2020 (1) TMI 1540 - Tri - Companies Law

Tribunal Upholds IRP's Application, Invalidates Termination & Bank Guarantee, Protects Corporate Debtor Rights

The Tribunal held that the application filed by the IRP was maintainable as it did not require prior concurrence of the CoC. The termination of work ... Maintainability of application filed by the IRP without prior concurrence of CoC - termination of work orders - invocation of bank guarantees - HELD THAT:- It is seen that in Section 14(1)(a) the word 'proceedings' is used, whereas in Section 33(5) the phrase 'legal proceeding' is used. The Legislature has itself made a distinction between the two terms in Sections 14(1)(a) and 33(5) of the Code which clarifies that both signify different meanings. If it so intended to provide for legal proceedings only under Section 14(1)(a), it would have explicitly stated the same. The word 'proceeding' or 'proceedings' is used in different hues and perspectives in IBC, 2016. Such usage in the Code includes arbitration, disciplinary, legal, bankruptcy, insolvency, liquidation, CoC meetings, under repealed/other acts, before Adjudicating Authority or IBBI or special/other courts, winding-up, in Schedules of amendments, etc. - proceedings under Section 14(1)(a) has a larger canvas and it covers various authorities. Since, the termination provisions/proceedings are void ab-initio, consequent action of invoking bank guarantees is non-est in law and liable to be set aside - Award of fresh tender by Respondent No. 1 under such circumstances, to the detriment of the Corporate Debtor, is also liable to be set aside. The actions of Respondent No. 1 are in violation of letter and spirit of IBC, 2016. The invocation of bank guarantees to the detriment of Corporate Debtor is also completely unsustainable - Provisions for termination included in or connected with instruments of Work Orders No. 1 and 2, are inconsistent inter-alia with Section 20 of IBC, 2016 and are invalid and prohibited under Section 238 of the Code. Moreover, termination proceedings could not be initiated or continued by Respondent No. 1 under bar of moratorium of Section 14 of the Code - Termination of Work orders 1 and 2 and all communication, including notices, in this regard is/are held to be inoperative and null - application disposed off. Issues Involved:1. Maintainability of IA 214/JPR/2020 filed by the IRP without prior concurrence of CoC.2. Whether the termination of work orders is in contravention of the letter and spirit of IBC, 2016.3. Whether Respondent No. 1 can invoke bank guarantees in the factual matrix of the case.Issue-wise Detailed Analysis:1. Maintainability of IA 214/JPR/2020:The Tribunal examined Section 28 of IBC, 2016, and concluded that the filing of IA 214/JPR/2020 by the IRP does not fall under the purview of Section 28, which requires prior approval of the CoC for certain actions. Therefore, the application filed by the IRP is maintainable.2. Termination of Work Orders:The Tribunal considered the relevant provisions of IBC, 2016, including the moratorium under Section 14, the overriding effect of Section 238, and the management of the corporate debtor as a going concern under Section 20. It was determined that the termination of the work orders by Respondent No. 1 during the moratorium period contravened these provisions. The Tribunal noted that the termination of Work Order No. 1 was done without proper notice and was inconsistent with the principles of natural justice. Additionally, the Tribunal highlighted that the termination proceedings were in violation of the Government of Rajasthan's circular granting an extension of six months to all contractual obligations due to the COVID-19 pandemic. Thus, the termination actions were held to be against the letter and spirit of IBC, 2016, and were declared inoperative and null.3. Invocation of Bank Guarantees:The Tribunal stated that any action taken as a consequence of an invalid root action, such as the termination of work orders, is per se illegal and invalid. Citing the Hon'ble Supreme Court's observation in State of Punjab vs. Davinder Pal Singh Bhullar & Ors., it was concluded that since the termination provisions/proceedings were void ab-initio, the consequent invocation of bank guarantees by Respondent No. 1 was non-est in law and liable to be set aside. The Tribunal directed Respondent No. 3 (Punjab National Bank) to place a lien on the bank accounts of Respondent No. 1 for the amount equivalent to the bank guarantees invoked and to hold this sum as custodia legis until further directions.Judgment:The Tribunal held and ordered that:a. Provisions for termination included in or connected with the instruments of Work Orders No. 1 and 2 are invalid and prohibited under Section 238 of IBC, 2016.b. Termination of Work Orders 1 and 2 and all related communications are inoperative and null.c. The invocation of bank guarantees by Respondent No. 1 is untenable, and Respondent No. 3 is directed to place a lien on Respondent No. 1’s bank accounts for the amount of the bank guarantees invoked.d. Respondent No. 1 and 3 are directed not to take any prejudicial action against the Corporate Debtor during the CIRP period without prior approval of the Adjudicating Authority.e. Any fresh tender awarded in this regard is invalid and void.f. The Corporate Debtor is at liberty to raise claims for its dues in accordance with the law.The applications IA No. 214/JPR/2020 and IA No. 167/JPR/2020 were disposed of with these directions.