Moratorium and guarantee enforcement: performance guarantees fall outside protection, while electricity supply must continue as an essential service.

Under the insolvency moratorium, performance guarantees are excluded from the definition of security interest and therefore are not protected from invocation, while other bank guarantees that fall within security interest remain covered. The commentary also states that an unconditional guarantee must ordinarily be honoured, subject to limited exceptions. Electricity is treated as an essential service, so its termination, suspension or interruption during moratorium is impermissible; however, the corporate debtor must still clear current consumption charges. The overall position is that moratorium protection does not extend to performance guarantees, but it does preserve essential utility supply during the insolvency process.

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Issues: (i) Whether bank guarantees could be invoked during the moratorium period, and whether performance guarantees were covered by the moratorium; (ii) Whether electricity supply to the corporate debtor could be restored during the moratorium period.

Issue (i): Whether bank guarantees could be invoked during the moratorium period, and whether performance guarantees were covered by the moratorium.

Analysis: The moratorium under the Insolvency and Bankruptcy Code operates against enforcement of security interest in the corporate debtor's property. Section 3(31) expressly excludes performance guarantees from the definition of security interest. Accordingly, the protection of moratorium does not extend to performance guarantees, though it does apply to guarantees that fall within the scope of security interest. Invocation of bank guarantees is otherwise governed by the settled principle that an unconditional guarantee must be honoured, subject only to narrowly recognised exceptions.

Conclusion: Performance guarantees could be invoked notwithstanding the moratorium. Bank guarantees other than performance guarantees could not be invoked during the moratorium.

Issue (ii): Whether electricity supply to the corporate debtor could be restored during the moratorium period.

Analysis: Electricity is an essential service, and section 14(2) prohibits termination, suspension, or interruption of such supply during moratorium. The Tribunal followed the statutory protection for essential supplies and held that disconnection of power supply after commencement of moratorium was impermissible, while also recognising that current consumption charges must be cleared.

Conclusion: The electricity supplier was directed to continue supply to the corporate debtor, subject to payment of outstanding electricity consumption charges.

Final Conclusion: The application succeeded only in part: moratorium protection was held inapplicable to performance guarantees, while non-performance guarantees remained protected, and electricity supply was ordered to continue as an essential service during the insolvency process.

Ratio Decidendi: A performance guarantee is excluded from security interest and therefore is not protected by the moratorium, whereas essential services such as electricity cannot be suspended during moratorium under the insolvency regime.

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