TaxTMI 
TaxTMI 
2022 (5) TMI 489
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....'The Code'), wherein the RP has inter alia sought direction to M/s. Engineering Projects (India) Limited/the Appellant herein to refund the money equivalent to the Bank Guarantees invoked by them. By the Impugned Order, the Adjudicating Authority has observed as follows: "10. Reference is also made to a decision of Hon'ble NCLAT in the case of Indian Overseas Bank Vs. Mr. Dinkar T Venkatsubramaniam [Company Appeal (AT) (Insolvency) 267 of 2017] "5. Having heard learned counsel for the Appellant, we do not accept the submissions made on behalf of the appellant in view of the fact that after admission of an application under Section 7 of the "I&B Code", once moratorium has been declared it is not open to any person including 'Financial Creditor' and the appellant bank to recover any amount from the account of the 'Corporate Debtor*, nor it can appropriate any amount towards its own dues." 11. Reference is also made to the decision of Delhi High Court in Power Grid Corporation of India V. Jyoti Structures Limited wherein the judiciary has interpreted Section 14 as being benevolent to the corporate debtor i.e. it would not apply to the proceedings....
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.... between the Guarantor Bank and a beneficiary and specifically a 'Performance Bank Guarantee' is not covered under the definition of 'Security Interest' as defined in Section 3(31) of the Code; that the Adjudicating Authority has not taken into consideration. Section 14(3)(b) of the Code which is applicable with effect from 06/06/2018 (provided under the second Amendment of the Code; that the Bank Guarantees already stood invoked as on 26/12/2018 and on 25/03/2019 which is much prior to the date of the Public Announcement of the CIRP i.e., 30/03/2019; that the Adjudicating Authority has ignored the ratio laid down by this Tribunal in 'Bharat Aluminium Co. Ltd.' Vs. 'JP Engineers Private Limited & Ors.', Company Appeal (AT) (Insolvency) No. 759 of 2020 and the Learned Counsel specifically drew our attention to para 37 of the Judgement which reads as follows: "37. With the aforesaid, we hold that the Corporate Debtor has issued bank guarantee for ensuring the price of goods. The bank guarantee is irrevocable and unconditional and payable on demand without demur. The assets of the surety are separate from those of the corporate debtor, and proceedings against the corporate de....
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....osed under Section 14 of the I&B Code, 2016. Section 14 reads as follows: "14. Moratorium.-(1) Subject to provisions of subsections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. [Explanation.-For the purposes of this sub-section, it is hereby c....
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....mance Guarantee'. The said section is reproduced as hereunder:- "3. Definitions.-In this Code, unless the context otherwise requires,- .............................................................................. (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;" (Emphasis Supplied) 8. The Insolvency Law Committee appointed by the Ministry of Corporate Affairs in its report dated 26.03.2018 discussing the issue of the scope of Moratorium on the assets of the 'Corporate Debtor', noted as hereunder:- "(iv) to clear the confusion regarding treatment of assets of guarantors of the corporate debtor vis-à-vis the moratorium on the assets of the corporate debtor, it has been recommended to clarify by way of an explanation t....
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....nk Guarantee', compensation of money will be made by the Bank when there is any delay in delivering the performance. The payment will necessarily have to be made even if the service is delivered inadequately. A 'Performance Bank Guarantee' kicks in if services of goods are not provided to the buyer by the seller as per the specifications mentioned in the Contract. Thus, a 'Performance Bank Guarantee' provides an assurance of compensation in the event of any inadequate performance of Contract. Section 3(31) of the Code excludes 'Performance Guarantee' from the definition of 'Security Interest' which certainly expresses the intention of the Legislature. Mobilisation Advance Bank Guarantee: 10. 'Mobilisation Advance Bank Guarantee' is meant specifically for facilitating the Contractor to spend for provisioning the works contract service. The contract provides a mechanism in the form of this Bank Guarantee which ensures that the advance is not diverted to any other purpose but utilised for the specific work contract. It's application as payment is therefore 'direct' and is like a 'consideration' whether or not in the form of a deposit for the supply of the works contract service.....
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....olute and unequivocal bank guarantee should be read as a conditional one having regard to circumstances attending thereto. It is, to our mind, impermissible in law." 15. We are of the view that the intent of the Code was not to terminate Agreements that have created legal rights in favour of third parties without adhering to due process of Law. Such a termination of legally binding Agreements would be in violation of the provisions of Section 30(2)(e). 16. This Tribunal in 'Bharat Aluminum Co. Ltd.' Vs. 'J.P. Engineers Pvt. Ltd. and Ors.' in Company Appeal (AT) (Insolvency) No. 759 of 2020 dated 26.02.2021, observed that 'Bank Guarantee can be invoked during Moratorium period issued under Section 14 of the IBC in view of the amended provisions under Section 14(3)(b) of the IBC'. The Hon'ble AP High Court in the case of 'Haryana Telecom Ltd.' Vs. 'Aluminum Industries Ltd.' (1995) SCC OnLine AP 721, held that the Bank Guarantee cannot be said to be the property of the Buyer simply because it is indirectly going to be effected by enforcement of such Bank Guarantee by the beneficiary. The communication of the Legislature in carving out the exception for the Performance Bank Guara....
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....ied; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15; (c) constitute a committee of creditors; (d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors; (e) file information collected with the information utility, if necessary; and (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including- (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; ....
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....g to the 'Corporate Debtor' cannot be sought to be refunded back to the 'Corporate Debtor'. In the instant case, the 'Corporate Debtor' was unable to execute the work with the given advance and the 'Mobilisation Advance Bank Guarantee', which is generally issued at the commencement of the contract, viewed from any angle, cannot be said to be 'an Asset belonging to the Corporate Debtor'. Section 18(f) empowers the IRP to take 'control and custody of any asset over which the 'Corporate Debtor' has Ownership Rights'. The IRP/RP has no jurisdiction to take a third party asset, which does not belong to the 'Corporate Debtor'. For all these reasons, this Tribunal is of the earnest view that the amount involved in a 'Performance Bank Guarantee' and 'Mobilisation Advance Bank Guarantee' is not an 'Asset' of the 'Corporate Debtor'. Therefore, this Tribunal is of the considered opinion that undisputedly these two Bank Guarantees were issued to ensure 'Performance' of 'an obligation to construct 105 Residential Quarters' and towards 'Security' for execution of the same, it is significant to mention that admittedly the 'Corporate Debtor' has vide letter dated 11/12/2018 expressed its inability....