TMI Blog2022 (5) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Legislature. Mobilisation Advance Bank Guarantee - HELD THAT:- Mobilisation Advance Bank Guarantee is meant specifically for facilitating the Contractor to spend for provisioning the works contract service. The contract provides a mechanism in the form of this Bank Guarantee which ensures that the advance is not diverted to any other purpose but utilised for the specific work contract. It s application as payment is therefore direct and is like a consideration whether or not in the form of a deposit for the supply of the works contract service. This Tribunal in UCO BANK VERSUS SUDIP BHATTACHARYA RESOLUTION PROFESSIONAL OF RELIANCE NAVAL ENGINEERING LTD. [ 2021 (9) TMI 932 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH, NEW DELHI] , has held that it is a well settled proposition that liability under Performance Bank Guarantee cannot be terminated by actions of a third party and that a Bank which gives a Performance Guarantee must honour its Guarantee according to its terms. Mobilisation Advance is an advance meant for ensuring/performing a contract and does not construe a debt except in the case of home allottees where there is considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Per : Shreesha Merla , Member ( T ) ] 1. Challenge in this Appeal is to the Impugned Order dated 20/01/2022 in I.A.2190/2020 in C.P. No. 4513/I B/MB/2018, passed by the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Special Bench), whereby the Adjudicating Authority has allowed the Application preferred by the Resolution Professional (RP) under Section 14(1) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as The Code ), wherein the RP has inter alia sought direction to M/s. Engineering Projects (India) Limited/the Appellant herein to refund the money equivalent to the Bank Guarantees invoked by them. By the Impugned Order, the Adjudicating Authority has observed as follows: 10. Reference is also made to a decision of Hon ble NCLAT in the case of Indian Overseas Bank Vs. Mr. Dinkar T Venkatsubramaniam [Company Appeal (AT) (Insolvency) 267 of 2017] 5. Having heard learned counsel for the Appellant, we do not accept the submissions made on behalf of the appellant in view of the fact that after admission of an application under Section 7 of the I B Code , once moratorium has been declared it is not open to any person includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orks and had requested the Appellant to take up the project. It was averred that the Appellant, in terms of the Contract, invoked the Bank Guarantees on 26/12/2018 and on 25/03/2019. While so, the Corporate Debtor was initiated against the Corporate Debtor Company and Moratorium was imposed under Section 14 vide Order dated 27/03/2019. 3. Learned Counsel for the Appellant submitted that a Bank Guarantee being an independent Contract between the Guarantor Bank and a beneficiary and specifically a Performance Bank Guarantee is not covered under the definition of Security Interest as defined in Section 3(31) of the Code; that the Adjudicating Authority has not taken into consideration. Section 14(3)(b) of the Code which is applicable with effect from 06/06/2018 (provided under the second Amendment of the Code; that the Bank Guarantees already stood invoked as on 26/12/2018 and on 25/03/2019 which is much prior to the date of the Public Announcement of the CIRP i.e., 30/03/2019; that the Adjudicating Authority has ignored the ratio laid down by this Tribunal in Bharat Aluminium Co. Ltd. Vs. JP Engineers Private Limited Ors. , Company Appeal (AT) (Insolvency) No. 759 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the Adjudicating Authority has rightly relied on the decision of this Tribunal in Indian Overseas Bank Vs. Mr. Dinkar T. Venkatsubramaniam Resolution Professional for Amtek Auto Ltd. , Company Appeal (AT) (Insolvency) No. 267 of 2017. 6. The main point which arises for consideration is whether a Performance Bank Guarantee and/or Mobilisation Advance Bank Guarantee be invoked or encashed after Moratorium has been imposed under Section 14 of the I B Code, 2016. Section 14 reads as follows: 14. Moratorium.-(1) Subject to provisions of subsections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproves 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 or liquidation order, as the case may be. (Emphasis 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 Insolvency Law Committee appointed by the Ministry of Corporate Affairs in its report dated 26.03.2018 discussing the issue of the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Creditor or Lender an amount on behalf of the Debtor i.e., if a debtor fails to fulfil its obligations and repay the amount, the bank will step into the shows of the Debtor and discharge the commitment. In a Performance Bank Guarantee , compensation of money will be made by the Bank when there is any delay in delivering the performance. The payment will necessarily have to be made even if the service is delivered inadequately. A Performance Bank Guarantee kicks in if services of goods are not provided to the buyer by the seller as per the specifications mentioned in the Contract. Thus, a Performance Bank Guarantee provides an assurance of compensation in the event of any inadequate performance of Contract. Section 3(31) of the Code excludes Performance Guarantee from the definition of Security Interest which certainly expresses the intention of the Legislature. Mobilisation Advance Bank Guarantee: 10. Mobilisation Advance Bank Guarantee is meant specifically for facilitating the Contractor to spend for provisioning the works contract service. The contract provides a mechanism in the form of this Bank Guarantee which ensures that the advance is not diverted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on its own terms. It is considered to be a separate transaction. 34. If a construction, as was suggested by Mr. Naphade, is to be accepted, it would also be open to a banker to put forward a case that absolute and unequivocal bank guarantee should be read as a conditional one having regard to circumstances attending thereto. It is, to our mind, impermissible in law. 15. We are of the view that the intent of the Code was not to terminate Agreements that have created legal rights in favour 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). 16. 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 can 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) SCC OnLine AP 721, held that the Bank Guarantee cannot be said to be the property of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15; (c) constitute a committee of creditors; (d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors; (e) file information collected with the information utility, if necessary; and (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including- (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, we are of the considered view that the amount does not belong to the Corporate Debtor . What does not belong to the Corporate Debtor cannot be sought to be refunded back to the Corporate Debtor . In the instant case, the Corporate Debtor was unable to execute the work with the given advance and the Mobilisation Advance Bank Guarantee , which is generally issued at the commencement of the contract, viewed from any angle, cannot be said to be an Asset belonging to the Corporate Debtor . Section 18(f) empowers the IRP to take control and custody of any asset over which the Corporate Debtor has Ownership Rights . The IRP/RP has no jurisdiction to take a third party asset, which does not belong to the Corporate Debtor . For all these reasons, this Tribunal is of the earnest view that the amount involved in a Performance Bank Guarantee and Mobilisation Advance Bank Guarantee is not an Asset of the Corporate Debtor . Therefore, this Tribunal is of the considered opinion that undisputedly these two Bank Guarantees were issued to ensure Performance of an obligation to construct 105 Residential Quarters and towards Security for execution of the same, it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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