2019 (9) TMI 1454 - Tri - Insolvency and Bankruptcy

Tribunal Orders Bank to Release Corporate Debtor's Fixed Deposit

Arvind Kumar Versus Punjab National Bank

Arvind Kumar Versus Punjab National Bank - TMI Issues:Application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 seeking direction to release funds of corporate debtor from fixed deposit held by respondent bank.Analysis:The judgment involves an application filed by the Resolution Professional against Punjab National Bank under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking direction to release funds of the corporate debtor from a fixed deposit. The corporate debtor had filed for initiation of Corporate Insolvency Resolution Process under Section 10 of the Code, which was admitted, and a moratorium was declared. The fixed deposit of Rs. 10 lacs with the respondent bank was pledged as security for a bank guarantee issued in favor of Honda Cars India Ltd., which had elapsed without invocation and renewal. The Resolution Professional requested the release of the fixed deposit since the business relationship with Honda Cars India Ltd. was terminated, and the fixed deposit was free from encumbrances. However, the respondent bank refused to release the fixed deposit citing Section 28 Exception 3 of the Indian Contract Act, 1872, stating that the time of invocation of the guarantee is 3 years.The respondent bank reiterated its stand in the reply filed during the proceedings. The Tribunal carefully considered the arguments presented by both parties. Section 28 of the Indian Contract Act, 1872 was analyzed, specifically Exception 3 which pertains to saving of a guarantee agreement of a bank or financial institution. The Tribunal examined the bank guarantee executed by the respondent bank in favor of Honda Cars India Ltd., noting that the guarantee was valid for a specific period and had specific clauses regarding the liability of the bank.Reference was made to a Supreme Court case which distinguished between 'assertion of right' and 'enforcement of right' in relation to Section 28 of the 1872 Act. The Court observed that limiting the period for making a claim against a guarantee is different from fixing a time period for lodging a claim. The effect of Exception 3 to Section 28 was discussed, emphasizing that it limits the period for issuing a guarantee to 1 year for banks and financial institutions. If a claim is not made within this period, the right to claim is lost. In this case, since the claim was not made within the stipulated period, the right to claim was lost, and the respondent bank's objection to releasing the fixed deposit was deemed unsustainable.Consequently, the Tribunal directed the respondent bank to release the fixed deposit of Rs. 10 lacs belonging to the corporate debtor within two weeks from the date of the judgment. The case was disposed of, and the Registry was instructed to communicate the order to the parties.