Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + AT Insolvency and Bankruptcy - 2021 (9) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (9) TMI 932 - AT - Insolvency and BankruptcyAsset of the ‘Corporate Debtor’ - Revocation of performance guarantee - Seeking to refund the amount and deposit the same in the Account of the ‘Corporate Debtor’ with interest as it forms part an Asset of the ‘Corporate Debtor’ - whether the ‘Corporate Debtor’ has any right with respect to money received from reversal of invocation of a Performance Bank Guarantee (which had been invoked prior to the initiation of CIRP), specifically when the margin money was also not deposited by the ‘Corporate Debtor’? - Can the said refund amount be construed as an asset belonging to the ‘Corporate Debtor’? HELD THAT:- The definition of ‘security interest’ under the Code includes an interest that has been created in favour of the Secured Creditor by a transaction which secures payment or performance of an obligation, but though it includes performance obligations, the Legislature decided to exclude performance based Guarantees from the definition. The Legislature by carving out an exception for Performance Guarantee under Section 3(31) intended invocation of Performance Bank Guarantee during the Moratorium period. The observations of the Insolvency Law Committee Report, 2018 specify that ‘the assets of the surety are separate from those of the ‘Corporate Debtor’ and proceedings against the ‘Corporate Debtor’ may not be seriously impacted by the actions against asset of third party like sureties’. A simple interpretation would mean that the contractual principles of the guarantee are required to be respected even during the Moratorium period and any alternate interpretation could not have been the intention of the Code as is clear from a plain reading of Section 14. The intent of the Code was not to terminate Agreements that have created legal rights in favor of third parties without adhering to due process of Law. Such a termination of legally binding Agreements would be in violation of the provisions of Section 30(2)(e). In the instant case, the issue pertains to amounts refunded by reversal of invocation of Performance Bank Guarantee where even the margin money was paid by the Bank and not by the ‘Corporate Debtor’ - the liabilities under a Performance Bank Guarantee cannot be terminated by action of a third party. A Bank which gives a Performance Guarantee must honour the guarantee according to its terms. Thus, the amount refunded on reversal of the invocation by the Indian Navy cannot be said to be an asset of the ‘Corporate Debtor’, under IBC, Performance Guarantees are to be dealt with specifically keeping in view the provisions and exclusions under Section 14(3)(b) and Section 3(31) of the Code - there is no violation of Section 14 of the Code as the money appropriated by the Bank is not the asset of the ‘Corporate Debtor’ - appeal allowed.
|