TaxTMI 
TaxTMI 
2025 (8) TMI 1351
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....4/- by the Appellant Bank to the Successful Resolution Applicant ("SRA" in short) towards reversal of the Margin Money. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant bank. 2. The relevant facts which required to be noticed for deciding the present matter before us are as follows:- * That the Corporate Debtor-Diamond Power and Infrastructure Ltd. ("DPIL" in short) had received several credit facilities from the Appellant- Indian Overseas Bank. As per the Terms of Sanction and Loan Agreement executed between the Appellant bank and DPIL for the credit facilities including Bank Guarantee ("BG" in short) facility, the DPIL was required to maintain Cash Margin in the form of Term Deposit as one of the conditions for availing BG facility. * The Appellant issued several BGs in favour of third party beneficiaries on behalf of the Corporate Debtor and undertook to make payment in case of invocation of the said BGs. * These BGs were admittedly invoked by various beneficiaries and the Appellant had made payments to the beneficiaries in accordance with the terms of the BG facility and while doing so had utilised the Margin ....
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.... No. 440 of 2023 before the Adjudicating Authority seeking reversal of the said amount. * On 24.04.2024, the Adjudicating Authority admitted the IA No. 440 of 2023 directing the reversal of Rs 1,58,59,294/- to the SRA by the Appellant bank. * Aggrieved by this order, the present appeal has been filed by the Appellant. 3. Making his submissions the Ld. Counsel for the Appellant, Shri Mohit Chadha vehemently contended that after the resolution plan had already been approved by the Adjudicating Authority and the SRA had taken over the management of the DPIL, the SRA has been wrongfully allowed to clawback the Margin Money Term Deposits for BGs though it was no longer the asset of the Corporate Debtor. The Margin Money provided by DPIL was a substratum of the trust that was created for the purpose of the Appellant bank honouring the liability of the BG as and when the guarantee was invoked by the third party beneficiaries. Further the contract between the Appellant and the third party beneficiaries in whose favour the BGs were issued constituted an independent contract in terms of Section 126 of the Indian Contract Act,1872. The Margin Money no longer remaine....
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.... Mishra judgement supra. Submission was pressed that the Appellant bank had breached its duty as a member of CoC and this wrongful action of the Appellant bank was not in the interest of all the stakeholders and also hindered the effective implementation of the resolution plan. It was also contended that the Appellant acted in breach of Clause 8.1(x) of the resolution plan which provided that all cash and bank balances including term deposits of the Corporate Debtor shall remain available with the Corporate Debtor. Therefore the wrongful deduction has the potential of disrupting the implementation of the resolution plan besides causing financial hardship to the SRA. 5. We have duly considered the arguments advanced by the Ld. Counsel for the parties and perused the records carefully. Both parties have adverted attention to several judgements of this Tribunal and the Hon'ble Supreme Court which we shall deal with in the succeeding paragraphs. 6. The short point which falls for our consideration in this Appeal is whether in the given factual matrix, the Margin Money can be construed as an asset belonging to the Corporate Debtor and whether the Adjudicating Authority acted withi....
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....viso to the above definition clause reveals that security interest shall not include a performance guarantee. However, we notice that while on the one hand, the Adjudicating Authority has observed that Margin Money was part of security interest, the Appellant has taken a contrary stand that in terms of Section 3(31) of the IBC, the BG does not form part of the security interest. 10. At this stage it would be useful to refer to Section 18 of IBC and Explanation thereto. Section 18 of IBC reads as follows: "18- The interim resolution professional shall perform the following duties, namely:- (a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to- (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement ....
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....m being treated as a part of the asset of the Corporate Debtor. 11. We also notice that the Appellant has relied on Section 126 of the Indian Contract Act,1872 to contend that the Margin Money was held in trust. Section 126 of the Indian Contract Act, 1872 reads as under: "A contract to perform the promise, or discharge the liability, of a third person in case of his default." 12. At this juncture, it is also relevant to reproduce Section 14 of IBC which has also been pressed upon by all the parties in support of their respective contentions including the Adjudicating Authority. Section 14 of IBC which deals with moratorium provisions reads as under: Section 14: Moratorium 14. (1) Subject to provisions of sub-sections (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, alie....
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....te of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. As to how both the parties have viewed this provision, in order to avoid repetition, we would like to deal with it when we give our findings. However, we would like to notice that the Adjudicating Authority has held that appropriation of Margin Money from the account of the Corporate Debtor after the commencement of CIRP stood hit by the provisions of moratorium which view has been assailed by the Appellant. 13. Now that we have noted the relevant statutory provisions, we now come down to the rival contentions of the parties and how the Adjudicating Authority has dealt with them. 14. It is the case of the Appellant that Margin Money has to be construed as a deposit made by the Corporate Debtor for the benefit of a....
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.... on 27.09.2018 after having already submitted their claim on 05.09.2018, such post-CIRP appropriation after claim filing was wrongful and unauthorised. This deduction was in violation of Section 14 of the IBC and the Adjudicating Authority had therefore correctly directed its reversal. It is also their case that appropriation was done unilaterally and was not disclosed in the Information Memorandum which was inconsistent with the need to maintain transparency thus causing prejudice to the interests of the SRA and impacting the plan implementation process. 16. The first issue before our consideration is whether the Margin Money lying with the Appellant was in the nature of security interest and whether the same could have been appropriated by the Appellant bank post filing of claims and post moratorium having come into play. 17. During the hearing, the Ld. Counsels of both sides relied on various judgements in support of their respective contentions which we propose to keep in mind to guide us in arriving at our finding. 18. Reliance has been placed by the Appellant on the order dated 24.07.2018 of this Tribunal in Gail India Ltd. Vs Rajeev Manaadiar in CA(AT)(Ins.) No. 319....
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....in fixed deposit for issuance of Bank Guarantee, which was utilized by the invocation of bank guarantee on 27th December 2018 by the beneficiary' is set aside. No order as to costs." 20. Another judgment dated 21.07.2021 which has been relied upon by the Appellant is UCO Bank vs Sudip Bhattacharya, Resolution Professional in CA(AT)(Ins.) No. 335 of 2021 has observed as under: "11.........The Hon'ble Supreme Court in a Catena of Judgements has laid down that margin money acquires the character of 'Trust' when it is given against the Bank Guarantee issued to the beneficiary and asset held under 'Trust' cannot be considered as an asset of the 'Corporate Debtor'. It is significant to mention that in the instant case even the margin money was put in by the Bank and not by the 'Corporate Debtor' 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....
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....renoted reasons, we hold that the amount refunded on reversal of the invocation by the Indian Navy cannot be said to be an asset of the 'Corporate Debtor', under IBC, Performance Guarantees are to be dealt with specifically keeping in view the provisions and exclusions under Section 14(3)(b) and Section 3(31) of the Code. Hence, we hold that there is no violation of Section 14 of the Code as the money appropriated by the Bank is not the asset of the 'Corporate Debtor'." 21. Reliance has been also placed by the Appellant on the judgment of this Tribunal dated 04.10.2021 in Monitoring Agency of Anush Finlease &Construction Pvt. Ltd Vs SBI in CA(AT)(Ins.) No. 902 of 2020 wherein reference has been made to the judgement of the Hon'ble Apex Court in the case of Ansal Engineering Projects Ltd. Vs Tehri Hydro Development Corporation Ltd. (1996) 5 SCC 450 wherein the Hon'ble Supreme Court has held as follows: "4. It is settled law that the bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the person at whose instance the bank guarantee was given and the beneficiary....". 5. It is equally settled law that....
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....aid margin money remains with the Bank as long as the Bank Guarantee is alive and in case the Bank Guarantee is invoked by the beneficiary, the margin money goes towards payment of Bank Guarantee to the beneficiary and nothing remains with the Financial Institution. This principle has attained finality as the Judgement has not been challenged. We are of the 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 coul....
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...., recover or ensure any 'Security Interest' created by the 'Corporate Debtor' in respect of its property. As we hold that no 'Security Interest' was created by the 'Corporate Debtor' 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." 23. Now we come to the two judgments which have been relied upon by the SRA in this regard. Before we peruse these two judgements, we feel that it is pertinent to mention that the Adjudicating Authority has also relied on these two judgements to hold that Margin Money formed part of the security interest and could not have been appropriated from the account of the Corporate Debtor after commencement of CIRP on account of ongoing moratorium. 24. One of the judgements relied upon by....
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....onal Bank judgement, it was categorically held that the Indian Overseas Bank judgement had duly taken cognisance of the findings in the Sundaresh Bhatt judgement and pointed out how the facts therein was distinguishable. It was contended that in the Sundaresh Bhatt matter, the Bank was aware regarding initiation of CIRP but had adjusted the margin money without the consent of the CoC/IRP which adjustment the Bank could not have been done since the FD accounts were closed subsequent to the admission of Section 7 application. 27. When we look into the facts of the present case, we find that the Margin Money was given by DPIL as part payment to the Appellant to honour the liability of the BG. It was an earmarked deposit maintained with the Appellant Bank exclusively to meet its payment obligations on invocation of BG. On the BG having been invoked by the beneficiaries, payments were made by the Appellant alongwith the Margin Money in exercise of their contractual rights to appropriate the Margin Money amount from the account of DPIL. That the BGs had been invoked between 21.04.2018 and 23.05.2018 which period unambiguously preceded the initiation of CIRP on 24.08.2018 has not been ....
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....en appropriated by the Appellant bank post filing of claims and post moratorium having come into play. 30. We have already noticed for the reasons stated above that Margin Money in the given factual matrix does not fall within the definition of 'security interest'. No security interest is created as such by the Corporate Debtor on the Margin Money. The Margin Money in the form of term deposit was a condition precedent for sanction of BGs. Margin Money in this case is the contribution on the part of the borrower seeking Bank Guarantee and the said Margin Money remained with the Bank as long as the Bank Guarantee was alive but once the Bank Guarantee was invoked by the beneficiary, the Margin Money went towards payment of Bank Guarantee to the beneficiary. The Margin Money component was in effect not the asset of the Corporate Debtor anymore. This Margin Money could be utilized by the Appellant Bank against invoked BGs as a matter of right under the Facility Agreement executed with the DPIL. Even if the appropriation of the Margin Money was not carried out by the Appellant Bank concurrently with the invocation of BG, the terms of the Facility Agreement did not impair the right of ....
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....h circumstances, the Appellant bank could not have appropriated funds from the account of the Corporate Debtor post commencement of CIRP in violation of Section 14 of IBC. It has been contended that the Adjudicating Authority has passed a reasoned order to hold that the no withdrawal by the Appellant bank from the account of the Corporate Debtor was therefore permissible after initiation of CIRP proceedings in terms of the clean-slate principle set out by the Hon'ble Supreme Court in Ghanashyam Mishra judgment supra. 34. Repelling the arguments of the SRA, it has been contended by the Appellant that the reversal of Rs 1,58,59,294/- as directed by the Adjudicating Authority would amount to modification/alteration of the claims already approved under resolution plan which is not permissible as has been held in Ghanashyam Mishra judgment supra. The Appellant while submitting his revised claims had explained the calculation of the claim amount which depicted adjustment of the Margin Money. The revised claim of the Appellant had already been admitted and formed part of the Information Memorandum. This fact of deduction of Margin Money towards BG was therefore very much within the kno....
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....ry calculations on the basis of which the resolution applicant submits its plans, would go haywire and the plan would be unworkable. 87. We have no hesitation to say, that the word "other stakeholders" would squarely cover the Central Government, any State Government or any local authorities. The legislature, noticing that on account of obvious omission, certain tax authorities were not abiding by the mandate of IB Code and continuing with the proceedings, has brought out the 2019 amendment so as to cure the said mischief. " "102.1. That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part ....