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TMI Blog2021 (10) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... t to file their claim before RP as financial creditor. 2. National Small Industries Corporation Limited, Respondent No. 1 is a Government Company registered under the Companies Act, which facilitates MSME and also provides integrated support services under Marketing, Technology, Finance and other Support service. 3. The RP submits that on 11.05.2012, the corporate debtor entered in an agreement dated 11.05.2012 with NSIC for raw material financial assistance against bank guarantee under raw material assistance scheme of NSIC. It is submitted that as per clause No. 4 of the agreement, the Corporate Debtor agrees and undertakes to repay the amount with interest @13.4% p.a. or at such other rate as the corporation may charge at its discretion, depending upon the variation in its lending rates, with a maximum period of 90 days from the date of debit of such amount. In case the payment is not received within the stipulated period, the borrower shall be liable to pay the additional interest @3% p.a. Further, as per clause No. 6 of the agreement, raw material assistance had been provided to the corporate debtor by the corporation subject to furnishing of the Bank Guarantee (BG) in form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliance of the agreement, 7 financial bank guarantees were submitted to NSIC & security interest was created in their favour. 5. In IB 364/ND/2019, an application was filed by an operational creditor M/s. Jasmeet Associates for initiating CIRP of corporate debtor Shri Ganesh Fire Equipment's Private Limited, which was admitted appointing Ms. Rekha Sharma as IRP. The public announcement about initiation of CIRP and invitation for submission of claims was made in Business Standard newspapers on 12.02.2020 and till date, NSIC has not submitted any claim form with the RP. 6. The RP submits that NSIC invoked all BGs on 14.02.2020. The actions of NSIC are in violations of the provisions of section 14(1)(c) of I & B Code, 2016 which provides moratorium prohibiting 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 SARFESI Act, 2002. The expression security interest has been defined in sub-section 31 of Section 3 of the 'I&B Code', which reads as follows: 'Security interest' means right, title or interest or a claim to property, created in favour of, or provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crystallized, the guarantor's liability should not be triggered. 10. The Respondent No. 1, NSIC has filed reply and has asserted as follows: i. That as per the agreement, the corporate debtor agreed to perform certain contractual non-financial obligations. The raw material assistance was granted by NSIC to the corporate debtor on their furnishing a bank guarantee. NSIC was entitled to invoke and encash the said bank guarantees on the terms & conditions as stipulated in the said bank guarantees. NSIC issued 7 irrevocable bank guarantees and these irrevocable bank guarantees were invoked by NSIC vide letter dated 14.02.2020. ii. That Respondent No. 2, Canara Bank withheld payment of bank guarantees on account of admission of the corporate debtor under CIRP. That irrespective of nature of the Bank Guarantees, Section 14(3)(b) of IBC, 2016 provides for non-applicability of section 14(1), meaning thereof the invocation of these bank guarantees shall not form part and parcel of the moratorium. iii. That it is denied that NSIC is a secured creditor, or any security interest was created in favour of this Respondent by the corporate debtor. That no charge over the assets of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferential transactions as per section 43(2) of IBC, 2016 and be required to be restored back in terms of section 44 of IBC, 2016 as this recovery would place the NSIC, being financial creditor in beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53. However, the IBC, aims at value maximisation of all the stakeholders and the distribution of assets in an equitable and a rule-based manner. Accordingly, it is opined that invocation of Bank Guarantees would affect the CIRP proceedings and thus barred by moratorium. v. That it is the duty of the RP to take necessary action to protect the assets of corporate debtor till completion of CIRP i.e. to take all legal steps to protect such invocation/encashment of bank guarantees. Any creditor who is owed money by a corporate debtor under insolvency resolution is required to approach the IRP/RP and file its claim and cannot invoke a bank guarantee to settle its dues or receive payments while the CIRP is ongoing. 13. The written submission has been filed by the RP and has asserted as follows: i. Legal issue involved in this matter is that whether the bank guarantee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractual financial obligation & contractual non-financial obligation in order to determine the nature of bank guarantee. ii. That in the Common trade parlance, Performance bank guarantee secures the beneficiary/vendee towards timely completion and the faithful performance of the Contract for provision of goods and services as per terms and conditions specified in the Contract which is a kind of a contractual non-financial obligation. In a case where the contractor/vendor fails to provide goods and services as per terms and conditions specified in the Contract, the bank will be liable for the contractor/vendor's failure to perform and to pay the amount mentioned in the guarantee document. On the other hand Financial guarantee is when the bank assures the beneficiary/lender about the borrower's intent of paying money which if the borrower is unable to pay as per the contract, the bank will pay on behalf of the borrower. iii. RBI circular clearly clarified that Bank Guarantee is a Performance Bank Guarantee if a bank guarantee is irrevocable undertaking to pay a third party in the event the counterparty fails to fulfill or perform a contractual non-financial obligation. H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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