Application to Restrain Liquidator from Invoking Bank Guarantee Dismissed

KSB SHANGHAI PUMP CO. LTD. Versus IDBI BANK P. LTD. AND OTHERS

KSB SHANGHAI PUMP CO. LTD. Versus IDBI BANK P. LTD. AND OTHERS - [2020] 218 Comp Cas 135 (NCLT - Hyd) Issues Involved:
1. Restraining the liquidator from invoking or encashing the bank guarantee.
2. Determining the validity and enforceability of the bank guarantee.
3. Assessing the applicant's claim against the corporate debtor.
4. Evaluating the grounds for granting an injunction against the invocation of the bank guarantee.

Issue-wise Detailed Analysis:

1. Restraining the Liquidator from Invoking or Encashing the Bank Guarantee:
The applicant sought directions under section 60(5) of the Insolvency and Bankruptcy Code, 2016, to restrain the liquidator from invoking the bank guarantee (BG) issued by the Bank of China for USD 510,000. The applicant argued that the corporate debtor failed to comply with the terms of the agreement, specifically the failure to open or extend a Letter of Credit (LC), which led to the suspension of manufacturing work and warehousing costs. The applicant contended that there was no occasion for the corporate debtor to invoke the BG since the pumps were ready for delivery but the corporate debtor failed to take delivery.

2. Determining the Validity and Enforceability of the Bank Guarantee:
The resolution professional (RP) argued that the BG in question was an unconditional bank guarantee, which is a separate contract between the bank and the corporate debtor. The RP relied on the Supreme Court's decisions in *Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co.* and *National Highway Authority of India v. Ganga Enterprises*, which established that courts should not interfere with the invocation of an unconditional bank guarantee unless there is fraud or irretrievable harm. The RP asserted that the applicant's refusal to extend the Advance Bank Guarantee (ABG) and the termination of the principal contract by TANGEDCO necessitated the invocation of the BG.

3. Assessing the Applicant's Claim Against the Corporate Debtor:
The applicant submitted a claim for INR 20,96,83,439, which was rejected by the RP on the grounds that the materials were ready but not delivered, and no invoices were raised, thus establishing no liability on the part of the corporate debtor. The RP contended that the applicant's claim was not admissible as it was based on prepared materials that were never supplied, and the books of the corporate debtor did not record any liability towards the applicant.

4. Evaluating the Grounds for Granting an Injunction Against the Invocation of the Bank Guarantee:
The Tribunal considered whether the invocation of the BG amounted to fraud or would cause irreparable injury. The applicant failed to establish any fraud in the invocation of the BG. The Tribunal noted that the BG was invoked in terms of the guarantee and that the applicant's disputes regarding the performance of the contract could not be resolved in a summary manner. The Tribunal emphasized that the existence of disputes between the parties to the contract does not justify restraining the enforcement of an unconditional bank guarantee.

Conclusion:
The Tribunal dismissed the application, stating that no material evidence was provided to prove that the invocation of the bank guarantee was fraudulent or would cause irreparable injury. The Tribunal held that the applicant's grievances regarding the performance of the contract required detailed consideration and could not be resolved summarily. Consequently, the interim order, if any, was vacated, and the application was dismissed.