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TMI Blog2022 (9) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... he Adjudicating Authority has dismissed the I.A. of the Appellant and allowed the Respondents to continue with the process of invocation and encashment of 'Performance Bank Guarantee(s)' ('PBG') granted by the Appellant in favour of the first Respondent/'Corporate Debtor' undergoing CIRP. 2. Facts in brief are that State Bank of India/the Financial Creditor filed an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (herein after referred to as 'The Code') for initiation of the CIRP against the 'Corporate Debtor'/M/s. Meenakshi Energy Ltd. It is averred that just before the initiation of CIRP against the 'Corporate Debtor', on 28.06.2010, two Agreements in relation to supply and erection of a 700 MW thermal plant was entered into between the 'Corporate Debtor' and (EDAC) Engineering Ltd./the fourth Respondent herein. On 26.12.2014, a consortium of lenders including Rural Electrification Corporation Ltd. (RECL)/ the fifth Respondent herein sanctioned the term loan facility to the 'Corporate Debtor' for financing the project. The terms and conditions of these facilities are governed by a Common Loan Agreement (CLA) whereby the 'Corporate Debtor' was to provide s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess of the PBGs and granted an ad interim injunction. This Order was carried in an Appeal before the Hon'ble High Court Telangana during the pendency of which, CIRP was initiated by SBI against the 'Corporate Debtor'. Despite the moratorium, it is averred that the Hon'ble High Court of Telangana passed an Order on 06.01.2020 which was received by M/s Siemens Ltd. on 08.01.2020, and an SLP was preferred against the said Order. The Appellant requested the RP not to remit the amounts under the PBGs to the Trust Account until the disposal of the SLP. The SLP was filed on 09.01.2020 against the Order dated 06.01.2020 and the matter was listed 'For Hearing' on 10.01.2020. But the Counsel for the RP informed the Hon'ble Supreme Court that the PBGs were already encashed and therefore the SLP stands infructuous. Despite the encashment, Hon'ble Supreme Court issued 'Notice' in respect of the other reliefs prayed for by the Applicant in the SLP. 8. The Adjudicating Authority vide Order dated 30.01.2020 in I.A. No. 238 of 2020 has restrained the RP from the utilizing 'amounts of PBGs. 9. On 14.02.2020 the claims of M/s Siemens Ltd. as an Operational Creditor of the 'Corporate Debtor' was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay, reservation, contest, recourse protest or demur and without any enquiry into EDAC or the sub-contractor, without reference to sub-contractor, immediately upon MEL's written request indicating the amount demanded by MEL stating therein that the sub-contractor has failed to perform its obligations as per the above mentioned Agreement. Any such demand made by MEL on the bank shall be conclusive and binding not withstanding any differences between MEL, EDAC, the sub-contractor or any other person or any dispute pending before any court, tribunal or any other authority." 10. From the above clause, it is crystal clear that the invocation of BGs by MEL vide its letter dated 18.10.2019, stating that the Applicant herein failed to perform its obligations in terms of the Agreements, is completely in terms of the above referred clause which was duly agreed to by the parties to the contract. 11. Since the irrevocable BGs were invoked much prior to initiation of CIRP, this Adjudicating Authority cannot sit over the BGs already invoked at this juncture, more so in view of clause 2 of the BGs quoted above. 12. Though the Applicant herein is of the view that any appeal arising out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that the Ld. Counsel for the Appellant that the Bank Guarantees have been wrongfully invoked by MEL and that Clause 17 of the Bank Guarantees stipulated that MEL may assign or transfer the Bank Guarantees to its lender agent or Security Trustee with prior written notice to the Bank. The Ld. Counsel placed reliance on Clause 17 of the Bank Guarantee which is reproduced as hereunder: "MEL may assign or transfer all of its rights or interest in this Guarantee to its Lender, their Agent or Security Trustee along with the Agreement, with prior written notice to the Bank. Upon such assignment, MEL's lenders, their agent or security trustee shall assume all of the rights of MEL under this Guarantee all references in this Guarantee to MEL shall be constructed as a reference to MEL's lenders, their agent or security trustee." * REC in terms of Clause 17 of the Bank Guarantee intimated the HDFC Bank vide a letter dated 02.05.2018 that the Bank Guarantee stood assigned to REC. Ld. Counsel also drew our attention to Clause 3 of the CLA which is reproduced as hereunder: "This Obligations including the Facilities together with all interests, liquidated damages, fees, premia on pre-pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Supply and Erection Contract and Tripartite Agreements were entered into between the 'Corporate Debtor', the Appellant and EDAC, in terms of which, the Appellant furnished the subject two Bank Guarantees dated 22.02.2017 and 11.08.2017 respectively. Thereafter, a Supplemental Tripartite Agreement dated 10.08.2017 was executed between the 'Corporate Debtor', Appellant and EDAC in terms of which the work under the supply Order was to be completed by 31.09.2017 and work under the Erection Order was to be completed by 31.12.2017, but the Appellant was unable to comply with these dates. Owing to continuous defaults by the Appellant, the 'Corporate Debtor' was constrained to invoke the Bank Guarantees on 18.10.2019. * It is submitted that despite the Bank Guarantees being already invoked, the Appellant filed a suit before the Additional Chief Judge, Commercial Court, Hyderabad on 21.10.2019 seeking injunction against the said invocation. On 02.11.2019, the Trial Court granted an ad interim injunction. On an Appeal, the High Court of Telangana, vide an Order dated 06.01.2020 set aside the Order of the Trial Court. During the pendency of the Appeal on 07.11.2019, the CIRP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and discharged their liability to the beneficiary. Learned Counsel drew our attention to the e-mail sent by the RP which reads as under: Assessment: 14. The admitted facts regarding the Agreements entered into between the parties is not being reiterated for the sake of brevity. The main point which falls for consideration in this Appeal is whether the invocation of the Performance Bank Guarantees was justified keeping in view the sequence of events and also whether the Adjudicating Authority was justified in passing the Impugned Order and holding that the Orders of the Hon'ble High Court of Telangana has attained finality. 15. Section 14 of the Code reads as under: "Moratorium. - (1) Subject to provisions of sub-Sections (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 Judgement, decree or Order in any Court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the 'Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." Section 14(3)(b) states that a surety in a contract of guarantee to a 'Corporate Debtor' is not covered under Section 14. 16. Section 3(31) Describe Security Interest and states that Security Interest shall not include a Performance Bank Guarantees. 17. At the outset we address to whether the Performance Bank Guarantees were invoked prior to the Initiation of CIRP or during the Moratorium period. A brief chronology of the events is essential to be detailed at this juncture. 31.09.2017 Supplemental Tripartite Agreements entered into between the parties for the supply and erection work. 31.12.2017 -Do- 18.10.2019 The 'Corporate Debtor' issued two notices for invocation to Respondent No. 3. 02.11.2019 The Trial Court, Hyderabad declared injunction against the invocation. 07.11.2019 CIRP commenced against the 'Corporate Debtor'. 06.01.2020 Hon'ble High Court of Telangana set aside the Order of the Trial Court on the ground that Bank Guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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