Goods imported by Corporate Debtor at the strength of letter of credit which is kept in the trust for a Bank on default in payment is outside the liquidation estate of the Corporate Debtor – IDBI Bank Ltd. Vs. Bhatia Global Trading Ltd. – NCLT Indore Bench
April 24, 2023
The Corporate Debtor had imported goods on letter of credit, upon default of the Corporate Debtor the bank had to honour the payment. The Bombay High Court order recognised the rights of bank to be of a secured creditor and restrained sale of imported goods. The Corporate Debtor sold the goods in breach of restraint order. Pursuant to this the Corporate Debtor entered CIRP and liquidation later on, and the bank had also relinquished its security interest.
The NCLT vide this order, appreciated the fact that the LC documents included a clause that goods imported are held as trust for the bank, and for this very reason the money received from sale of these goods belonged to the bank. Considering this amount as a property of the bank held in trust by the Corporate Debtor rather than being a security interest, the NCLT ruled that this amount doesn't forms part of liquidation estate and can be realized by the LC issuing bank outside liquidation.
