NCLAT Delhi directs reversal of Bank of Baroda fixed-deposit margin money appropriation executed during IBC moratorium

The National Company Law Appellate Tribunal at Delhi confirmed the directive to reverse the appropriation of fixed-deposit margin money executed by Bank of Baroda following the commencement of the Section 14 Insolvency and Bankruptcy Code moratorium. The legal challenge arose when the financial institution utilized pledged deposits after the insolvency resolution process had formally commenced, violating statutory standstill provisions. Section 14 of the Insolvency and Bankruptcy Code imposes a strict moratorium on the corporate debtor's assets, prohibiting creditors from recovering debts, foreclosing securities, or enforcing security interests to maintain asset parity during resolution.

Previously, creditors occasionally attempted to adjust existing margins or deposits against outstanding dues, but judicial interpretations consistently mandate that all assets remain frozen under the control of the resolution professional once the moratorium takes effect. Insolvency professionals, lenders, and corporate legal teams must review ongoing appropriation practices, immediately halt adjustments of margins after moratorium commencement, and ensure full compliance with asset freeze mandates.

Bottom line: Financial institutions cannot bypass statutory moratorium rules to appropriate borrower margins, ensuring fair asset distribution during corporate restructuring.