Tribunal rules PBG refund not asset; bank's appropriation justified.

The tribunal held that the refunded amount from the reversal of the Performance Bank Guarantee (PBG) is not an asset of the Corporate Debtor. The exclusion of PBGs from the definition of "security interest" and the provisions of Section 14(3)(b) of the Insolvency and Bankruptcy Code support this conclusion. Therefore, there is no violation of Section 14 of the IBC, and the bank's appropriation of the refunded amount is justified. The appeal was allowed, and the impugned order was set aside with no order as to costs.

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Issues Involved:
1. Whether the refunded amount from the reversal of a Performance Bank Guarantee (PBG) invoked prior to the initiation of CIRP constitutes an asset of the Corporate Debtor.
2. Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC) regarding the moratorium on the refunded amount.
3. Interpretation of "security interest" under Section 3(31) of the IBC.
4. Impact of the second amendment to Section 14(3) of the IBC on the Performance Bank Guarantee.

Issue-wise Detailed Analysis:

1. Refunded Amount as an Asset of the Corporate Debtor:
The primary issue is whether the refunded amount from the reversal of the PBG, invoked before the initiation of CIRP, can be considered an asset of the Corporate Debtor. The tribunal observed that the Corporate Debtor did not provide margin money for the PBG; instead, the bank funded it. Hence, the refunded amount cannot be treated as an asset of the Corporate Debtor. The tribunal emphasized that a Bank Guarantee is an independent contract between the bank and the beneficiary, and the bank must honor the guarantee according to its terms, irrespective of the Corporate Debtor’s financial status.

2. Applicability of Section 14 of the IBC:
Section 14(1) of the IBC imposes a moratorium on the institution of suits, transferring assets, and other actions against the Corporate Debtor during CIRP. However, the tribunal clarified that Section 14(3)(b) specifies that the moratorium does not apply to a surety in a contract of guarantee to a Corporate Debtor. The tribunal concluded that the refunded amount from the PBG does not fall under the moratorium provisions, as the PBG is excluded from the definition of "security interest" under Section 3(31) of the IBC.

3. Interpretation of "Security Interest":
The tribunal highlighted that "security interest" under Section 3(31) of the IBC explicitly excludes Performance Guarantees. This exclusion indicates the legislature's intent to allow the invocation of Performance Bank Guarantees during the moratorium period. The tribunal referenced the Insolvency Law Committee Report, which stated that assets of sureties are separate from those of the Corporate Debtor, and proceedings against the Corporate Debtor should not impact the assets of third parties like sureties.

4. Impact of the Second Amendment to Section 14(3) of the IBC:
The second amendment to Section 14(3) of the IBC, effective from 06.06.2018, clarifies that the moratorium does not apply to sureties in a contract of guarantee to a Corporate Debtor. The tribunal noted that this amendment reinforces the exclusion of Performance Guarantees from the moratorium provisions. The tribunal also referred to various judgments, including those by the Supreme Court, which consistently held that Bank Guarantees are independent contracts and must be honored according to their terms, irrespective of the underlying disputes between the parties.

Conclusion:
The tribunal concluded that the refunded amount from the reversal of the PBG is not an asset of the Corporate Debtor. The exclusion of Performance Guarantees from the definition of "security interest" under Section 3(31) and the provisions of Section 14(3)(b) of the IBC support this conclusion. Therefore, the tribunal held that there is no violation of Section 14 of the IBC, and the bank's appropriation of the refunded amount is justified.

Judgment:
The appeal is allowed, and the impugned order is set aside. No order as to costs.

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