TMI Blog2021 (9) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... ormance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of CIRP amounts to grant of credit facility to the Corporate Debtor before CIRP. The amount retained by the Customer. Indian Nary- by invoking Bank Guarantee was released by Indian Navy on 28.09.2020. The amount was released br. The customer, Indian Nay after the date of commencement of CIRP when the moratorium is in force to the Corporate Debtor. 27. As per Section 14 of IB Code and in line with the decision of the Hon'ble NCLAT in the matter of Indian Overseas Bank vs. Mr. Dinkar T. Venkatsubramaniam, Resolution Professional for Amtek Auto Limited, Company Appeal (AT) (Insolvency) No. 267 of 2017, the amount received during the CIRP when the moratorium is in force, is the asset of the Corporate Debtor and RP has to deal with the same as per the provisions of the IB Code. The Respondent is not entitled to adjust the same when the moratorium is in force. If, he has any dues pending from the Corporate Debtor on the date of commencement of CIRP, it is open for him to file his claim before the RP. 2. Submissions on behalf of Learned Counsel appearing for the Appellant: In 2016, the Corporate Debtor approached the Appellant seeking an Additional Bank Guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on between the IRP and the Appellant Bank on 10.02.2020, 11.02.2020, 04.03.2020 and 03.07.2020. While so on 28.09.2020, the Indian Navy refunded the amount into the Current Account of the Corporate Debtor maintained with the Appellant Bank. On 12.10.2020 and on 29.10.2020 the IRP wrote to the Appellant Bank seeking transfer of the amount to the Corporate Debtor s Account. The Appellant Bank did not accede to the request but appropriated the amounts on the ground that the asset did not belong to the Corporate Debtor but to the Bank as the Corporate Debtor did not even pay the margin money. Learned Counsel strenuously argued that on 22.08.2019, the Government sought for extension of the Bank Guarantee or invocation, but since extension could not be done by the Corporate Debtor , the Indian Navy invoked the Bank Guarantee and demanded the sum of ₹ 3.34 Crores. Under the Bank Guarantee, the Appellant Bank had an independent obligation to pay the said sum to the Government and therefore, the payment was made in discharge of this obligation. Learned Counsel relied on the following case laws in support of his contentions:- 1. Ansal Engineering Projects Ltd. Vs. Teh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preserve the asset of the Corporate Debtor including the asset which may or may not be in possession of the Corporate Debtor . The Appellant cannot claim the refund amount as it is stated as a receivable in the books of the Corporate Debtor and the Order of Moratorium under Section 14 of the Code shall be equally applicable on all the stakeholders of the Corporate Debtor including the Appellant. The Learned Counsel in support of his contention placed reliance on the following Judgements:- I. Bank of India Ors. Vs. Ferro Alloy Corporation Ltd. through Mr. Buban Madan Resolution Professional in Company Appeal (AT) (Insolvency) No. 590 of 2020 dated 28.05.2021. II. State Bank of India Vs. Debashish Nanda in Company Appeal (AT) (Insolvency) No. 49 of 2018 dated 27.04.2018. III. Indian Overseas Bank Vs. Mr. Dinkar T. Venkatsubramaniam Resolution Professional for Amtek Auto Ltd. in Company Appeal (AT) (Insolvency) No. 267 of 2017 dated 15.11.2017. Assessment: 4. The brief point which falls for consideration in this Appeal is whether the Corporate Debtor has any right with respect to money received from reversal of invocation of a Performance Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified;] 2[(3) The provisions of sub-section (1) shall not apply to- 3[(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;] (b) a surety in a contract of guarantee to a corporate debtor.]. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supplied) 7. The definition of security interest as defined under Section 3(31) of the Code excludes Performance Guarantee. The said section is reproduced as hereunder:- 3. Definitions.-In this Code, unless the context otherwise requires,- ... (31) security interest means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee; (Emphasis Supplied) 8. 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 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances attending thereto. It is, to our mind, impermissible in law. 11. 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). The Hon ble Supreme Court in a Catena of Judgements has laid down that margin money acquires the character of Trust when it is given against the Bank Guarantee issued to the beneficiary and asset held under Trust cannot be considered as an asset of the Corporate Debtor . It is significant to mention that in the instant case even the margin money was put in by the Bank and not by the Corporate Debtor . 12. This Tribunal in Bharat Aluminum Co. Ltd. Vs. J.P. Engineers Pvt. Ltd. and Ors. in Company Appeal (AT) (Insolvency) No. 759 of 2020 dated 26.02.2021, observed that Bank Guarantee cannot be invoked during Moratorium period issued under Section 14 of the IBC in view of the amended provisions under Section 14(3)(b) of the IBC . The Hon ble AP High Court in the case of Haryana Telecom Ltd. Vs. Aluminum Industries Ltd. (1995) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials to keep the Company a going concern . But the banks adjusted the Credit Balance in the Credit Account towards dues after commencement of CIRP. 16. The proposition laid down in Indian Overseas Bank Vs. Mr. Dinkar T. Venkatsubramaniam Resolution Professional for Amtek Auto Ltd. Company Appeal (AT) (Insolvency) No. 267 of 2017 dated 15.11.2017, is prior to the second amendment made effective from 06.06.2018 and hence is not applicable to the facts of this case. As regarding the facts of State Bank of India (Supra) relied upon by the Respondent Counsel, they are completely difficult and are not remotely connected to a Performance Bank Guarantee . 17. 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 . 18. It is a well settled proposition that a Bank Guarantee is an independent and a distinct contract between the Bank and the beneficiary and in the event of any default, the beneficiary would realise the amount under the Bank Guarantee from the Bank and not from the Corporate Debtor . Bank Guarantees are issued for some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Guarantee issued by the Appellant Bank. (Annexure-9) specifies the Account details for refund of the Performance Bank Guarantee amount stating as follows:- An amount of ₹ 3,34,90,458/- (Rupees three crore thirty-four lakhs ninety thousand four hundred and fifty-eight only) against PBG No. 1979│GPER000916 was encashed in Aug 19, from UCO Bank, Mumbai view non-submission of extended PBG. 5. The record shows that the CIRP was initiated on 15.01.2020, the Bank Guarantee was invoked on 29.08.2019 prior to the initiation of CIRP but the money was transferred by the Indian Navy on 28.09.2020 and the revised claim was preferred by the Appellant Bank only on 29.10.2020. Effectively, the money which went out on 28.08.2019 from the Bank was returned on 28.09.2020. 6. Additionally, it is a well settled proposition that Margin Money acquires the character of Trust when it is given against a Performance Bank Guarantee. In the instant case, even the margin money was not paid by the Corporate Debtor but by the Bank. Conclusion: 20. For all the aforenoted reasons, we hold that the amount refunded on reversal of the invocation by the Indian Navy ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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