Respondent Violates Moratorium by Encashing Bank Guarantees: Tribunal Orders Refund

The Tribunal found the Respondent's encashment of Bank Guarantees during the Corporate Insolvency Resolution Process (CIRP) to be a violation of Section 14 of the Insolvency and Bankruptcy Code. The Respondent was directed to refund the wrongfully encashed amount to the Corporate Debtor's account within one week. The Tribunal emphasized the importance of upholding the moratorium under Section 14 to safeguard the Corporate Debtor's assets and prevent unauthorized actions during the CIRP.

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Issues:
Violation of Section 14 of the Insolvency and Bankruptcy Code, 2016 by the Respondent regarding encashment of Bank Guarantees during the Corporate Insolvency Resolution Process (CIRP).

Analysis:

Issue 1: Violation of Section 14 of the Code
The Resolution Professional filed an application seeking direction from the Tribunal for the Respondent to refund money equivalent to the Bank Guarantee against "mobilisation advances" that were encashed during the CIRP without any termination of contract or dispute regarding services provided by the Corporate Debtor. The Bank Guarantees were encashed by the Respondent after the commencement of the CIRP, in violation of Section 14 of the Code, which imposes a moratorium on actions to foreclose, recover, or enforce any security interest created by the Corporate Debtor. The Respondent's actions were deemed unlawful as they encashed the Bank Guarantees without valid reasons or termination of the contract, taking advantage of the initiation of CIRP.

Issue 2: Interpretation of Section 14 and Relevant Case Laws
The Tribunal referred to Section 14 of the Code, emphasizing that the moratorium prevents alienation of the Corporate Debtor's assets until the approval of a Resolution Plan or a liquidation order. The Tribunal cited judgments of the Hon'ble NCLAT and Delhi High Court, establishing that Bank Guarantees are considered security interests, and any invocation of Bank Guarantees during the CIRP is prohibited. The case of Indian Overseas Bank Vs. Mr. Dinkar T Venkatsubramaniam highlighted that once a moratorium is declared, no recovery can be made from the Corporate Debtor. The decision in Power Grid Corporation of India V. Jyoti Structures Limited emphasized that Section 14 is intended to protect the Corporate Debtor's assets, prohibiting debt recovery actions during the moratorium period.

Conclusion
The Tribunal found the Respondent's actions to be a clear violation of Section 14 of the Code, directing them to refund the wrongfully encashed amount of Rs. 34,28,000 to the account of the Corporate Debtor within one week. The application was allowed, and the matter was disposed of accordingly, reinforcing the importance of adhering to the provisions of the Code during the CIRP to protect the interests of the Corporate Debtor.

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