2023 (8) TMI 860 - AT - Insolvency and Bankruptcy

BGs can be invoked during moratorium period; customs authorities can utilize them. FDR return rejected.

Mr. Vijay Kumar Garg, Liquidator of M/s. Lance Vidarbha Thermal Power Limited Versus Deputy Commissioner of Customs, Assistant Commissioner of Customs

The appeal filed by the Liquidator challenging the rejection of the return of Bank Guarantees (BGs) and Fixed Deposit Receipts (FDRs) was dismissed. The ... Rejection of application of the Liquidator - recoveries of customs duties - invocation of the Bank Guarantee(BG) allowed, during the moratorium period in force under section 14 of IBC. Whether the BGs and FDRs (Fixed Deposit Receipts) that were deposited by the corporate debtor in view of various materials received at the port and released by the customs from Nhava Sheva Port and the Customs Private Bonded Warehouse at Wardha, should be returned to the corporate debtor/liquidator? HELD THAT:- In the present case, invocation of BG is not about recovery of any claim by the customs authorities, but is about revocation of surety provided by the corporate debtor to the customs authorities in the form of FDRs and BG. In this connection, the judgment of the Hon’ble Supreme court in the matter of STATE BANK OF INDIA VERSUS V. RAMAKRISHNAN AND ANR. [2018 (8) TMI 837 - SUPREME COURT] is noted, wherein Hon’ble Supreme Court has noticed the observations in the report dated 26.03.2018 of the Insolvency Law Committee appointed by the Ministry of Corporate Affairs, holding that to clear the confusion regarding treatment of assets of guarantors of the corporate debtor vis-a-vis the moratorium on the assets of the corporate debtor, it has been recommended to clarify by way of an explanation that all assets of such guarantors to the corporate debtor shall be outside scope of moratorium imposed under the Code Appellant placed reliance upon the judgment of Hon’ble Supreme Court in the matter of SUNDARESH BHATT, LIQUIDATOR OF ABG SHIPYARD VERSUS CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS [2022 (8) TMI 1161 - SUPREME COURT]. A perusal of this judgment shows that the customs authorities can assess/reassess customs/import duty, but are not allowed to recover such amounts, which should be claimed as part of the resolution process under IBC by the debtor. This judgment is distinguished on the basis that in the present case, the customs authorities are not recovering any amount on the basis of assessed customs/import duty, but the issue in the appeal is about invocation of the BG and FDRs. Therefore, in the light of the judgment of Hon’ble Supreme Court in the matter of State Bank of India vs. V. Ramakrishnan & Anr. and of this Tribunal in the matter of BHARAT ALUMINIUM CO. LTD VERSUS M/S J.P. ENGINEERS PVT LTD., ANDHRA BANK (NOW MERGED WITH UNION BANK) [2021 (2) TMI 1151 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], it is clear that section 14(3)(b) allows for invocation of BGs. The appeal is devoid of merit and does not deserve to be admitted at the initial stage itself. Issues Involved:1. Return of Bank Guarantees (BGs) and Fixed Deposit Receipts (FDRs) to the Corporate Debtor/Liquidator.2. Invocation of BGs during the moratorium period under Section 14 of IBC.3. Treatment of claims filed by Customs Authorities during the liquidation process.Summary:Issue 1: Return of BGs and FDRs to the Corporate Debtor/LiquidatorThe appeal was filed by the Liquidator of Lance Vidarbha Thermal Power Limited under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), challenging the order of the Adjudicating Authority (NCLT, Hyderabad Bench) which rejected the application for the return of BGs and FDRs. The Appellant argued that these securities, provided in lieu of customs duties for imported materials, should be returned to maximize the value of the corporate debtor's assets for the benefit of all stakeholders. However, the Tribunal noted that the Adjudicating Authority did not explicitly adjudicate on the return of FDRs, implying a rejection of this prayer.Issue 2: Invocation of BGs during Moratorium PeriodThe Tribunal referenced the judgment of the Hon'ble Supreme Court in the case of State Bank of India vs. V. Ramakrishnan & Anr., affirming that Section 14(3)(b) of IBC allows for the invocation of BGs even during the moratorium period. The Tribunal emphasized that BGs are not considered assets of the corporate debtor and can be invoked by the customs authorities. This position was supported by the judgment in Bharat Aluminium Co. Ltd. vs. M/s. J.P. Engineers Pvt. Ltd. & Anr., which held that BGs, being irrevocable and unconditional, can be invoked during the moratorium period.Issue 3: Treatment of Claims by Customs AuthoritiesThe Appellant cited the Supreme Court judgment in ABG Shipyard vs. Central Board of Indirect Taxes and Customs, arguing that customs authorities can only assess or reassess duties but cannot initiate recovery during the moratorium. However, the Tribunal distinguished this case, noting that the issue was not about recovery but the invocation of BGs and FDRs, which are permissible under Section 14(3)(b) of IBC. The Tribunal concluded that the customs authorities' claims should be addressed within the liquidation process as per Section 53 of IBC.Conclusion:The appeal was dismissed, affirming the Adjudicating Authority's decision to allow the invocation of BGs and implicitly rejecting the return of FDRs. The Tribunal held that BGs are not protected by the moratorium and can be invoked by customs authorities, and any claims by these authorities should be processed under the liquidation framework of IBC.