Tribunal rules bank guarantees can be encashed during moratorium; Section 14(3)(b) IBC 2016 exception applies. No costs awarded.

The Tribunal allowed the appeal, setting aside the Adjudicating Authority's order that quashed the invocation of Bank Guarantees during the moratorium period. It held that the Bank Guarantee was a contract of guarantee, thus falling under the exception of Section 14(3)(b) of IBC, 2016. Consequently, the moratorium under Section 14(1) does not apply to the encashment of the Bank Guarantee. The appeal was granted with no costs ordered.

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Issues Involved:
1. Delay in filing the appeal.
2. Invocation of Bank Guarantee during the moratorium period.
3. Classification of the Bank Guarantee as Financial or Performance.
4. Applicability of Section 14(3)(b) of the IBC, 2016.

Summary:

1. Delay in filing the appeal:
The Appellant's delay of two days in filing the present appeal was condoned by the Tribunal vide Order dated 29.11.2021, allowing amendments in the cause title and pleadings.

2. Invocation of Bank Guarantee during the moratorium period:
The Appellant invoked the Bank Guarantees on 14.02.2020, post the initiation of Corporate Insolvency Resolution Process (CIRP) on 12.02.2020. The Adjudicating Authority quashed the notices for invocation, stating it violated Section 14(1)(c) of IBC, 2016, which prohibits actions to foreclose, recover, or enforce any security interest during the moratorium period.

3. Classification of the Bank Guarantee as Financial or Performance:
The Adjudicating Authority determined that the Bank Guarantee in question was a Financial Bank Guarantee, not a Performance Bank Guarantee. This distinction was crucial as the moratorium under Section 14 would not apply to Performance Bank Guarantees. The Bank Guarantees were provided for financial assistance to the Corporate Debtor for purchasing raw materials, not for securing performance under a contract.

4. Applicability of Section 14(3)(b) of the IBC, 2016:
The Tribunal noted that the Adjudicating Authority did not address the applicability of Section 14(3)(b) of IBC, 2016, which exempts sureties in a contract of guarantee from the moratorium. The Tribunal found that the Bank Guarantee was indeed a contract of guarantee, making Section 14(3)(b) applicable. The assets of the surety (the Bank) are separate from those of the Corporate Debtor, and thus, the moratorium does not apply to the encashment of the Bank Guarantee.

Conclusion:
The Tribunal set aside the Impugned Order of the Adjudicating Authority, allowing the appeal and holding that the Bank Guarantee provided by the Respondent Bank is covered by the exception under Section 14(3)(b) of IBC, 2016. The moratorium under Section 14(1) does not apply to its encashment. The appeal was allowed, and no order as to costs was made.

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