TMI Blog2021 (6) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... is evident on record that neither the Corporate Debtor indulged in fraud nor the IOCL had indulged in fraud giving scope to the bankers to raise objections against the bank guarantees because the Banks are under obligation to permit IOCL to encash the bank guarantees. In case, any issue is pending between the banks and the Corporate Debtor, it has to be dealt with the Corporate Debtor, but not with IOCL to whom the guarantee has been given - It is evident on record that work is not complete, so long as work is not complete, the Contractor is at liberty to encash the guarantee because mobilization advance is given so as to facilitate the corporate debtor Contractor to accomplish the work without any impediment, advance bank guarantee cannot be seen as something different from performance bank guarantee. In the performance bank guarantee, guarantee will be taken without even providing any advance. If bank guarantee is beyond the mentioned amount in the bank guarantee, if the bank guarantee is encashed by indulging into fraud behind the back of the Banks, then it could be understood that this Contract is vitiated the fraud, but in this case, the bank guarantees have remained same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D on 26.02.2015, IOCL on 28.08.2015 accepted CD bid for the work pertaining to the Haldia Project. 4. As per clause 2.1.0.0 of the General Conditions of Contract (GCC) and clause 7.2.0 Special Conditions of Contract (SCC) of letter of acceptance, CD undertook to furnish bank guarantees equivalent to 10% of the contract value for availing mobilization advance equivalent to 10% of the contract price divided into two parts i.e., 10% of the Foreign Currency portion comprised in the lump-sum price and 10% of the Indian Rupees comprised in the lump-sum price. In order to obtain mobilization advance incompliance of the Clauses aforementioned, CD furnished bank guarantees for an amount of ₹ 167.35 Crore. It is submitted that the Corporate Debtor from time to time has extended the validity of bank guarantees in good faith at request of IOCL. 5. IOCL is in possession of numerous bank guarantees furnished by the Corporate Debtor for a total amount of ₹ 167.35 Crore, out of which, the bank guarantees amounting to ₹ 93,66,04,287 have been invoked by IOCL by way of Impugned Letters to the Respondent Banks i.e., R2 and R3. With regard to these Impugned Letters, the RP file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished by R2 and R3 banks. 12. The Banks Counsel submits that the advance bank guarantees are not the same as performance bank guarantees and therefore they are not covered under exception to Section 3(31) of the Code and cannot be invoked during the moratorium under Section 14 of the Code. 13. The Banks Counsel has further stated that the bank guarantees are required to be strictly construed in terms thereof and no unilateral changes can be made to the bank guarantees terms without intimation to and concurrence of the Banks as the same would amount to novation of the contracts with the Banks. The Bank Counsel has further argued that the letter issued by the Corporate Debtor for additional financial support by giving promise to keep bank guarantees remain alive for full value, amounts to fraud, therefore the bank guarantees invoked by IOCL shall be declared as null and void. The Bank Counsel further submits that NCLT has jurisdiction under Section 60(5) of the Code to deal with the issues of bank guarantees including the issue of fraud upon the banks by IOCL and the Corporate Debtor. The Bank Counsel has further stated that the invocation of bank guarantees during moratorium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 18. Upon perusal of the facts aforementioned and legal preposition raised by the either side, the point for consideration is, as to whether IOCL can invoke and encash the bank guarantees during the CIRP or not? 19. The general law that is in-force with regard to bank guarantee is, the Court shall not interfere with respect to bank guarantees unless it is vitiated by fraud. The bank guarantees are independent contracts enforceable against the bank, the banks are only permitted to raise objections in the case of fraud. Here, the guarantees are furnished by 3rd parties i.e., by the Banks to IOCL. After insertion of sub-section 3 to Section 14, the prohibition that comes into force through Sub-section 1 of Section 14 of the Code will not apply to a Surety in a contract of guarantee to a Corporate Debtor. This clause has come into existence on 06.06.2018 through an amendment. 20. When the guarantee given by a Guarantor does not fall within the ambit of Security Interest provided by the Corporate Debtor, the moratorium that comes into force by Section 14 of the Code is not applicable not only to the bank guarantees, but also to the Surety given to the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case that the debtor has paid in full inspite of it IOCL making an attempt to encash guarantees. 24. If bank guarantee is beyond the mentioned amount in the bank guarantee, if the bank guarantee is encashed by indulging into fraud behind the back of the Banks, then it could be understood that this Contract is vitiated the fraud, but in this case, the bank guarantees have remained same and the Corporate Debtor has taken additional financial support to accomplish the contract work. Such availing additional financial support cannot mean that Banks are absolved from the obligation of discharging their part of contract. Upon examination of letters given by the Banks to IOCL, they only reflect that guarantees are limited to the amount mentioned therein and the Banks undertook to pay the guarantee amount upon written demand made by IOCL. For the sake of repetition, we again reiterate that bank guarantees are independent contracts and they shall be obliged independently. The Corporate Debtor taking an additional financial support or IOCL not reducing the advance amount from the running bills will not tantamount to indulge in fraud, therefore IOCL is at liberty to encash the bank guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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