Funds in a Pool Account for Pre-paid Payment Instruments belong to customers and not the Corporate Debtor, as per RBI guidelines.

ORDER

1. The above I.A. is filed by the Applicant, Federal Bank Limited, under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“the Code”), seeking following reliefs:

a) To allow the application and reject the Resolution Plan as accepted by the COC which includes the Pool Account as a part of the Resolution Plan;

b) Clarify that the funds in the Pool Account do not belong to the Corporate Debtor;

c) Pass an ad-interim ex-parte order permitting the Applicant to utilize the funds in the Pool Account for making refunds to the customers of the TMW Program.

Brief Background:

2. The Applicant is a banking company, licensed under the Banking Regulation Act, 1949, and is classified as a scheduled commercial bank under second schedule of Reserve Bank of India Act, 1934.

3. M/s TMW Fintech Private Limited (Corporate Debtor), formerly known as the Mobile Wallet Pvt. Ltd., approached the Applicant with the intention of launching, promoting and distributing TMW-Federal co- branded Pre-paid Payment Instruments (PPIs) (hereinafter referred to as “TMW Program”). Pursuant thereto, a business correspondent agreement dated 16.01.2018 was executed between the Applicant and the Corporate Debtor.

4. It is submitted that in accordance with the terms of the said agreement, the Corporate Debtor opened a non-operative current account bearing No. 16820200005372 (Pool Account) which was maintained by the Corporate Debtor and was solely used for settling the transactions undertaken by the customers under the TMW Program. It is further submitted that only the Applicant had the right and authority to operate the said Pool Account as per the extant RBI guidelines applicable to PPIs. Notably, the Corporate Debtor did not even have access to the bank statement of the Pool Account. The Corporate Debtor was only responsible to pre-fund the Pool Account with the funds received from the customers under the TMW Program and they never had any right of use over the funds in the Pool Account nor did they have any right to deal with the funds in the Pool Account. There are email exchanges between the Applicant and Corporate Debtor, annexed to the Application, wherein the Corporate Debtor acknowledged the same.

5. It is submitted that the Corporate Debtor failed to pre-fund the Pool Account as per the agreement and requested the Financial Creditor for advances to meet its obligations. In view of the assurances provided by the Corporate Debtor, the Financial Creditor approved and advanced monies to the Corporate Debtor from time to time which were then utilized to pre-fund the Pool Account. It was agreed that the funds advanced by the Applicant was to be settled by the Corporate Debtor within T + I days.

6. However, the Corporate Debtor failed in its obligations to repay the amount owed to the Applicant, consequently, the Applicant issued Bank Termination Notice dated 10.10.2019 terminating the Agreement in terms of Clause 23.2.1. However, as per the Agreement, despite termination, the funds in the Pool Account shall be continued to be utilized towards transactions undertaken by the customers on their PPIs including any claim for the refund that may be made by the customer on their PPIs. The same was also recorded in the Bank Termination Agreement.

7. The Corporate Debtor failed to repay the amount to the Applicant and consequently, the Applicant filed a petition no. CP(IB)/664/MB/2021 under Section 7 of the I&B Code. During the pendency of the said Petition, the Applicant continued to receive refund requests from customers of the TMW Program, which were duly processed by the Applicant in accordan