Money deposited with the court by a corporate debtor before insolvency remains his property: Bombay High Court

The Court further explained that although a creditor, such as Suri, would typically be considered an unsecured creditor, the funds deposited with the court gave him a security interest over the funds.

Nevertheless, ownership of the asset remained with the corporate debtor, Siti Networks, the court concluded.

“WAlthough a creditor entitled to a certain sum of money would normally be an unsecured creditor, when a cash deposit is made with the court, such a creditor would have a security interest on the amount so deposited. However, the asset over which the security is established would indeed remain an asset of the owner – in the present case the corporate debtor”, the Court noted.

The Court also emphasized that the legal framework of the IBC overrides traditional concepts of creditor rights. It pointed out that in the event of insolvency, security interests created over a debtor’s assets, including money deposited with the court, must comply with the provisions of the IBC.

The Resolution Professional, who is responsible for managing the corporate debtor’s assets, must identify, safeguard and preserve the debtor’s assets. Any release of assets or distribution of funds would depend on the ultimate resolution of the insolvency proceedings, either through an approved resolution plan or through liquidation.