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2024 (8) TMI 669
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....4393/PB/2023). The Adjudicating Authority by the Impugned Order has allowed the I.A. No. 2478/PB/2019 filed by the Resolution Professional (`RP'). Aggrieved by the Order, this Appeal has been filed. 2. Brief facts necessary to be noticed for deciding the Appeal are: i. In the year 2014, Indian Oil LNG Pvt. Ltd. (IOLPL) issued tender documentation for the construction of Liquified Natural Gas (`LNG') Tanks in Ennore/Chennai. In 2015, Contract was entered between IOLPL and the Appellant. ii. On 15.09.2015, Appellant executed the formal Contract with Respondent No. 1 M/s. Punj Lloyd Ltd., sub-Contracting parts of the work relating to construction/installation of LNG Tanks in Ennore. iii. Under the General Conditions of the Contract, the Respondent No. 1 was obliged to provide an unconditional and irrevocable Bank Guarantee as security for punctual, proper and Contract performance of the obligations under the Contract. Performance Bank Guarantee of an amount of Rs.47,72,34,933/- was issued by the State Bank of India in favour of the Appellant. iv. Under the Contract with Respondent No. 1 agreed date for Mechanical Completion was 23.03.2018. Appell....
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....ity passed an Order on an Application filed by Erstwhile Resolution Professional (`ERP') seeking stay on encashment of Bank Guarantee issued in favour of M/s. GAIL (India) Ltd. (`GAIL), which Application was rejected permitting an encashment of the Bank Guarantee in favour of GAIL. While passing the said Order, the Adjudicating Authority has relied on the Order passed by this Tribunal dated 26.07.2021 passed in `C&C Construction Ltd., through Navneet Kumar Gupta (RP)' (Supra). xv. By Order dated 27.05.2022, Adjudicating Authority directed for Liquidation of the Corporate Debtor as a going concern. Application I.A. 247/PB/2019 was heard and has been allowed by the Order impugned dated 30.10.2023 against which Order, this Appeal has been filed. 3. We have heard Learned Sr. Counsel Mr. Krishnendu Dutta appearing for the Appellant and Learned Sr. Counsel Mr. Sunil Fernandes appearing for the Respondent No. 1 and Mr. Ankur Mittal Learned Counsel appearing for Respondent No. 2. 4. Learned Counsel for the Appellant, Mr. Krishnendu Dutta challenging the Order impugned submits that the Performance Bank Guarantee given by the State Bank of India in favour of the Appellant was ....
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....e with regard to Performance Bank Guarantee the Appellant was fully entitled to invoke the Performance Bank Guarantee, even after commencement of the insolvency against the Corporate Debtor on 08.03.2019. It is submitted that Adjudicating Authority itself has rejected Application filed by the RP in the same CIRP against the invocation of Guarantee by IOCL and GAIL, which Applications filed by the RP restraining the invocation of Bank Guarantee was dismissed, whereas Adjudicating Authority in the Impugned Order has allowed the Application filed by the RP in case of the Appellant. It is further submitted that the Adjudicating Authority noticed that issue is pending consideration before this Tribunal in `C&C Construction Ltd. through Navneet Kumar Gupta (RP)' (Supra), which Appeal was decided on 26.07.2021 holding that Moratorium period under Section 14 does not cover Performance Bank Guarantee, hence the Application filed by the RP was liable to be rejected. 7. Learned Counsel for the Appellant in support of his submissions has placed reliance on various Judgments of the Hon'ble Supreme Court and this Tribunal. We shall refer to it by considering the submission in detail. 8. Le....
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....btor as a Creditor. Therefore, the ultimate loss and prejudice is that of the Corporate Debtor. It is submitted that the Adjudicating Authority has jurisdiction to entertain and examine all aspects pertaining to Bank Guarantee invocation including its factual aspects. It is submitted due to the special equities in favour of the Corporate Debtor the Bank Guarantee could not have been invoked, by the invocation of the Bank Guarantee, Corporate Debtor shall suffer irretrievable injury. 9. We have considered the submission of the Counsel for the parties and perused the record. 10. As noticed above, the Contract between the Parties dated 15.09.2015, provided an unconditional and irrevocable Bank Guarantee to the Appellant. Appellant has referred to Clause 6.4.1.4.1 of the Contract, which is part of General Condition. Clause 6.4.1.4 has been extracted by the Adjudicating Authority in Paragraph 31 of the Judgment, which is as follows: "31. Before examining this issue, we would like to cite relevant clauses of the agreement which took place between the parties. Clause 6.4.1.4 of General Conditions- Contents (GCC) is as follows: 6.4.1.4 PERFORMANCE BANK GUARANTEE ....
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....ties, the Appellant has issued invocation Letter dated 30.10.2019 to the State Bank of India claiming for invocation of Performance Bank Guarantee for an amount of Rs.47,72,34,933/-. It was after issuance of Letter dated 30.10.2019, Respondent No. 1 filed an I.A. before the Adjudicating Authority being I.A. 2478/2019. In the I.A., RP of the Respondent No. 1 prayed for following reliefs: "(a) Allow the present application; and (b) Restrain the Respondent No. 2 from taking any steps towards encashment of Performance Bank Guarantees no. 0480314BG0000756; (c) Restrain the Respondent Nos. 3, 4 and 5 from encashing the Counter Guarantees as described in para 2 above; and (d) Quash the invocation letter issued by the Respondent No. 1 dated 30.10.2019 to the Respondent No. 2; and (e) Quash the invocation letters dated 07.11.2019 issued by the Respondent No. 2 to the Respondent Nos. 3, 4 & 5 respectively; (f) Restrain Respondent No. 2 to 5 from releasing any money against the Performance Bank Guarantee and Counter Guarantees to Respondent No. 1. (g) Pass such further and other directions as this Hon'ble Adjudicating Authority ma....
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....med which is not in the present case more so after the MCC, issued though belatedly. Reading of the clause of performance bank guarantee does not gives the impression of it being unconditional and with no reason." 15. Adjudicating Authority has also referred to Clause 6.4.1.4.3 in Paragraph 34, which is as follows : "34. On perusal of the Clause 6.4.1.4.3 (supra), there is a prohibition on the power of invocation of the bank guarantee by the Employer (in this case, Mitsubishi) on the Contractor (Punj Lloyd) merely for the sake of its similar Bank Guarantee(s) being invoked by the Owner (IOCL) under the Main Contract unless such invocation is caused due to the reasons solely attributable to the Contractor (in this case Punj Lloyd, the Applicant). It is not the case of Respondent No. 1 that IOCL has invoked the Bank Guarantee on Mitsubishi which is due to the reason solely attributable to the Applicant / Contractor/ CD." 16. The basis of Judgment of the Adjudicating Authority is that Performance Bank Guarantee is not unconditional and sufficient ground has not made out by the Appellant to prove the fault on the part of Corporate Debtor, hence the Guarantee could not be....
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....tment 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 that all assets of such guarantors to the corporate debtor shall be outside scope of moratorium imposed under the Code;" (emphasis supplied) 33. The Report of the said Committee makes it clear that the object of the amendment was to clarify and set at rest what the Committee thought was an overbroad interpretation of Section 14. That such clarificatory amendment is retrospective in nature, would be clear from the following judgments: ....." 20. Thus, it is well settled that Section 14 in no manner impact the right of the Appellant to invoke the Bank Guarantee during pendency of the Moratorium and in the present case, it was during currency of the Moratorium 30.10.2019, the Guarantee was invoked. We have noted the observation made by the Adjudicating Authority in Paragraph 33 that reading of Clauses of Performance Bank Guarantee does not give the impression of it being unconditional. 21. We have already referred to the Bank Guarantee which was issued by the State Bank of India ....
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....n accordance with the law of Republic of India......." 22. The observation of the Adjudicating Authority that Guarantee does not appear to be unconditional is wholly erroneous and contrary to the terms of the Guarantee. In Clause (1) of the terms it is clearly stated "the Bank, unconditional and irrevocable guarantees". 23. The law of invocation of Bank Guarantee is well settled by the Hon'ble Supreme Court and relevant Judgments were relied by the Appellant before the Adjudicating Authority. We may refer to the Judgment of the Hon'ble Supreme Court in the matter of `Himadri Chemical Industries Ltd.' Vs. `Coal Tar Refining Co.' reported in (2007) 8 SCC 110. In para 14 of the Judgment principles for grant or refusal to grant injunction to restrain enforcement of Bank Guarantee has been noticed, which are as follows: "14. From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a bank guarantee or a letter of credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit: (i) While dealin....
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....ects Ltd. v. Tehri Hydro Development Corpn. Ltd. [Ansal Engg. Projects Ltd. v. Tehri Hydro Development Corpn. Ltd., (1996) 5 SCC 450] held thus: (SCC p. 454, paras 4-5) "4. It is settled law that bank guarantee is an independent and distinct Contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary Contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the Contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocably promised to pay, on demand, the amount of liability undertaken in the guarantee without any demur or dispute in terms of the bank guarantee. The object behind is to inculcate respect for free flow of commerce and trade and faith in the commercial banking transactions unhedged ....
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....Board v. Larsen & Toubro Infrastructure Development Projects Ltd. [Gujarat Maritime Board v. Larsen & Toubro Infrastructure Development Projects Ltd., (2016) 10 SCC 46 : (2017) 1 SCC (Civ) 458] has laid down the principles for grant or refusal for invocation of bank guarantee or a letter of credit. The relevant paragraph is as under: (Himadri Chemicals Industries Ltd. case [Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110], SCC pp. 117-18, para 14) "14. From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a bank guarantee or a letter of credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit : (i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the Contract. (ii) The....
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....to examine the contention of the Learned Counsel for the Respondent based on exception to invocation of Bank Guarantee as laid down by the Hon'ble Supreme Court in `Standard Chartered Bank' (Supra). The submission for irretrievable injury and special equity is based on submission of the Respondent that Liquidation Process has commenced and in event the Bank Guarantee is invoked, the State Bank of India shall become a Creditor of the Corporate Debtor which shall affect the Stakeholders claim in the CIRP of the Corporate Debtor. 26. Learned Counsel for the Appellant has relied on the Judgment of the Hon'ble Supreme Court in the matter of `UP State Sugar Corporation' Vs. `Sumac International Ltd.' reported in (1995) 5 SCC 568. Above was a case where a Bank Guarantee was required to be furnished by the Contractor to the `UP State Sugar Corporation' (Supra), Bank Guarantee was furnished Contract having not been carried within the time envisaged under the Contract, the `UP State Sugar Corporation' (Supra) invoke three Bank Guarantees in respect of advance payments after giving credit to the Respondent for material. Petition was filed under the Arbitration Act. In the above case, one o....
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....verse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may coexist in some cases. In the case of U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. [(1988) 1 SCC 174] which was the case of a works Contract where the performance guarantee given under the Contract was sought to be invoked, this Court, after referring extensively to English and Indian cases on the subject, said that the guarantee must be honoured in accordance with its terms. The bank which gives the guarantee is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his Contractual obligation or not, nor with the question whether the supplier is in default or not. The bank must pay according to the tenor of its guarantee on demand without proof or condition. There are only two exceptions to this rule. The first exception is a case when there is a clear fraud of which the bank has notice. The fraud must be of an egregious nature such as to vitiate the entire underlying transaction. Explaining the kind of fraud that may absolve a bank fr....
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....rs for safeguarding the financial and other interests of the company or in the public interest. Under Section 17 after making an inquiry, if the Board is satisfied that a company has become a sick industrial company, the Board may then decide, by an order in writing, whether it is practicable for company to make its net worth exceed the accumulated losses within a reasonable time. If this is practicable, then the Board shall give such company the opportunity to make its net worth exceed the accumulated losses. Under sub-section (3) of Section 17 if the Board decides that this is not practicable within a reasonable time, it may adopt measures specified in Section 18 and provide for a scheme for appropriate measures in relation to that company. There can, therefore, be no presumption that the company will, in no circumstance, be able to discharge its obligations." 28. Similarly, in the matter of `Maharashtra State Electricity Board Bombay' Vs. `Official Liquidator, High Court, Ernakulam & Anr.' reported in (1982) 3 SCC 358. Hon'ble Supreme Court held that the fact that the Company has gone into Liquidation could not have any effect on the liability of Bank i.e., Guarantor. In Para....
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....f guarantee did not depend upon prior proof of any default on the part of the Company in liquidation. Whether the whole of Rs 50,000 should be demanded or any lesser sum should be demanded from the Bank was entirely within the choice of the Electricity Board. The Bank has, therefore, to pay the amount due under the letter of guarantee given by it to the Electricity Board. On such payment it is open to the Bank to have recourse to the securities given by the Company in liquidation for the purpose of the issue of the letter of guarantee. The Electricity Board is not concerned with what the Bank does in order to reimburse itself after making payment of the amount guaranteed by it. It is the responsibility of the Bank to deal with the securities held by it in accordance with law. It was not, however, open to the Company Judge to make any order under the Companies Act prohibiting the Electricity Board from realising the amount guaranteed by the Bank as this had nothing to do with the assets of the Company in liquidation. The order of the Company Judge and the judgment of the Division Bench in appeal are, therefore, liable to be set aside and they are accordingly set aside." 29. Thus,....