Enforceability of Bank Guarantees During Insolvency Moratorium

The Tribunal held that Performance Bank Guarantee and Mobilisation Advance Bank Guarantee can be invoked during a moratorium under Section 14 of the IBC as they are not considered assets of the corporate debtor. The guarantees are independent contracts and not covered by the moratorium provisions. The Tribunal set aside the Adjudicating Authority's order directing refund of the amounts covered by the guarantees and allowed the appeal.

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Issues Involved:
1. Whether a Performance Bank Guarantee and/or Mobilisation Advance Bank Guarantee can be invoked or encashed after the imposition of Moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Invocation of Bank Guarantees During Moratorium:
The primary issue was whether the invocation of a Performance Bank Guarantee and Mobilisation Advance Bank Guarantee is permissible after the imposition of a moratorium under Section 14 of the IBC, 2016. The moratorium prohibits actions to foreclose, recover, or enforce any security interest created by the corporate debtor in respect of its property.

2. Definition and Exclusion of Performance Guarantee from Security Interest:
Section 3(31) of the IBC defines "security interest" and explicitly excludes "performance guarantee" from its ambit. The Tribunal emphasized that the legislative intent was clear in excluding performance guarantees from the definition of security interest, thus allowing their invocation even during the moratorium period.

3. Independent Nature of Bank Guarantees:
The Tribunal reiterated that bank guarantees are independent contracts between the bank and the beneficiary, separate from the underlying contract between the debtor and the creditor. This principle was supported by precedents from the Supreme Court, including cases like Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation Ltd. and SBI v. Mula Sahakari Sakhar Karkhana Ltd., which established that the invocation of bank guarantees should not be interfered with unless there is evidence of fraud or special equity.

4. Mobilisation Advance Bank Guarantee:
The Tribunal clarified that a Mobilisation Advance Bank Guarantee, meant to facilitate the contractor's work, is not considered a debt or obligation in respect of a claim. It is an advance for ensuring the performance of a contract and does not constitute an asset of the corporate debtor. Thus, it should be treated similarly to a performance bank guarantee and can be invoked during the moratorium period.

5. Impact of the Second Amendment to the IBC:
The Tribunal noted that the decisions relied upon by the Adjudicating Authority, such as Power Grid Corporation of India v. Jyoti Structures Ltd. and Indian Overseas Bank v. Mr. Dinkar T. Venkatsubramaniam, were prior to the second amendment of the IBC. The amendment clarified that the moratorium does not apply to sureties in a contract of guarantee to a corporate debtor, thus supporting the invocation of bank guarantees during the moratorium.

6. Timing of Invocation Relative to Moratorium Imposition:
The Tribunal observed that the bank guarantees were invoked on 25/03/2019, two days before the moratorium was imposed on 27/03/2019. Although the bank released the amount on 28/03/2019, the Tribunal held that any delay by the bank should not negatively impact the appellant's right to invoke the guarantees.

Conclusion:
The Tribunal concluded that the Performance Bank Guarantee and Mobilisation Advance Bank Guarantee are not covered under the moratorium provisions of Section 14(1) of the IBC. The invocation of these guarantees is permissible, and the amounts involved do not constitute assets of the corporate debtor. Consequently, the Tribunal set aside the Adjudicating Authority's order directing the refund of the amounts covered under these bank guarantees and allowed the appeal.

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