Tribunal restrains invoking Bank Guarantees during CIRP, deems it against IBC objectives

The Tribunal ruled in favor of the applicant, restraining respondent no. 1 from invoking Bank Guarantees before the 120-month period from the date of import expires or until the conclusion of the Corporate Insolvency Resolution Process (CIRP), whichever is earlier. The Bank Guarantees were classified as Non-Performance Bank Guarantees (NBGs) and were deemed subject to the moratorium under section 14 of the Insolvency and Bankruptcy Code. Respondent no. 1's attempt to invoke the Bank Guarantees after filing a claim was deemed contrary to the objectives of the IBC. The application was disposed of in favor of the applicant.

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Issues Involved:
1. Whether respondent no. 1 is in order in invoking Bank Guarantees when O.M. dated 12.04.2017 (EXHIBIT A5), provides time period for Provisional Mega Projects, for furnishing Final Mega Certificates to the Tax authorities to 120 months.
2. Whether the impugned Bank Guarantees can be termed as Performance Bank Guarantees (PBGs) and are exempted from the moratorium under section 14(a)(1) of the IBC as amended by Insolvency and Bankruptcy Code (Amendment) Act, 2020.
3. Whether it is in order for respondent no. 1 to invoke Bank Guarantees when respondent no. 1 has filed its claim with the Resolution Professional for the amount due from the Corporate Debtor for which these Bank Guarantees are issued.

Detailed Analysis:

Issue 1: Invocation of Bank Guarantees within the Extended Period
The Corporate Debtor was granted an extension to furnish the Final Mega Power Project Certificate within 120 months from the date of import, as per the Office Memorandum dated 12.04.2017. The Corporate Debtor imported machinery in 2011, thus enjoying the benefit of customs duty exemption until 2021. The Tribunal agreed with the applicant's contention that respondent no. 1 is estopped from recovering any amounts whatsoever before the expiry of 120 months from the date of import. Therefore, respondent no. 1 cannot invoke the Bank Guarantees before the said period expires.

Issue 2: Classification of Bank Guarantees as Performance or Non-Performance
The Tribunal examined whether the impugned Bank Guarantees are Performance Bank Guarantees (PBGs) or Non-Performance Bank Guarantees (NBGs). The guarantees were issued for availing customs duty exemptions and not for project completion. Thus, they are classified as NBGs. Section 3(31) of the IBC excludes PBGs from the definition of 'security interest,' and section 14(1)(c) prohibits actions to foreclose, recover, or enforce any security interest during the moratorium. The Tribunal concluded that the impugned Bank Guarantees are NBGs and are covered by the moratorium under section 14 of the Code.

Issue 3: Invocation of Bank Guarantees after Filing of Claims
Respondent no. 1 filed its claim with the Resolution Professional for the customs duty payable by the Corporate Debtor. The Tribunal noted that allowing respondent no. 1 to invoke the Bank Guarantees while having filed a claim would place it on a higher pedestal than other creditors, contrary to the objective of the IBC, which aims for the revival and resolution of the Corporate Debtor in a time-bound manner while optimizing asset value and protecting stakeholders' interests. Therefore, respondent no. 1's attempt to invoke the Bank Guarantees is not in the spirit of the IBC.

Conclusion:
The Tribunal restrained respondent no. 1 from invoking the Bank Guarantees until the expiry of 120 months from the date of import or until the conclusion of the CIRP, whichever is earlier. The applicant was directed to extend the Bank Guarantees issued by the Corporate Debtor accordingly. The application was disposed of in favor of the applicant.

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