Bank guarantee can be invoked during moratorium period under Insolvency and Bankruptcy Code.

The Tribunal held that the bank guarantee issued by the Corporate Debtor can be invoked even during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code. The assets of the surety are distinct from those of the Corporate Debtor, and the invocation of the bank guarantee does not violate the moratorium. Consequently, the Tribunal set aside the Adjudicating Authority's order, dismissed Respondent No. 2's application, and allowed the Appellant's application, permitting the invocation/encashment of the bank guarantee during the moratorium period.

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Issues Involved:
1. Applicability of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) to the invocation of bank guarantees.
2. Classification of the bank guarantee as a financial or performance guarantee.
3. Impact of the amendment to Section 14(3)(b) of the IBC on the applicability of moratorium to sureties in a contract of guarantee.

Detailed Analysis:

1. Applicability of Moratorium Under Section 14 of IBC to Bank Guarantees:
The primary issue was whether the moratorium under Section 14 of the IBC prevents the invocation of a bank guarantee issued by the Corporate Debtor. The Appellant argued that the proviso to Section 3(31) and Section 14 of the IBC exclude performance bank guarantees from the moratorium, and this reasoning should extend to all bank guarantees. The Respondent No. 2 countered that the bank guarantee in question is a financial guarantee and falls under the moratorium's ambit as per Section 14(1)(c) of the IBC. The Tribunal concluded that the moratorium does not apply to sureties in a contract of guarantee to a Corporate Debtor as per the amended Section 14(3)(b) of the IBC, which is retrospective and clarificatory in nature.

2. Classification of the Bank Guarantee:
The Tribunal evaluated whether the bank guarantee was a financial or performance guarantee. The Appellant claimed that the bank guarantee should be treated similarly to a performance guarantee, which is excluded from the moratorium. The Respondent No. 2 maintained that the bank guarantee is a financial guarantee, which falls under the moratorium's scope. The Tribunal agreed with the Adjudicating Authority's classification of the bank guarantee as a financial guarantee, not a performance guarantee, based on the terms and conditions of the guarantee.

3. Impact of the Amendment to Section 14(3)(b) of the IBC:
The Tribunal considered the amendment to Section 14(3)(b) of the IBC, which states that the moratorium does not apply to a surety in a contract of guarantee to a Corporate Debtor. This amendment, based on the Insolvency Law Committee's recommendations, clarifies that the assets of the surety are separate from those of the Corporate Debtor and that actions against the surety's assets do not significantly impact the Corporate Debtor's insolvency proceedings. The Tribunal noted that the Adjudicating Authority had not considered this amendment in its decision. The Tribunal referenced the Supreme Court's judgment in SBI Vs. V. Ramakrishnan, which affirmed that the amendment is retrospective and clarificatory, allowing actions against sureties' assets during the moratorium.

Conclusion:
The Tribunal held that the bank guarantee issued by the Corporate Debtor can be invoked even during the moratorium period under Section 14 of the IBC. The assets of the surety are distinct from those of the Corporate Debtor, and the invocation of the bank guarantee does not violate the moratorium. Consequently, the Tribunal set aside the Adjudicating Authority's order, dismissed Respondent No. 2's application, and allowed the Appellant's application, permitting the invocation/encashment of the bank guarantee during the moratorium period.

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