TMI Blog2020 (10) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... pected to go into the controversy of the other issues, hence the objection raised by the Applicant or Corporate debtor is not sustainable in the eye of law and invocation of the Performance Bank Guarantee does not fall within the purview of Section 14 of the I B Code and the relief being sought for cannot be granted. The status quo order granted against the Respondent no.1 stands ceased to have its effect automatically soon after the approval of Resolution Plan. Further, there cannot be status quo against Respondent no.2 Axis Bank for discharging contractual obligation and performing its part of contract. Therefore, the Respondent no.1 being a contracting party is eligible and entitled to invoke its Performance Bank Guarantee. It cannot be restrained by this Adjudicating Authority at the instance of Corporate Debtor and it is upto a competent civil court/ forum and not necessarily by this Adjudicating Authority under the provisions of the I B Code to deal with and decide the same. Hence, no injunction order can be passed, being out of the purview of the Section 14 of the I BC Moratorium. Application rejected. - MA-417/2018 In CP(IB)1832/MB/MAH/2017 - - - Dated:- 5-10-2020 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of this moratorium, the Applicant is not entitled to invoke any such Guarantee during the continuity of the period of CIRP. Further the Resolution Plan has also been approved by this Bench vide its order dated 19/11/2018, hence debts of creditors has now been determined and is binding upon its creditors including the present Respondents. Hence the present MA-417/2018. 3. It is matter of record that during the course of hearing this Bench vide its Interim Order dated 08.05.2018 was pleased to direct all the parties to maintain the status quo. As such this Interim Order was continued till the disposal of the main I B Petition No. CP(IB)1832/MB/MAH/2017 when order for approval of Resolution Plan was pronounced on 19/11/2018. It is a settled legal position that after commencement of the Moratorium the assets or guarantees of the Corporate Debtor cannot be disposed of without the approval/ permission of this Court/Adjudicating Authority. 4. Therefore, it is the contention of the Resolution Professional who had taken over the charge of the Corporate Debtor Company, that the performance bank guarantee should not and cannot be invoked by the present Applicant NLC India Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 proposes to pay from the proceeds of the encashment of the BG-I being replaced with the claims of Respondent No. 2 as a funded loan provided to the Corporate Debtor and consequent recharacterization of such claims from being operational debt to financial debts during the moratorium period. 8. The Corporate Debtor has provided support towards completion of the project with Respondent No.1 and made payments for claims that have arisen after Insolvency Commencement Date in a timely manner. It is a matter of fact that the Corporate Debtor has made payment of INR 4.62 Lakhs for the project since the insolvency commencement date and proposes to make a payment of INR 1.0 Crore within the next week. As per the provisions of the Code, the claims that have arisen prior to the Insolvency Commencement Date are to be submitted to the RP for verification in accordance with the Code. In the event that Respondent No. 1 seeks claim of dues prior to the initiation of the CIRP, the same may be submitted to the RP in accordance with the provisions of the Code for verification and the same may be paid as a part of the insolvency resolution process, subject to the provisions of the Code. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going concern and enable it to complete the execution of the thermal power projects and other projects. Thus it may be seen that the RP has pointed out a debatable position of encashment and invocation of the Bank Guarantees during the CIRP period of the Corporate Debtor/ Applicant. But it also made an alternative plea. 12. We have duly considered the above stated facts and circumstances of the present Application and the legal issue arises therein for our consideration is : Whether a third party who happened to be employer/ contracting party of the Corporate Debtor can be restrained from invocation of its Performance Bank Guarantee as per the terms of the Guarantee/ Contract executed for completion of work contract/ project? In fact the status of the present Applicant is as good as of an Operational Creditor to its employer/ contracting party, e.g. Respondent No.1 NLC India Limited (who is a Public Sector Undertaking, Government of India) is concerned. If the work of the project under the Agreement is not performed within stipulated time or as per the specific terms, such contract can be revoked/cancelled by the employer/ contracting party, at the risk and costs of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee tantamounts to violation of Moratorium or breach of provisions of I B Code, can be considered and adjudicated by this Adjudicating Authority. 15. Therefore, we have duly considered the legal and factual aspect of the case and the main issue that arise for consideration before this Bench (this Adjudicating Authority) whether during continuance of CIRP a performance bank guarantee given by the Corporate Debtor cannot be invoked by a third party, who does not necessarily fall in the category as a Creditor of the Corporate Debtor. We find that such issue has already been examined by the Hon ble NCLAT in the matter of GAIL (INDIA) LIMITED and it is held by their Lordships that the security interest shall not include the Performance Bank Guarantee and the Performance Bank Guarantee given by the Corporate Debtor in favour of the party (Gail India Limited) is not covered by Section 14 and such party (Gail India Limited) is entitled to invoke its Performance Bank Guarantee in full or in part. The relevant portion of the above order reads as under:- 3. The stand of the Resolution Professional is that the Performance Bank Guarantee cannot be invoked during the Moratori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and invocation of the Performance Bank Guarantee does not fall within the purview of Section 14 of the I B Code and the relief being sought for cannot be granted. Thus, the MA-417/2018 must fail and is rejected for the reasons and conclusions therein are stated as below:- (i) The relief being sought for in the present MA-417/2018 does not fall within the purview of Section 14 of the Insolvency and Bankruptcy Code, hence it cannot be granted by this Adjudicating Authority in view of the Order passed by the Hon ble NCLAT in the matter of GAIL (India) Limited V/s Rajeev Manaadiar Others in Company Appeal (AT) (Insolvency) No. 319 of 2018 dated 24.07.2018 whereby the Hon ble NCLAT pleased to observe and hold that the security interest does not include the Performance Bank Guarantee and therefore the Performance Bank Guarantee given by the Corporate Debtor in favour of the Appellant (GAIL (India) Limited) is not covered under section 14 of the Insolvency and Bankruptcy Code. Thus Appellant was entitled to invoke its Performance Bank Guarantee in full or in part by this decision. The Hon ble NCLAT was pleased to set aside the Order dated 12.06.2018 (passed in MA-521/2018 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her proceedings. That contention must, therefore, also fail. Even otherwise, on a consideration of language of Section 22, invocation of a Bank Guarantee is invocation of a term of the Guarantee. Invocation by itself cannot be read into Section 22 of the SIC Act. Further invocation of a Bank Guarantee is admittedly a transaction by itself. 8. It is independent of the main contract between the plaintiff and the Defendant no.1. If reference need be made, it can be made to the case of (Hindustan Construction Company vs. State of Bihar) 2000 Bank.J (SC) 314; (1999) 8 SCC 436. The Apex Court held that a guarantee constitutes a separate, distinct and independent contract. The contract is between the party as the guarantor and the person in whose favour the guarantee is given. It is independent of the contract between principal and the person on whose behalf the guarantee is given. However, suit by a plaintiff to restrain the Bank from making payment in terms of the guarantee is maintainable. Relief cannot be granted if in such a case plaintiff is able to make out a case of fraud and/or irretrievable injustice. In the instant case, defendant No. 5 who has given the Bank Guarantee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary. In contracts awarded to private individuals by the Government, which involve huge expenditure, as, for example, construction contracts, Bank Guarantees are usually required to be furnished in favour of the Government to secure payments made to the contractor as Advance from time to time during the course of the contract as also to secure performance of the work entrusted under the contract. Such Guarantees are encashable in terms thereof on the lapse of the contractor either in the performance of the work or in paying back to the Government Advance , the Guarantee is invoked and the amount is recovered from the Bank. It is for this reason that the Courts are reluctant in granting an injunction against the invocation of Bank Guarantee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be caused to the Guarantor. This was the principle laid down by this Court in various decisions. In U.P. Cooperative Federation Ltd. v. Singh Consultants Engineers Pvt. Ltd., [1988] 1 SCC 174, the law laid down in Bolivinter Oil SA v. Chase Manhattan Bank, [1984] 1 All E.R. 351 was approved and it was held that an unconditional Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at normally the Court would declined to interfere with the invocation of the bank guarantee or the performance guarantee as it has been settled law that the Court should decline interference with the invocation of the bank guarantee except on limited grounds. However, the Law declared and observation made has reference to ordinary commercial transaction and performance guarantee. In the facts of the case, subsequent application of the Insolvency and Bankruptcy Code, 2016 will have to be considered, which provides for a separate procedure in case of such Company, which is under resolution process. (vii) Therefore, by following the above stated Judicial precedents we are of the confident view that status quo order granted against the Respondent no.1 stands ceased to have its effect automatically soon after the approval of Resolution Plan. Further, there cannot be status quo against Respondent no.2 Axis Bank for discharging contractual obligation and performing its part of contract. Therefore, the Respondent no.1 being a contracting party is eligible and entitled to invoke its Performance Bank Guarantee. It cannot be restrained by this Adjudicating Authority at the instance of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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