Performance Bank Guarantees not covered under Section 14 moratorium; NCLT allows their invocation

The Tribunal rejected the Applicant's plea for an injunction against the invocation of Bank Guarantees, stating that the moratorium under Section 14 does not apply to Performance Bank Guarantees. The Tribunal held that the invocation of such guarantees is permissible and cannot be restrained by the NCLT. The Tribunal directed that any surplus amount from the invocation should be kept in an escrow account and dealt with as per the orders of a competent court. The Tribunal disposed of the application accordingly.

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Issues Involved:
1. Invocation of Bank Guarantees during the Corporate Insolvency Resolution Process (CIRP).
2. Application of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (I&B Code) to Performance Bank Guarantees.
3. Jurisdiction of the National Company Law Tribunal (NCLT) to restrain invocation of Bank Guarantees.

Issue-wise Analysis:

1. Invocation of Bank Guarantees during CIRP:
The Applicant, EPC Constructions India Limited, sought an injunction against the invocation of two Bank Guarantees issued by Axis Bank Limited by Respondent No.1, NLC India Limited, alleging fraudulent invocation and violation of the I&B Code. The Tribunal noted that the moratorium under Section 14 of the I&B Code prohibits the institution of suits or transferring/encumbering any assets of the Corporate Debtor during the CIRP. However, the Tribunal found that the moratorium does not apply to Performance Bank Guarantees, as they do not constitute "security interest" under Section 14. The Tribunal referenced the NCLAT decision in GAIL (India) Limited, which held that Performance Bank Guarantees are not covered by the moratorium and can be invoked by the beneficiary.

2. Application of Moratorium under Section 14 to Performance Bank Guarantees:
The Tribunal clarified that the moratorium under Section 14 of the I&B Code does not extend to Performance Bank Guarantees. The Tribunal cited the definition of "security interest" under Section 3(31) of the I&B Code, which explicitly excludes performance guarantees. The Tribunal concluded that the invocation of Performance Bank Guarantees does not violate the moratorium provisions and thus, cannot be restrained by the NCLT. This position was reinforced by the NCLAT ruling in GAIL (India) Limited, which allowed the invocation of Performance Bank Guarantees during the moratorium period.

3. Jurisdiction of NCLT to Restrain Invocation of Bank Guarantees:
The Tribunal emphasized that it is not within the jurisdiction of the NCLT to adjudicate disputes regarding the invocation of Bank Guarantees, as these are independent contracts between the bank and the beneficiary. The Tribunal stated that such matters should be resolved by competent civil courts. The Tribunal referred to the Supreme Court's decision in Hindustan Construction Company and the Bombay High Court's ruling in Murablack India Limited, which underscored that Bank Guarantees are separate, distinct contracts and their invocation should not be interfered with by courts, except in cases of fraud or irretrievable injustice. The Tribunal concluded that the NCLT, under the I&B Code, should not restrain the invocation of Performance Bank Guarantees, as it falls outside its summary jurisdiction.

Conclusion:
The Tribunal rejected the Applicant's plea for an injunction against the invocation of the Bank Guarantees, stating that the moratorium under Section 14 does not apply to Performance Bank Guarantees. The Tribunal held that the invocation of such guarantees is permissible and cannot be restrained by the NCLT. The Tribunal directed that any surplus amount from the invocation should be kept in an escrow account and dealt with as per the orders of a competent court. The Tribunal disposed of the application accordingly.

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