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TMI Blog2020 (11) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... king directions to respondent no. 2 not to release/deposit amounts from Bank Guarantees to respondent no. 1 pursuant to letter-Exhibit A2 issued by respondent no. 1; and further directions to respondent no. 3 not to release/deposit amounts from Bank Guarantees to respondent no. 1 pursuant to letter-Exhibit A2 issued by respondent no. 1. 3. BRIEF FACTS: 3.1 The petition filed by respondent no. 3 under section 7 of the I&B Code against the Corporate Debtor has been admitted vide order dated 03.10.2019 (EXHIBIT A1) with appointment of the applicant as IRP for the Corporate Debtor. Subsequently appointment of said IRP has been confirmed as Resolution Professional vide order dated 19.03.2020. 3.2 The present IA is filed by the applicant/Resolution Professional aggrieved by two letters, both dated 19.05.2020 (Annexure A-2 Collectively of this TA), seeking recovery of the following amounts from Bank Guarantees. (i) Letter dated 19.05.2020 (EXHIBIT A2) issued by respondent no. 1 to respondent no. 2/UCO Bank, seeking recovery of aggregate amount of two Bank Guarantees of Rs. 54584969/-towards the Bank Guarantee-1, during the pendency of CIRP of the Corporate Debtor and imposition of mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.20 5 UCO Bank 19451GFN002016 08.08.16 26984293 30.06.20 6 UCO Bank 19451GFN002016 08.08.16 2760676 30.06.20 7 Punjab National Bank 46151LG007611 30.05.11 10000000 31.05.21 3.6 Copies of Bank Guarantees and bills of 12.09.2011 and 19.10.2011 are at Exhibit A4 Colly. 3.7 It is averred in paras 8 and 9 (page 6) of the application that Ministry of Power, vide O.M. dated 12.04.2017 (EXHIBIT A5) amended Mega Power Policy, 2009 for Provisional Mega Power Project and inter alia, approved time period for Provisional Mega Projects, for furnishing Final Mega Certificates to the Tax authorities be extended to 120 months instead of 60 months from the date of import. By the said OM, Corporate Debtor was granted status of Provisional Mega Power Project. Thus, the period of 120 months or 10 years is calculated from 2011. Respondent no. 1 is estopped from recovering any amounts whatsoever during the said period. 3.8 It is averred in para 10 (page 7) of the application that respondent no. 1, through Deputy Commissioner, Customs Division-1, Nagpur has submitted proof of claim dated 20.03.2020 (EXHIBIT A6), in response to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58 of the Customs Act, 1962, for the Customs Bonded Warehouse situated in Wardha District, Maharashtra. 4.2 It is averred in paras 2(b) and (c) of the Submissions that the Corporate Debtor had imported goods described in para 2(b) having Invoice value of Rs. 421122906/- and duty involved of Rs. 367418630/-, for up a Mega Power Project, availing the benefit of Notification No. 12/2012- Customs dated 17.03.2012 read with Notification No. 43/2012-Customs dated 27.06.2012. 4.3 It is averred in para 2(e) of the Submissions that the Corporate Debtor could neither complete the above project within the time specified in the said Notifications nor could indicate expected date thereof. 4.4 It is averred in para 2(f) of the Submissions that the Corporate Debtor is not exempted under the above Notifications from payment of tax on the imported goods, if the Corporate Debtor fails to complete the project within the time stipulated in the Notifications. During the said period, payment of tax on the imported goods is only deferred. The Notifications provide exemption of tax for those who complete the project in time. 4.5 It is averred in para 2(g) of the Submissions that the said Notifications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, Customs & Central Excise, Division-II, Nagpur under section 58 of the Customs Act, 1962, the Corporate Debtor had imported goods as detailed in para 3(b) of this Written Argument availing the benefit of Notifications dated 17.03.2012 and 27.06.2012. 5.2 It is averred in paras 3(e) and (f) of the Written Argument that there is no indication as to when the project undertaken by the Corporate Debtor will be completed, far apart within the time specified in the said Notification. It is needless to mention that benefit of exemption from payment of tax is available only to those, who complete the project in time. 5.3 It is averred in para 3(g) of the Written Argument that the Notifications impugned provide for submission of Bank Guarantee by the assessee, if the assessee intends to avail benefit of the said Notifications. Accordingly, respondents no. 2 and 3 Banks issued Bank Guarantees for the Corporate Debtor. The said Bank Guarantees are unconditional and are payable to respondent no. 1, on demand by respondents no. 2 and 3. 5.4 It is averred in para 3(h) of the Written Argument that so far as Corporate Debtor is concerned, one of its creditor, viz. Punjab National Bank has fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofessional, in para 2 of the Written Argument, has reiterated the averments made in para 4 of the IA that the Corporate Debtor, a Special Purpose Vehicle (SPV) of Lanco Group has been granted Provisional Mega Power Project Certificate dated 21.11.2011. 6.2 The applicant/Resolution Professional has averred in para 3 of the Written Argument that the Corporate Debtor has applied for Customs Private Bonded Warehouse in the jurisdiction of Nagpur Zone of the Customs Department and was awarded licence on 06.06.2012 under section 58 of the Customs Act, 1952, for Customs Bonded Warehouse at 11th Milestone, Belgaon-Mandwa Road, PO-Mandwa, District Wardha, Maharashtra. 6.3 It is averred in paras 4 and 6 of the Written Argument that the Corporate Debtor availed exemption from payment of customs duty in terms of Notification dated 17.03.2012 read with Notification dated 27.06.2012 (ANNEXURE A-1 COLLY. of the Written Argument dated 09.07.2020) by virtue of Mega Power Project Status and security in the form of Fixed Deposit Receipt/Bank Guarantee for a term of 36 months or more for an amount equivalent to customs duty payable on such imports (without exemption). The aforesaid Notifications pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed two objections, namely: (i) Protection of moratorium in terms of section 14(1) of the Code is not applicable in view of Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which came into effect on 06.06.2018, by which section 14(3)(b) in inserted, which reads as under: "14(3)(b) "a surety in a contract of guarantee to a corporate debtor." (ii) Bank issuing guarantee is not concerned with the underlying contract between the parties and that a Bank Guarantee is an independent and distinct contract between the bank and the person in whose favour the same is issued. 6.7 GROUNDS ADVANCED BY THE APPLICANT ON WHICH THE OBJECTIONS RAISED BY RESPONDENT NO. 1 ARE NOT SUSTAINABLE: (i) Section 14(3)(b) of the Code does not apply to non-performance of Bank Guarantees. (ii) The contention of respondent no. 1 that Section 14(3) of the Code as amended by Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, prohibits applicability of moratorium set out in section 14(1) of the Code, in case of a surety in a contract of guarantee to a corporate debtor, is not sustainable. The Bank Guarantees issued by the Corporate Debtor are not in the nature of Performance Bank Guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the NCLT, Mumbai Bench in the case of IDBI BANK LTD Vs. EPC CONTRUCTIONS INDIA LIMITED [MA No. 661/2018 & MA No. 1011/2018 in CP No. 1832/IBC/NCLT/MB/MAH/2017] (ANNEXURE A-4 COLLY of the Written Note of Argument filed on behalf of the applicant), wherein it is observed that, " .. the provisions of the I&B Code are clear that the invocation of Performance Bank Guarantee cannot be stayed since as per the proviso (supra) the Moratorium does not apply on 'performance bank guarantees'. But fact of each case ought to have bearing for applying the provisions of a Statute." "During the insolvency proceedings it is required to protect the interest of a Corporate Debtor. Keeping this object in mind, it is justifiable not to allow alienation or liquidation as far as possible of the assets of the Corporate Debtor, particularly if the subject matter is the invocation of Bank Guarantee." [para 20] (vi) The applicant further relied on decision of the NCLT, Mumbai Bench in the case of KOHINOOR CRANE SERVICES Vs. PETRON ENGINEERING CONSTRUCTIONS LIMITED [MA 384/(MB) 2018 in CP 1374/I&BC/MB/MAH/2017) (ANNEXURE A-4 COLLY), wherein it is held that action of invocation of Bank Guarante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is given (a) to accelerate construction of power projects and bridging widening energy deficit, and (b) to help power plants in reduction of capital cost, which results into reduction in tariff per unit, [paras 30-31] (ii) Invocation Bank Guarantee would result in withdrawal of concession/benefit granted to the Corporate Debtor in terms of Provisional Certificate and the Corporate Debtor will be bound to pay respondent no. 1, the amount of Bank Guarantee, which amount will be added to project cost. Ultimately, it defeats the intent of the Provisional Certificate. In this regard the applicant relied on decision of the Hon'ble Supreme Court in the case of UP STATE SUGAR COPORATION Vs. SUMAC INTERNATIONAL LIMITED, (1997) 1 SCC 568 (ANNEXURE A-5 of the Written Note of Argument dated 09.07.2020 of the applicant). The applicant further relied on the decision of the Hon'ble Supreme Court in the case of GANGOTRI ENTERPRISES LIMITED Vs. UNION OF INDIA, (2016) 11 SCC 720 (ANNEXURE A-6 of the Written Note of Argument dated 09.07.2020 of the applicant), wherein it is held with regard to invocation of Bank Guarantee that though there are settled principles of law, however, every c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licence/Provisional Certificate 'shall not be suspended or terminated on the grounds of insolvency'. Since the Corporate Debtor is not in default of its liabilities towards respondent no. 1, invocation of Bank Guarantee is not sustainable, [paras 38-39] FINDINGS 7. We have heard the learned counsels for both the sides through videoconference and have also gone through the record and Written Note of Arguments submitted by both the sides. The application was filed by the Resolution Professional of the Corporate Debtor aggrieved by the following communications, annexed as EXHIBIT A2, at pages 27 and 28 of the application. (i) Letter dated 19.05.2020 (EXHIBIT A2) issued by respondent no. 1 to respondent no. 2/UCO Bank, seeking recovery of aggregate amount of two Bank Guarantees of Rs. 54584969/-towards the Bank Guarantee-1, during the pendency of CIRP of the Corporate Debtor and imposition of moratorium under the Code; and (ii) Letter dated 19.05.2020 (EXHIBIT A2) issued by respondent no. 1 to respondent no. 3/PNB seeking recovery of aggregate amount of two Bank Guarantees of Rs. 71727845/- towards the Bank Guarantee-2, during the pendency of CIRP of the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponse to the above public announcement issued by the applicant. The applicant requested respondent no. 1 to share working of claim on 15.05.2020, which has been submitted by respondent no. 1 and verification process is being done by the applicant. In the present circumstances, respondent no. 1 has invoked the said Bank Guarantees. Respondent no. 1 has invoked Bank Guarantees claiming that protection of moratorium in terms of section 14(1) of the Code is not applicable by virtue of Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which came into effect on 06.06.2018, by which section 14(3)(b) is inserted, which reads as under: "14(3)(b) "a surety in a contract of guarantee to a corporate debtor." and the Bank issuing guarantee is not concerned with the underlying contract between the parties and that a Bank Guarantee is an independent and distinct contract between the Bank and the person in whose favour the same is issued. 11. The applicant vehemently opposed these contentions made by respondent no. 1 and submitted that section 14(3)(b) of the I&B Code is not applicable to NBGs. He also submitted that the said Bank Guarantees furnished by the Corporate Debtor are, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor" 12. The applicant further averred that a conjoint reading of section 14(1) and section 3(31) of the Code leads to the conclusion that a PBG has been excluded from the ambit of moratorium under the Code as is held in decision of the NCLT, Ahmedabad in the case of NITIN HASMUKHLAL PARIKH Vs. MADHYA GUJARAT VIJ COMPANY LIMITED & OTHERS, rendered in IA No. 340 of 2017 in CP (IB) No. 28/10/NCLT/AHM/2017 (ANNEXURE A-3 of this Submission), where encashment of a PBG during moratorium was permitted, by referring to the definition of 'security interest' as defined under section 3(31) of the IBC. 13. It is further the case of the applicant that as is apparent from the order of the NCLT, Ahmedabad Bench, which has laid down that NBGs are covered within the meaning of 'security interest' and thus deserve immunity from any action to recover in terms of section 14(1) of the Code. The applicant has also quoted decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to claim of custom duty is unjust and unfair and is violative of section 14(1) of the I&B Code. 17. In response to the above contention of the applicant, respondent no. 1 has contended that the Corporate Debtor has applied for the customs private bonded warehouse in the jurisdiction of Nagpur Zone of the Customs Department to store the imported machinery for setting up mega power project on the terms and conditions mentioned in the Notifications issued by Government of India. In the instant case, the project undertaken by the Corporate Debtor has not been completed, nor there are any indications of completions of the same in the near future, far apart within the time specified in the said Notifications. Respondent no. 1 further contended that the aforesaid notifications mentioned by the applicant do not exempt payment of tax on the import of the goods made by the Corporate Debtor. It clearly says that if the Corporate Debtor fails to complete the project, within the time stipulated in the said Notifications and during the said period, the payment of tax on the said goods is only deferred. Needless to mention here the exemption of payment of tax is available only to the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, learned counsel for respondent no. 1 contended that there is no merit in the application filed by the Resolution Professional and the same only needs to be dismissed by the Tribunal. From the above discussion, the following emerging points are to be answered: (i) Whether respondent no. 1 is in order in invoking Bank Guarantees when O.M. dated 12.04.2017 (EXHIBIT A5), provides time period for Provisional Mega Projects, for furnishing Final Mega Certificates to the Tax authorities to 120 months, viz. by which validity is available upto 2021, for the applicant to avail benefit of exemption from payment of customs duty? (ii) Whether the impugned Bank Guarantees can be termed as PBGs and are exempted from the moratorium under section 14(a)(1) of the IBC as amended by Insolvency and Bankruptcy Code (Amendment) Act, 2020? (iii) Whether it is in order for respondent no. 1 to invoke Bank Guarantees when, respondent no. 1 has filed its claim with the Resolution Professional for the amount due from the Corporate Debtor for which these Bank Guarantees are issued? ANSWER TO ISSUE No. (i) : From the submissions made by the both the learned counsel it is clear that the impugned Bank Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opped from recovering any amounts whatsoever upto the said period of 120 months from the date of import. Accordingly, Issue No. 1 is answered in affirmative. Respondent no. 1 cannot invoke Bank Guarantee before expiry of 120 months from the date of import. ANSWER TO ISSUE No. (ii) : We have gone through section 14(1)(a), (b), (c) and (d) of the Code. Section 14 of the Code, which deals with moratorium is amended Section 14(3) of the Code is amended by insertion of clause (b). It exempts a surety in a contract of guarantee to a corporate debtor from the intensity of moratorium. Further section 14(1)(c) prohibits any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002). Therefore, the question before us is whether the impugned Bank Guarantee can be considered as PBGs which were exempted as per section 3(31) of the Code, which defines what is security. However, the proviso to section 3(31) of the Code exempts PBGs from the definition of security interest. Therefore, any Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of invocation of Bank Guarantees on the value maximization of the Corporate Debtor. We are of the considered view that invocation of Bank Guarantee in question will result in decreasing value of the Corporate Debtor and it dissuades participation of prospective applicants from submitting their bids and increase cost of power as there will be substantial impact on the capital cost of the project. From the above discussion, Issue No. (ii) is answered that the impugned Bank Guarantees are NBGs and are covered by rigor of moratorium under section 14 of the Code. ANSWER TO ISSUE No. (iii) : We observe from the submissions made by applicant that respondent no. 1 has submitted his claim to the Resolution Professional for customs duty payable by the Corporate Debtor on the imports made. Even though respondent no. 1 has not submitted his point of view on this, are of the view that this will create a special status for respondent no. 1 As on one hand respondent no. 1 has filed its claim with Resolution Professional for consideration and on the other hand respondent no. 1 tried to invoke Bank Guarantee to recover its dues, thereby putting itself on a higher pedestal than other creditors. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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