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AI Drafter ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether invocation of the performance bank guarantees was barred by moratorium under the Insolvency and Bankruptcy Code, 2016, and whether the bank guarantees could be encashed under the transmission agreement on account of adverse progress of work.
Analysis: The bank guarantees were furnished as security under the transmission agreement and were expressly liable to be encashed upon adverse progress of work as assessed in the joint coordination meetings. A performance bank guarantee is not treated as an asset of the corporate debtor, and the moratorium under Section 14 does not extend to a surety in a contract of guarantee. The record showed repeated findings of adverse progress in the project, and the contractual clause made encashment mandatory in that event. On that basis, the invocation letters were held to be legally valid and not hit by moratorium.
Conclusion: The challenge to encashment of the bank guarantees failed, and the invocation was upheld as against the appellant.
Final Conclusion: The appeal was found to be devoid of merit, and the order refusing interference with encashment of the bank guarantees was sustained.
Ratio Decidendi: A performance bank guarantee furnished under a commercial contract and liable to be encashed on adverse progress is outside the moratorium under the Insolvency and Bankruptcy Code, 2016, because the moratorium does not extend to a surety in a contract of guarantee.
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