TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1720
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....o. 2 on behalf of the Corporate Debtor and Respondent No. 2 to refund the Margin Money that stood deposited by the Corporate Debtor, as against the Bank Guarantees issued by Respondent No. 2 in favour of Respondent No. 1, was dismissed by Ld. NCLT by virtue of the impugned order. 2. The said interlocutory application, was declined to be allowed, on the ground that, the Liquidator would not be entitled for the refund, of the margin money once the Bank Guarantee has been invoked holding thereof that, the margin money is only a part of the amount for which the Bank Guarantee is taken and that the invocation of the Bank Guarantee would be against both the money which is termed as Margin Money deposited by the Appellant and the amount that is extended by the Banker for which the Loan Security could be taken. 3. The brief facts of the case are that; The Corporate Debtor (M/s. KVK Nilachal Power Private Limited) was in the process of setting up a 300 MW Coal based Power Plant in Odisha and had entered into Loan Agreement with Financial Creditors for an amount of Rs.1,080 Crores, that as part of its plan it had entered into Fuel Supply Agreement with Respondent No. 1 (Mahanadi Coalfield....
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....unjab National Bank V. Supriyo Kumar Chaudhuri & Ors. wherein, almost a similar issue came up for consideration with regards to seeking reversal of the transaction of appropriation of the margin money, on the grounds that it is in breach of the moratorium imposed under Section 14 of I & B Code, 2016. 6. The Principal Bench while considering the said controversy had laid down the basic principles to be followed while deciding on the issue of invocation of Bank Guarantee and forfeiture of margin money during CIRP / Liquidation period. It has referred to the Judgment of Hon'ble Supreme Court in the matters of Commissioner of Income Tax, Madras V. Laxmi Vilas Bank Limited, Karur, as reported in 1996 Vol VIII SCC 458 wherein, in Para 5 & 6, the Hon'ble Apex Court has observed that, there is no such conception under law to prevent and restrict the Bank from adjusting the margin money forfeited by it and which had become its own just at that point of time against the cost of the Securities. It has also observed that forfeiture of the margin money that has been deposited by the customer with it has been done by the Bank in the course of its usual banking business and that, the forfeited a....
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....e view that the same principle ought to be applied to the LCs also. Learned Sr. Counsel Mr. Ramji Srinivasan relied on the Judgement of this Tribunal in 'Bank of Baroda Corporate Financial Services' Vs. 'Sundaresh Bhatt', 2020 SCC OnLine NCLAT 434, by which Order, this Tribunal has observed that the Bank had internally given instructions to appropriate the margin money kept in the form of an FD, subsequent to invocation of Bank Guarantee, on 01.08.2017, on which date, the Section 7 Application was admitted against the 'Corporate Debtor'. The facts of this case are distinguishable from the facts on hand as it was held by this Tribunal in 'Bank of Baroda Corporate Financial Services', (Supra) that the 'Bank was aware regarding initiation of CIRP, but adjusted the margin money without the consent of the CoC/IRP and that the Bank could not have been done so as the FD Accounts were closed on 02.08.2017, subsequent to the Admission of Section 7 Application. It is significant to mention that the Judgement of 'Indian Oversees Bank', (Supra) was rendered subsequent to 'Bank of Baroda Corporate Financial Services', (Supra)." 10. In fact, a....
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....9; with respect to the margin money that was deposited by the 'Corporate Debtor Company' towards the opening of the LC in the Appellant Bank, we are of the considered view that the Banks having appropriated this money during the period of Moratorium is justified as we hold that the amount is not an asset of the 'Corporate Debtor'. Therefore, a conjoint reading of Section 3(31) and Section 14 of the Code makes it abundantly clear that margin money is not included as a 'Security' and is not an asset of the 'Corporate Debtor." 14. In fact, the Judgment of the Principal Bench dated 28.09.2020 in the matter of Company Appeal (AT) (INS) No. 558 / 2020, Indian Overseas Bank V. Arvind Kumar, which is pronounced earlier to Punjab National Bank (supra) is even more explicit. While dealing with a similar matter, that is, whether the Bank can retain the margin money amount when Bank Guarantee has been invoked during Section 14 moratorium period, it has held that Security Interest, which has been specifically defined under Section 3 sub-section (31) of I & B Code, 2016, does not include Performance Bank Guarantee and that Performance Bank Guarantee is not covered un....
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....tee'. The Performance Bank Guarantee is not covered by Section 14 of the Code." 15. Thus, the Principal Bench has conclusively declared that, the Performance Bank Guarantee, given by the Corporate Debtor in favour of the Institution is not covered under Section 14 of the I & B Code, 2016, and its invocation cannot be permitted to be reversed and to be refunded back to Corporate Debtor as prayed for in IA No. 553 / 2023, by the Liquidator / Appellant. 16. The Judgment as rendered in the matters of Punjab National Bank (supra) has categorically spelt out as to how the margin money will be dealt in Para 16 of the said Judgment which is extracted hereunder: "16. The aforenoted Judgement drew a parallel between margin money and `earnest money'. Margin Money is an amount given for the purpose of binding of contract, if in the event, the contract is executed the amount would be deducted from the price and in the event the contract did not go through, the amount would be forfeited. The observation by the Hon'ble Supreme Court that `each deposit was made for a specific transaction and in the event of default, the forfeited money became the Bank's money' is applicable to this case also."....