Bank guarantees not covered by Insolvency Code moratorium

The Tribunal held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 does not extend to bank guarantees provided by non-applicant-respondents. The bank guarantees were considered independent agreements and could be encashed during the insolvency proceedings. The application was dismissed, and parties were directed to bear their own costs in the circumstances of the case.

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Issues involved:
1. Whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 could be extended to bank guaranteesRs.
2. Whether the bank guarantees furnished by non-applicant-respondents could be restrained from encashment during the insolvency proceedingsRs.

Analysis:

Issue 1:
The Resolution Professional filed an application under Section 60(5) of the Code, 2016 to determine if the moratorium could be extended to bank guarantees. The Corporate Debtor was engaged in EPC services and had issued bank guarantees for security. The bank guarantees were to be furnished to the beneficiary, Andhra Pradesh State Power Generation Corporation Limited. The Resolution Professional received emails stating that the bank guarantees were being invoked for payment to the beneficiary. The Resolution Professional requested the bank to withhold encashment, citing the moratorium imposed under Section 14 of the Code, 2016. An interim order was passed to maintain status quo regarding encashment.

Issue 2:
The non-applicant-respondent no. 1 opposed the application, stating that the encashment of bank guarantees was lawful as it depended on an independent agreement. They argued that the application had become infructuous as the bank guarantees had already been encashed. The Tribunal analyzed the amended Section 14(3) of the Code, 2016, which clarified that moratorium does not apply to a surety in a contract of guarantee to a Corporate Debtor. Referring to a judgment of the Supreme Court, the Tribunal concluded that the bank guarantees could be encashed as they were independent agreements and not covered by the moratorium. The Tribunal dismissed the application, stating that the bank guarantees had been rightly invoked, and the interim order was vacated.

In conclusion, the Tribunal held that the moratorium under Section 14 of the Code, 2016 does not extend to bank guarantees provided by non-applicant-respondents. The bank guarantees were found to be independent agreements and could be encashed during the insolvency proceedings. The application was dismissed, and parties were directed to bear their own costs in the circumstances of the case.

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