TaxTMI 
TaxTMI 
2021 (2) TMI 1151
X X X X Extracts X X X X
X X X X Extracts X X X X
....dent No. 2, in view of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the 'M/s J.P. Engineers Private Limited.' (Corporate Debtor) Respondent No. 1. 2. Brief facts of this case are that the Operational Creditor 'M/s Worldwide Metals Pvt. Ltd.' filed Company Petition No. IB-1048/ND/2019 under Section 9 of the IBC for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor 'M/s J.P. Engineers Pvt. Ltd.' The Application was admitted by the Adjudicating Authority vide order dated 26.02.2020 and Mr. Sumit Bansal was appointed as an Interim Resolution Professional (IRP). 3. The Appellant had entered into an Agreement with the Corporate Debtor for Sale and Purchase of Aluminium Products for the period of 01.04.2019 to 31.03.2020. For ensuring the payments the Corporate Debtor had issued a bank guarantee dated 22.04.2019 amounting to Rs. 1,60,000,00/- executed by Andhra Bank Respondent No. 2 (Andhra Bank is now merged with Union Bank of India). Thereafter, the Respondent No. 2 extended the validity of aforesaid bank guarantee till 21.04.2020. The Corporate Debtor defaulted in making of payments, therefore, the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not defined in the IBC however, Regulation 36(B) of the IBBI Regulations (Insolvency Resolution Process for Corporate Persons) Regulations 2016, deals with the performance bank guarantees whereby it can be seen that the performance guarantee is monetary in nature and therefore, the reasoning behind excluding a performance bank guarantee can squarely be applied to bank guarantees as well. 9. It is further submitted that Section 14(3) (b) of the IBC provides that Moratorium will not be applicable 'to a surety in a contract of guarantee to a Corporate Debtor'. Therefore, the Respondent No. 2 bank cannot take advantage of the moratorium that has been imposed upon the assets of the Corporate Debtor. For this purpose, placed reliance on the judgement of Hon'ble Supreme Court in the Case of SBI Vs. V. Rama Krishnan & Ors. (2018) 17 SCC 394. 10. It is also submitted that the legislative intend behind Section 14 of the IBC is only to secure the Assets of the Corporate Debtor and the benefit of moratorium ought not to be extended to third parties i.e. surety, for this purpose, placed reliance on the Para 5.10 and 5.11 of Report of Insolvency Law Committee March, 2018 which specifies that e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Respondent No. 1 has not filed any Reply Affidavit since the issue in regard to bank guarantee is between the Appellant and Respondent No. 2. 16. Learned Counsel for the Respondent No. 2 submitted that the guarantee in question is a bank guarantee and not a performance guarantee as held by Ld. Adjudicating Authority. The bank guarantee is covered by the moratorium under Section 14 of the IBC thus, enforcing such security interest during the moratorium period would violate the Section 14 of the IBC. The provisions of Section 3(31) of the IBC makes it clears that the guarantee in question falls under the ambit of "any other agreement or arrangement securing payment or performance of any obligation of any person". This Appellate Tribunal in the case of State Bank of India Vs. Debashish Nanda CA (AT) (Ins) No. 49 of 2018 held that Financial Creditor cannot debit any amount from the Corporate Debtor accounts, after the order of moratorium, as it may amount to recovery in violation of the Section 14 of the IBC. This Appellate Tribunal in the case of Indian Overseas Bank Vs. Mr. Dinker T Venkatsubramaniam Resolution Professional for Amtek Auto Ltd. (CA (AT) (Ins) No. 267 of 2017) held ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Authority rightly held that bank guarantee in question is a financial bank guarantee and not a performance bank guarantee. 23. Now, we have to consider whether the financial bank guarantee can be invoked after issuance of moratorium under Section 14 of the IBC. 24. The Adjudicating Authority held that the bank guarantee does not fall within the purview of the proviso to Section 3(31) of the IBC because a bank guarantee cannot be described as performance bank guarantee. The bank guarantee falls within the purview of the definition of 'security interest' as defined under section 3(31) of the IBC. Therefore, during the moratorium the bank guarantee cannot be invoked as the same may be prohibited under Section 14(1) (c) of the IBC. 25. Ld. Adjudicating Authority while giving the aforesaid finding placed reliance on the judgment of NCLT Ahmadabad Bench passed in the matter of Nitin Hashkhmukh Lal Parikh (Diamond Power Transformers) Ltd. vs. Madhya Gujarat Vis Company Ltd. & Ors. Wherein 'it is held that moratorium order passed by the Tribunal applies in respect of bank guarantees other than performance bank guarantees furnished by the Corporate Debtor, in respect of its property ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ebts of the Corporate Debtor and recommended that explanation to clarify this may be inserted in Section 14 of the IBC. The scope of moratorium may be restricted to the assets to the Corporate Debtor only. Pursuant to this Report Legislation has substituted Sub Section 3(b) of Section 14 (With retrospective effect 06.06.2018) by Insolvency and Bankruptcy Code, (Second Amendment) Act, 26 of 2018. The effect of the amendment has been considered by the Hon'ble Supreme Court in the Case of SBI Vs. V. Ramakrishnan & Ors. (2018) 17 SCC 394 read as under: 30. We now come to the argument that the amendment of 2018, which makes it clear that Section 14(3), is now substituted to read that the provisions of sub-section (1) of Section 14 shall not apply to a surety in a contract of guarantee for corporate debtor. The amended Section reads as follows: "14. Moratorium. -(1)-(2) xxx xxxxxx (3) The provisions of sub-section (1) shall not apply to- (a) such transactions as may be notified by the Central Government in consultation with any financial sector regulator; (b) a surety in a contract of guarantee to a corporate debtor." 31. The Insolvency Law Committee, appointed by the Minis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rety, where under the creditor has a remedy in relation to his debt against both the principal debtor and the surety [National Project Construction Corporation Limited v. Sandhu and Co., AIR 1990 P&H 300]. The surety here may be a corporate or a natural person and the liability of such person goes as far the liability of the principal debtor. As per section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor and the creditor may go against either the principal debtor, or the surety, or both, in no particular sequence [Chokalinga Chettiar v. Dandayunthapani Chattiar, AIR 1928 Mad 1262]. Though this may be limited by the terms of the contract of guarantee, the general principle of such contracts is that the liability of the principal debtor and the surety is co-extensive and is joint 36 and several [Bank of Bihar v. Damodar Prasad, AIR 1969 SC 297]. The Committee noted that this characteristic of such contracts i.e. of having remedy against both the surety and the corporate debtor, without the obligation to exhaust the remedy against one of the parties before proceeding against the other, is of utmost important for the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e on the total income returned by the assessee. But before the amendment came into effect the position in law was quite different and that is why the legislature thought it proper to amend the section and insert the proviso. On the other hand learned counsel for the Revenue submitted that the proviso is merely declaratory and does not change the legal position as it existed before the amendment. It was submitted that this Court in CIT v. Chittor Electric Supply Corpn [(1995) 2 SCC 430 : (1995) 212 ITR 404] has held that proviso (a) to Section 240 is declaratory and, therefore, proviso (b) should also be held to be declaratory. In our view that is not the correct position in law. Where the proviso consists of 38 two parts, one part may be declaratory but the other part may not be so. Therefore, merely because one part of the proviso has been held to be declaratory it does not follow that the second part of the proviso is also declaratory. However, the view that we have taken supports the stand of the Revenue that proviso (b) to Section 240 is also declaratory. We have held that even under the unamended Section 240 of the Act, the assessee was only entitled to the refund of tax paid ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act a....