovided liabilities and undisclosed assets.

Factual Matrix of the Dispute

The genesis of this legal dispute traces back to the initiation of the CIRP against the Corporate Debtor, SPS Steels Rolling Mills Limited.

Initiation of CIRP and Resolution Plan Approval

On 24.08.2017, Allahabad Bank approached the Adjudicating Authority with an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking the commencement of CIRP against the Corporate Debtor. The application was admitted on 22.12.2017, triggering the public announcement and the collation of claims.

During the process, Shakambhari Ispat and Power Limited emerged as the Successful Resolution Applicant. The resolution plan submitted by the SRA was approved by the Committee of Creditors (CoC) and subsequently received the stamp of approval from the Adjudicating Authority on 08.04.2019. Following this approval, the SRA implemented the plan, which included a substantial payment of Rs. 32.50 Crores to the Central Bank of India to satisfy its claims. The management and assets of the Corporate Debtor were officially taken over by the SRA around 11.04.2019.

The Discovery of Undisclosed Fixed Deposits

The crux of the litigation emerged in March 2020, long after the resolution plan was operationalized. The SRA discovered that the Corporate Debtor possessed several Fixed Deposit Receipts (FDRs) maintained with the Central Bank of India and the Indian Overseas Bank. Crucially, these financial assets had completely escaped the scrutiny of the CIRP; they were neither disclosed in the Information Memorandum nor factored into the resolution plan.

These FDRs, aggregating to Rs. 1,30,00,000/- with the Indian Overseas Bank, had originally been deposited by the Corporate Debtor as margin money to secure various Bank Guarantees required for business operations prior to the insolvency commencement. All these underlying Bank Guarantees had expired between 2009 and 24.08.2017.

Upon discovery, the SRA requested the respective banks to release the proceeds. While the Indian Overseas Bank released a partial amount of Rs. 79,24,041/-, it withheld the remaining balance of approximately Rs. 50,75,959/-. Conversely, the Central Bank of India unilaterally adjusted the FDRs lying with it against its own past dues, despite the implementation of the resolution plan.