TaxTMI 
TaxTMI 
2021 (9) TMI 932
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....val and Engineering Ltd. (hereinafter referred to as the 'Corporate Debtor') seeking a direction to the Respondent M/s. UCO Bank (hereinafter referred to as the 'Bank') to forthwith refund the amount and deposit the same in the Account of the 'Corporate Debtor' with interest as it forms part an Asset of the 'Corporate Debtor'. The Adjudicating Authority allowed the Application preferred by the 'Corporate Debtor' and observed as follows:- "26. It is noted that Bank Guarantee was issued on 14.07.2O16 for Rs. 3,34,90,458/- in favour of the customer of the Corporate Debtor, which was valid upto 31.08.2019. The Bank Guarantee was invoked by the Customer, Indian Nary on 22.08.2019 for warranty obligations before the commencement of the CIRP date i.e. on 15.01.2020. The amount paid by the Respondent Bank on invocation of Bank Guarantee from its own funds on account of non-availability of Funds in Corporate Debtor's Accounts before the commencement of CIRP amounts to grant of credit facility to the Corporate Debtor before CIRP. The amount retained by the Customer. Indian Nary- by invoking Bank Guarantee was released by Indian Navy on 28.09.2020. The amount was released br. The cus....
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.... Vide email dated 19.12.2019, the Appellant Bank requested the Indian Navy to refund the money encashed towards Performance Bank Guarantee and received a reply on 23.12.2019 from the Indian Navy that the 'Corporate Debtor' issued a separate letter dated 27.11.2019 stating that the money is to be transferred to their own account. It is submitted that on 15.01.2020, one of the Corporate Debtor's, Creditors i.e. IDBI Bank filed Section 7 Application and CIRP Proceedings began on 15.01.2020 and on 23.01.2020, the IRP wrote to the Appellant stating that the 'Corporate Debtor' is eligible for the refund amount from the Indian Navy. It is vehemently contended that since the amounts were transferred from the funds of the Appellant Bank, it cannot be treated as an asset of the 'Corporate Debtor' and the same was communicated to the IRP on 10.02.2020. However, a claim was also lodged before the IRP on 29.01.2020 thereafter there was a series of communication between the IRP and the Appellant Bank on 10.02.2020, 11.02.2020, 04.03.2020 and 03.07.2020. While so on 28.09.2020, the Indian Navy refunded the amount into the Current Account of the 'Corporate Debtor' maintained wit....
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....P vide letter dated 04.03.2019 informed the Bank that the refund amount now forms part of the asset of the 'Corporate Debtor'. Vide letter dated 03.07.2020, the 'Corporate Debtor' informed the Appellant Bank that C.P. 418 of 2018 was admitted by the NCLT Adjudicating Authority on 15.01.2020 and Moratorium was declared under Section 14 of the Code. It is submitted that vide email dated 28.09.2020, the Appellant Bank confirmed the receipt of the refund amount into designated Account of the 'Corporate Debtor'. The Appellant Bank instead of remitting the amount into the Bank Account of the 'Corporate Debtor', vide email dated 03.11.2020 informed the 'Corporate Debtor' that the amount has been adjusted by them towards dues originally claimed by them under Form-C dated 29.01.2020. It is vehemently argued that adjustment of refund amount against the dues is in violation of Section 14 of the Code. As per Section 25 read with Section 18(f) of the Code, it is the duty of the Resolution Professional to preserve the asset of the 'Corporate Debtor' including the asset which may or may not be in possession of the 'Corporate Debtor'. The Appellant cannot claim ....
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....e debtor. 1[Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;] (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. 1[(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a go....
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....r against the principal debtor is merely shifted to the surety, to the extent of payment by the surety. Thus, contractual principles of guarantee require being respected even during a moratorium and an alternate interpretation may not have been the intention of the Code, as is clear from a plain reading of section 14. 5.11 Further, since many guarantees for loans of corporates are given by its promoters in the form of personal guarantees, if there is a stay on actions against their assets during a CIRP, such promoters (who are also corporate applicants) may file frivolous applications to merely take advantage of the stay and guard their assets. In the judgments analysed in this relation, many have been filed by the corporate applicant under section 10 of the Code and this may corroborate the above apprehension of abuse of the moratorium provision. The Committee concluded that section 14 does not intend to bar actions against assets of guarantors to the debts of the corporate debtor and recommended that an explanation to clarify this may be inserted in section 14 of the Code. The scope of the moratorium may be restricted to the assets of the corporate debtor only." ....
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....e was given and the beneficiary..." "5. It is equally settled law that in terms of the bank guarantee the beneficiary is entitled to invoke the bank guarantee and seek encashment of the amount specified in the bank guarantee. It does not depend upon the result of the decision in the dispute between the parties, in case of the breach. The underlying object is that an irrevocable commitment either in the form of bank guarantee or letters of credit solemnly given by the bank must be honoured. The court exercising its power cannot interfere with enforcement of bank guarantee/letters of credit except only in cases where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties..." 10. In 'SBI' Vs. 'Mula Sahakari Sakhar Karkhana Ltd.' (SCC p. 301, paras 33-34) the Hon'ble Apex Court has observed as follows:- "33. It is beyond any cavil that a bank guarantee must be construed on its own terms. It is considered to be a separate transaction. 34. If a construction, as was suggested by Mr. Naphade, is to be accepted, it would also be open to a banker to put forward a cas....
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....s of the bank guarantee - Furthermore, it is not for the bank to determine as to whether the invocation of the bank guarantees is justified so long as the invocation is in terms of the bank guarantee - A demand once made obliges the bank to pay under the terms of the bank guarantee - Contract Act, 1872, S. 126) 14. This Tribunal in 'GAIL India Ltd.' Vs. 'Rajeev Manandiar & Ors.' (2018) SCC Online NCLAT 374, held that Moratorium will not be applicable on the Performance Bank Guarantee as the definition of security interest under Section 3(31) of the Code explicitly excludes 'Performance Bank Guarantee' from the purview of 'security interest'. 15. The facts in 'Bank of India & Ors.' Vs. Bhuban Madan Resolution Professional of Ferro Alloys Corporation Limited', Company Appeal (AT) (Insolvency) No. 590 of 2020, relied upon by the Respondent are clearly distinguishable for the following reasons:- 1. The Resolution Plan was duly implemented. 2. The Letter of Credit facility was continued on request of the erstwhile Resolution Professional and the Letter of Credit Bills negotiated by the beneficiary banks were retired by the 'Corporate Debtor'. The amount was paid ....
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.... the following sub-section shall be substituted, namely:- "(3) The provisions of sub-section (1) shall not apply to- (a) such transaction as may be notified by the Central Government in consultation with any financial regulator; (b) a surety in a contract of guarantee to a corporate debtor." (Emphasis Supplied) Section 14(3)(b) of the Code specifies that sub-Section 14 does not apply to a surety in a Contract of Guarantee to a 'Corporate Debtor'. 3. Termination of legally binding Agreements would be ultra vires to provisions of Section 30(2)(e) of the Code, which reads as follows:- "30. Submission of resolution plan- ............................................................................... (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan - .............................................................................. (e) does not contravene any of the provisions of the law for the time being in force;" 4. On 22.08.2019, (Annexure 6) the Indian Navy had written to the Appellant Bank that the 'Corporat....