2023 (9) TMI 85 - AT - Insolvency and Bankruptcy

Tribunal upholds validity of Bank Guarantees' invocation, dismissing challenge

The Tribunal upheld the validity of the 1st Respondent's invocation of Bank Guarantees, dismissing the Appellant's challenge. It was determined that the ... Performance Bank Guarantees - Capital Investment’, till date made or not - Claim either for Invocation of Bank Guarantees or claim for Transmission Charges and or damages - scope of moratorium u/s 14 of IBC - HELD THAT:- Undoubtedly, Performance of Bank Guarantee, is excluded from the definition Section of 3 (31) of the I & B Code, 2016. Viewed in that perspective, this Tribunal, unhesitatingly holds in a cocksure manner that the Performance Bank Guarantee, does not fall under Moratorium, in terms of Section 14 of the I & B Code, 2016 - As far as the present case is concerned, in the various Joint Co-ordination Meetings, it was categorically observed that there was an Adverse Progress, as regards the Construction of Generating Station, by the Corporate Debtor, who was aware of the same. The Transmission Agreement, dated 31.03.2016, entered into between the 1st Respondent / Power Grid Corporation of India Limited and M/s. Lanco Vidarbha Thermal Power Limited (vide Clause 1), unerringly points out that the Bank Guarantee, shall be encashed, by Powergrid, in case of Adverse Progress of Work, under the scope of LVTPL assessed, during the Joint Co-ordination Meeting, etc. As such, it is clear that in the event of Adverse Progress, encashment of Bank Guarantee, is a compulsory one, as per the Transmission Agreement, entered into between the Parties. Thus, bearing in mind of the well settled legal principle that the Bank Guarantee, is neither an Asset nor a Liability of a Company, considering the surrounding facts and circumstances of the case in an integral manner, this Tribunal, especially, keeping in mind, of a primordial fact, that the Invocation of Eleven Performance Bank Guarantees, furnished by the Corporate Debtor to the 1st Respondent / Power Grid Corporation of India Limited, pursuant to the Transmission Agreement dated 31.03.2016, the Connectivity Regulations of the Central Commission and the detailed Procedure, notified thereunder, coupled with the Letters dated 17.12.2020, issued by the 1st Respondent, to the Respondent Nos. 2 to 7, are just valid and legally tenable, which cannot be found fault with. Appeal dismissed. Issues Involved:1. Validity of the invocation of Bank Guarantees by the 1st Respondent.2. Applicability of moratorium under Section 14 of the I&B Code, 2016.3. Nature of the Bank Guarantees as Performance Bank Guarantees.Summary:Issue 1: Validity of the Invocation of Bank GuaranteesThe Appellant challenged the impugned order dated 15.06.2023, which dismissed their petition against the invocation of Bank Guarantees by the 1st Respondent. The Appellant contended that the 1st Respondent did not fulfill its obligations under the Transmission Agreement dated 31.03.2016, and had already encashed Bank Guarantees worth Rs.30 Crores, seeking to unjustly enrich themselves by another Rs.36 Crores. The Appellant argued that the project was stalled due to financial issues of the Corporate Debtor's developer, and no capital investment was made by the 1st Respondent. The Tribunal observed that the adverse progress of work by the Corporate Debtor was established during Joint Coordination Meetings, justifying the encashment of Bank Guarantees by the 1st Respondent. The Tribunal concluded that the invocation letters issued by the 1st Respondent were valid and legally tenable.Issue 2: Applicability of Moratorium under Section 14 of the I&B Code, 2016The Appellant argued that the moratorium under Section 14 should prevent the invocation of Bank Guarantees. The Tribunal noted that Section 14 does not prohibit actions against the Corporate Debtor's guarantors and is limited to the assets of the Corporate Debtor. Section 14(3) explicitly excludes contracts of guarantee from the moratorium. The Tribunal held that the Performance Bank Guarantees do not fall under the moratorium provisions of the I&B Code, 2016.Issue 3: Nature of the Bank Guarantees as Performance Bank GuaranteesThe Appellant claimed that the Bank Guarantees were not in the nature of Performance Bank Guarantees and should be considered as security interests under Section 3(31) of the I&B Code, 2016. The Tribunal found that the Bank Guarantees were indeed Performance Bank Guarantees as per Clause 1.0(d) of the Transmission Agreement, which mandated encashment in case of adverse progress of work. The Tribunal affirmed that the Performance Bank Guarantees are excluded from the definition of security interest under Section 3(31) and do not fall under the moratorium.Conclusion:The Tribunal upheld the dismissal of the Appellant's petition, affirming that the invocation of the Bank Guarantees by the 1st Respondent was valid, legally tenable, and not affected by the moratorium under Section 14 of the I&B Code, 2016. The appeal was dismissed, and the connected pending IA No. 819 of 2023 was closed.