No Interest Payable On Refunded Performance Bank Guarantee When Contract Terms Silent, Appeal Dismissed As Contractually Unsustainable

NCLAT (Chennai) dismissed the company appeal seeking interest on the refunded Performance Bank Guarantee (PBG). The Tribunal held that in contractual relationships, the parties' rights and liabilities are strictly confined to the terms and conditions of the contract, which are sacrosanct and cannot be altered unilaterally or expanded by later memoranda. The Letter of Intent/Request for Resolution Plan, under which the appellant furnished the PBG, did not provide for payment of interest on refund of the PBG. As interest was neither a contractual term nor otherwise reserved, the appellant's claim for interest was rejected and the appeal was found devoid of merit.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether delay of 8 days in refiling the Company Appeal should be condoned.

1.2 Whether the Successful Resolution Applicant is entitled to interest on the refunded Performance Bank Guarantee in the absence of any contractual stipulation for payment of interest.

1.3 Whether the Adjudicating Authority failed to consider and decide the claim for interest on the Performance Bank Guarantee.

1.4 Whether filing of a recall application before the Adjudicating Authority has any bearing on the decision of the Company Appeal on merits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Condonation of delay in refiling the Company Appeal

Interpretation and reasoning: The Tribunal noted that the Company Appeal was accompanied by an interlocutory application seeking condonation of 8 days' delay in refiling. Upon hearing both sides and considering the grounds in the application, the delay was viewed as marginal.

Conclusions: The delay of 8 days in refiling the appeal was condoned and the interlocutory application was disposed of.

Issue 2 - Entitlement to interest on refund of Performance Bank Guarantee

Legal framework (as discussed): The Tribunal proceeded on general principles of contract law, holding that contractual terms governing monetary relationships and business transactions are sacrosanct and binding, and that parties cannot claim anything beyond what is agreed. The Tribunal also relied on the specific terms of the Request for Resolution Plan (RFRP) and Letter of Intent as forming the contractual framework.

Interpretation and reasoning:

2.1 The Performance Bank Guarantee (PBG) was furnished pursuant to Clause 1.10 of the RFRP and the Letter of Intent, as a security mechanism to ensure performance of obligations under the Resolution Plan, not as an investment intended to earn interest.

2.2 Clause 1.9.1 of the RFRP expressly provides that both participation fees and bank guarantees "shall be refundable without any interest if Resolution Plan is not accepted by the CoC". This clause was held to be the governing stipulation on refund and interest.

2.3 The Tribunal held that the rights and obligations of the parties are strictly governed by the RFRP/Letter of Intent, which constitute the contractual terms. Once the Appellant accepted and acted upon these terms, it was bound by them and could not resile or introduce new monetary claims not provided for in the contract.

2.4 Interest cannot be claimed as a "self-created fiction" by merely filing an application or memorandum; there must be a contractual or legal foundation. No material was placed to show any contractual or statutory right to interest on the PBG.

2.5 The Tribunal further held that a claim for interest, not reserved or provided for in the RFRP/Letter of Intent, cannot be introduced later through a memorandum of withdrawal of an interlocutory application, as that is not a recognised mode to expand contractual rights.

Conclusions: The Appellant, as Successful Resolution Applicant, is not entitled to any interest on the refunded Performance Bank Guarantee, either under the RFRP/Letter of Intent or otherwise in law. The denial of interest by the Adjudicating Authority was upheld.

Issue 3 - Alleged non-consideration of the interest claim by the Adjudicating Authority

Interpretation and reasoning:

3.1 The Appellant contended that the Adjudicating Authority had not addressed the claim for interest on the PBG.

3.2 The Tribunal examined the impugned order and noted that the Adjudicating Authority had recorded that the Successful Resolution Applicant sought refund of PBG "with interest", thereby acknowledging that two components-principal PBG and interest-were claimed.

3.3 The Adjudicating Authority, however, granted only the refund of PBG and did not grant interest. The Tribunal inferred that the omission to grant interest amounted to conscious denial of that component of relief, thereby constituting an implied rejection of the interest claim.

Conclusions: The Adjudicating Authority did consider the interest claim and implicitly rejected it by granting only refund of the PBG. The contention that the issue of interest was not addressed was rejected.

Issue 4 - Relevance of recall application filed before the Adjudicating Authority

Interpretation and reasoning:

4.1 During the hearing, the Appellant sought to rely on a recall application filed before the Adjudicating Authority seeking recall of the impugned order.

4.2 The Tribunal held that such recall application, or any subsequent withdrawal thereof, has no bearing on the adjudication of the Company Appeal, which must be decided exclusively on the merits of the impugned order.

4.3 The Tribunal refused to permit the Appellant to develop a new or different case on the basis of the recall application, which had not been part of the pleaded case relevant to the present appeal.

Conclusions: The recall application before the Adjudicating Authority was held to be irrelevant to the controversy in the appeal and could not influence or supplement the Appellant's case in the appellate proceedings.

Overall conclusion: The rights and liabilities between the parties being strictly governed by the RFRP and Letter of Intent, and there being no contractual or legal entitlement to interest on the Performance Bank Guarantee, the appeal challenging denial of interest lacked merit and was dismissed. All pending interlocutory applications were closed.

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