TaxTMI 
TaxTMI 
2020 (10) TMI 390
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....us after reconstitution of this Bench and Order therein was reserved. Now the case is fixed today for pronouncement. Hence, the case is taken up today for pronouncement of order in detail. 2. The present MA-417/2018 in CP(IB)1832/IBC/NCLT/MB/ MAH/2017 is preferred by the then Corporate Debtor EPC Constructions India Limited under section 60(5) of the Insolvency and Bankruptcy Code (I&B Code) seeking for an injunction against invoking of two Bank Guarantees issued by Axis Bank Limited dated 16.10.2014 for a sum of Rs. 115,90,76,933/- (Rupees One hundred and fifteen Crores, Ninety Lakhs, Seventy-six Thousand, Nine Hundred and Thirty-three only) and on 19.04.2018 Rs. 23,85,92,361/- (Rupees Twenty-three Crores Eighty-five Lakhs, Ninety-two Thousand, Three Hundred and Sixty-one only) by the Respondent No.1 NLC India Limited. It was the allegation by the Applicant against Respondent No. 1 that such Bank Guarantee is being invoked in a fraudulent manner and in complete violation of the present I&B Code. It is also submitted that since this Bench of NCLT, Mumbai Bench, vide its Order dated 20.04.2018 has pleased to "Admit" the Petition under section 7 of the I&B Code at the instance of ....
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....ards the claims of the Creditors before insolvency commenced. Hence the Learned RP has contended that Moratorium declared in respect of Corporate Debtor is still in operation under section 14 of the Code pursuant to the order of this Tribunal dated 20.04.2018. Further, the Corporate Debtor is a going concern, hence, it would not be in the paramount interest of the Corporate Debtor to allow such encashment of the Bank Guarantees (which is already partly encashed). The RP further contended that in case the Bank Guarantee is allowed to be encashed then claim arising for such encashment would result in the claim against Corporate Debtor. 6. It is also submitted that Moratorium was declared upon the Corporate Debtor and in operation under Section 14 of the Code, pursuant to the Admission order of this Hon'ble Tribunal dated 20.04.2018. Thus as mandated under section 14 of the Code, the purpose and intent of the Code is to keep the Corporate Debtors' assets together during the CIRP and ensure the continuity of the Corporate Debtor under CIRP as a going concern. The Respondent No.1 has already encashed BG-II and now is in the process of encashment of BG-I which may not be just and prop....
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....he Corporate Debtor in relation to this Project (a list to be supplied by the Corporate Debtor), to ensure the going concern of the Corporate Debtor and the claims of such sub-contractors / suppliers / vendors may be reduced by the RP to the extent of such payment at the time of its verification by the RP in accordance with the Code. 10. In the event that this Hon'ble Tribunal allows complete encashment of the amount stipulated in BG-I, then the Respondent No.1 be directed to appropriate the proceeds from the same towards the repayment of outstanding dues of the sub-contractors / suppliers / vendors as approved by the Corporate Debtor, for the claim prior to the CIRP. Further, in the event that there lies a surplus, the same be directed to be repaid to the Corporate Debtor in order to ensure its going concern and enable it to complete the execution of the thermal power project and other projects. 11. Notwithstanding the above, the RP in his reply has also impliedly conceded with such legal position of the present case by taking an alternative plea that in the event this Tribunal allows complete encashment of amount of Bank Guarantees, then the Respondent No.1 i.e. NLC India L....
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....rties. 13. Moreover, if there arises any dispute regarding allegation / counter allegation between contracting party for invocation of bank guarantee or cancellation of contract, this Tribunal in our humble view is not expected to adjudicate the same. It is for the parties concerned to approach a competent Civil Court/ Forum of law and to seek appropriate relief therefrom. This Adjudicating Authority under Insolvency and Bankruptcy Code in normal course is not expected to pass an interim order restraining a particular party or party concern not to invoke its performance guarantee or to pass any prohibitory order because the remedy to be granted against the corporate debtor under the Code is remedy in rem and not in personem. Thus, this Adjudicating Authority would decline to interfere with the invocation of the bank guarantee and to decide merits of the same because it needs to be dealt with by a competent Civil Court and after appreciation of evidence adduced before it and by perusing the documentary material placed on record before it in a civil trial. Hence in summary jurisdiction of I&B Code this Adjudicating Authority is not expected to adjudicate such disputed allegatio....
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.... Enforcement of Security Act, 2002" 5. The expression "security interest" has been defined in sub-section (31) of Section (3) of the 'I&B Code', which reads as follows :- "3. Definitions :- xxx xxx xxx (31) 'security interest' means right, title or interest or a claim to property, created in favour of , or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person : Provided that security interest shall not include a performance guarantee." 6. From sub-section (31) of Section 3, it is clear that the 'security interest' do not include the 'Performance Bank Guarantee', therefore, we hold that the 'security interest' mentioned in clause (c) of Section 14(1) do not include the "Performance Bank Guarantee". Thereby the "Performance Bank Guarantee" given to the 'Corporate Debtor' in favour of Appellant -'GAIL (India) Ltd.' is not covered by Section 14. The Appellant - 'GAIL (India) Ltd.' is entitled to invoke its 'Performance Ba....
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.... or direction is given to NLC India Limited, in MA-417/2018 by restraining it and not to invoke its 'Performance Bank Guarantee' as the same would fall out of the purview of Moratorium u/s 14 of the I&B Code by following the above stated decision of Hon'ble NCLAT and for want of proper jurisdiction of this Court under the I&B Code. (iii) In addition to the above, the Hon'ble Bombay High Court in its decision in the matter of Murablack India Limited V/s UBS AC, an establishment organized and existing under the laws of Switzerland & Others (in Notice of Motion No. 2356 of 2000 in Suit No. 187 of 1997 decided on September 4, 2000) took similar view by placing reliance on a decision of the Hon'ble Supreme Court in the case of Hindustan Construction Company V/s State of Bihar (2000 Bank J. (S.C.) 314 : (1999) 8 SCC 436), where their Lordship of the Bombay High Court have pleased to observe and hold as such :- "7. Secondly, can mere invocation of guarantee be said to be proceedings to hold section 22 of SIC Act would be applicable. The judgment in so far as Maharashtra Tubes Limited (Supra) is concerned, relates to the first part and not to the amendment brought by the Amendm....
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....contract between principal and the person on whose behalf the guarantee is given. However, suit by a plaintiff to restrain the Bank from making payment in terms of the guarantee is maintainable. Relief cannot be granted if in such a case plaintiff is able to make out a case of fraud and/or irretrievable injustice. In the instant case, defendant No. 5 who has given the Bank Guarantee has expressed no difficulty in making payment to the defendant No. 1. It is the contention of defendant No. 5 that considering international trade and commerce they have to honour the commitment to defendant No. 1 otherwise it is they who will have to suffer irreparable injury and loss in international financial circles. In these circumstances as defendant No. 5 is not invoking the provisions of section 22 assuming it could invoke, the question of the Court granting any relief at the instance of the plaintiff would not arise." (v) We have also perused the decision of the Hon'ble Supreme Court in the matter of Hindustan Construction Company (Supra) and proposition laid down therein by the Apex Court. The relevant portion of the above referred Supreme Court decision for the purpose of placing re....
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....s been laid down and reiterated. What is important, therefore, is that the Bank Guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the Bank Guarantee or the person on whose behalf the Guarantee was furnished. The terms of the Bank Guarantee are, therefore, extremely material. Since the Bank Guarantee represents an independent contract between the Bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the Bank Guarantee; or else, the invocation itself would be bad. For the reasons stated above, the appeal arising out of SLP(C) No. 6985/98 is allowed. The judgment and order passed by the Division Bench of the Bombay High Court insofar as it purports to vacate the injunction order, granted by the Single Judge in respect of "Performance Guarantee", is set aside and the injunction order granted by the Single Judge in respect of both the Guarantees, namely, "Mobilisation Advance" and "P....