Tribunal rules: Moratorium doesn't protect performance bank guarantees

The Tribunal ruled that the moratorium under Section 14 of the Insolvency and Bankruptcy Code does not extend to performance bank guarantees. As a result, the application seeking to prevent the Department of Telecommunications from invoking or renewing bank guarantees was rejected. The Tribunal did not grant the requested relief, and the application was dismissed without costs.

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Issues Involved:
1. Invocation and renewal of bank guarantees during the Corporate Insolvency Resolution Process (CIRP).
2. Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC) to performance bank guarantees.
3. Claims by the Department of Telecommunications (DoT) and the Bank of Baroda (BoB) against the Corporate Debtor.
4. Impact of moratorium under Section 14 of IBC on the invocation of bank guarantees.

Detailed Analysis:

1. Invocation and Renewal of Bank Guarantees During CIRP:
The Resolution Professional (RP) of the Corporate Debtor sought directions against the Respondents, specifically the Department of Telecommunications (DoT) and the Bank of Baroda (BoB), regarding the invocation and renewal of bank guarantees. The Corporate Debtor had availed credit facilities from various banks, including BoB, which issued performance and financial bank guarantees on behalf of the Corporate Debtor to DoT for securitization of usage charges under the license agreement.

2. Applicability of Section 14 of the IBC to Performance Bank Guarantees:
The RP contended that the moratorium under Section 14 of the IBC should apply to the bank guarantees, thereby prohibiting their invocation. However, the Tribunal noted that Section 3(31) of the IBC defines "security interest" and explicitly excludes performance guarantees from this definition. Citing the National Company Law Appellate Tribunal (NCLAT) decision in GAIL (India) Limited v. Rajeev Manaadiar & Others, the Tribunal observed that performance bank guarantees do not fall under the restrictions imposed by Section 14(1)(c) of the IBC.

3. Claims by DoT and BoB Against the Corporate Debtor:
During the CIRP, DoT filed claims amounting to Rs. 262.15 Crores, including amounts secured by bank guarantees. BoB also included uninvoked bank guarantees in its claims against the Corporate Debtor. The RP argued that renewing the bank guarantees would result in double liability for the Corporate Debtor, as both DoT and BoB would claim the same amounts. The RP sought directions to prevent DoT from invoking or demanding renewal of the bank guarantees and to return the guarantees to reduce the claims against the Corporate Debtor.

4. Impact of Moratorium Under Section 14 of IBC on the Invocation of Bank Guarantees:
The Tribunal reiterated that the moratorium under Section 14 of the IBC does not apply to performance bank guarantees. The Tribunal cited the Supreme Court's decision in Hindustan Construction Company v. State of Bihar, which held that bank guarantees represent an independent contract between the bank and the beneficiary, and courts are generally reluctant to grant injunctions against their invocation except in cases of fraud or irretrievable injury. The Tribunal concluded that no restraint order could be passed within the parameters of the IBC, as bank guarantees are not covered by Section 14.

Conclusion:
The Tribunal rejected the application filed by the RP, stating that the moratorium under Section 14 of the IBC does not apply to performance bank guarantees. Consequently, the prayers made by the RP to restrain DoT from invoking or demanding renewal of the bank guarantees and to return the guarantees were not considered. The application was disallowed without any order as to costs.

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