Fixed Deposits Count as Security: NCLAT Upholds ICICI Bank’s Secured Creditor Rights in Darjeeling Organic Tea Case

Introduction

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Delhi, has clarified that fixed deposits (FDs) offered as collateral can create a valid “security interest”, thereby granting the lending bank the status of a secured financial creditor under the Insolvency and Bankruptcy Code, 2016 (IBC).

The decision came in the case of ICICI Bank Ltd. vs Resolution Professional of Darjeeling Organic Tea Pvt. Ltd., where the Tribunal recognized the legal validity of fixed deposits pledged for credit facilities and upheld ICICI Bank’s right to claim its dues as a secured creditor.

This judgment strengthens the legal standing of banks and financial institutions that extend credit backed by cash collateral or FDs, affirming their protection during insolvency proceedings.

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Facts of the Case

• The Parties:
  • Appellant: ICICI Bank Ltd.
  • Respondent: Resolution Professional (RP) of Darjeeling Organic Tea Pvt. Ltd.
  • Forum: NCLAT, New Delhi
  • Original Order Appealed: NCLT Kolkata Bench order dated 23 April 2024
• Background:
  Darjeeling Organic Tea Pvt. Ltd. had availed financial facilities from ICICI Bank, initially in the form of non-fund-based facilities backed by fixed deposits (FDs) provided by the company itself. Subsequently, on 31 July 2021, the bank extended an overdraft facility of ₹1 crore, secured against cash collateral in the form of fixed deposits worth ₹1.06 crore.
  • CIRP Commencement: 28 October 2022
  • ICICI Bank’s Claim: Filed on 3 January 2024 as a financial creditor for ₹99.36 lakh as of the insolvency commencement date.
  • Security Basis: The bank relied on FDs and a bank guarantee to establish its status as a secured creditor.
• NCLT Order:
  The Kolkata Bench of the NCLT directed ICICI Bank to:
  1. Release certain fixed deposit amounts belonging to the corporate debtor.
  2. Furnish documents to verify its claim as a secured financial creditor.
  Dissatisfied with this order, ICICI Bank appealed before the NCLAT.

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Discussion

1. Core Legal Question

The central issue before the NCLAT was whether fixed deposits pledged by a borrower to the bank constitute a “security interest” under Section 3(31) of the Insolvency and Bankruptcy Code, 2016 — thereby entitling the bank to secured creditor status during the insolvency process.

ICICI Bank argued that the FDs were specifically created as security for the overdraft facility and thus created a valid charge, giving the bank preferential rights over those deposits.

2. ICICI Bank’s Stand

ICICI Bank contended that:

• The fixed deposits were pledged in the bank’s favor to secure repayment obligations.
• The security interest was duly recognized in the bank’s internal documentation and lien records.
• Hence, under IBC definitions, the bank was clearly a secured financial creditor, entitled to priority treatment in the resolution process.

3. Resolution Professional’s Argument

The RP argued that:

• The FDs were assets of the corporate debtor, and ICICI Bank could not claim them outright without NCLT verification.
• The claim of “secured creditor” status required formal proof of lien and pledge over the deposits.
• Until such proof was furnished, the RP sought release of the FDs for inclusion in the resolution estate.

4. NCLAT’s Observations

The NCLAT examined the documents and the nature of the overdraft facility and noted that:

• The FDs were expressly marked under lien to ICICI Bank.
• The bank had a legally enforceable right over the fixed deposits in case of default.
• Such a lien creates a security interest as defined under the IBC.

The Tribunal held that the bank’s right over the FDs meets all legal criteria for a valid security interest, and therefore, ICICI Bank rightly qualifies as a secured financial creditor.

5. Key Legal Takeaway

The NCLAT reiterated that a fixed deposit pledged or marked under lien in favor of a bank is a legitimate form of collateral.
During insolvency, the bank retains secured creditor rights over such pledged FDs and can recover dues from the same, subject to IBC processes.

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Conclusion

The NCLAT’s ruling in ICICI Bank Ltd. vs RP of Darjeeling Organic Tea Pvt. Ltd. marks an important clarification under insolvency law — that fixed deposits used as security create a valid and enforceable security interest.

By recognizing ICICI Bank as a secured financial creditor, the Tribunal reinforced that cash-backed securities are equally valid as mortgages or hypothecations for determining secured status.

This decision provides much-needed clarity for both banks and resolution professionals, ensuring that lenders’ rights over pledged FDs are legally protected during CIRP proceedings