TaxTMI 
TaxTMI 
2026 (9) TMI 1930
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.... Baroka, Member (Technical)] The present appeal is filed against the Impugned Order dated 19.12.2024 passed by the Ld. National Company Law Tribunal, New Delhi Bench in IA No.1357 of 2024 in IB-809(ND)/2021, wherein the Hon'ble Adjudicating Authority has allowed the IA - 1357/2024, thereby directing the Appellant herein to return the original bonds pertaining to the Bank Guarantees and further directing the Manager, Bank of Baroda to immediately remit the amount of the FDR's to the Liquidation Account so that the same could form a part of the Liquidation Estate of the Corporate Debtor. Brief Facts 2. We note that the Corporate Debtor is a company incorporate on 09.12.2010 under the Companies Act 1956 registered with the Registrar of Companies, Delhi. The Corporate Debtor was involved in the business of research and development in natural sciences, medical sciences, agriculture and engineering & technology. 3. During the year 2014 and 2015, the Corporate Debtor imported some goods and availed benefit of scheme of custom duty exemption floated by Government of India. For availing the said scheme, the Corporate Debtor had executed eight EPCG Bonds with the Appellan....
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....the reason that the Bank Guarantees are not expired and requested to raise such issue with the Appellant. 7. Thereafter, The Respondent No. 1 filed an application bearing IA No. 1357 of 2024 before Hon'ble NCLT seeking direction against the Appellant to return the original Bank Guarantee to Respondent No. 2 and direction against the Respondent No. 2 to release the amount into liquidation account of the Corporate Debtor. 8. That Hon'ble NCLT vide order dated 19.12.2024 allowed the aforesaid application and directed the Appellant to return the original Bank Guarantee to the Respondent No. 2 and directed Respondent No. 2, to release the maturity amount in the liquidation account of the Corporate Debtor and the relevant parts of the said Order are reproduced hereinbelow: " 6. It is ordered as follows: i. In view of the reasons mentioned above, the IA-1357/2024 stands allowed. ii. Having regard to the facts and circumstances of the case, we direct the Respondent. 1/Shri Devindra Kumar, Assistant Commissioner, to immediately return the original bonds pertaining to the Bank Guarantees. iii. We further direct the Respondent no. 2/Manager, Bank of B....
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....ginal Bonds pertaining to Bank Guarantees and by directing the Bank (Respondent No 2) to remit the amount of FDRs to the Liquidation Account so that it can become part of Liquidation Estate 13. As per Sections 14, 18 and 36(4) of IBC and Insolvency Committee Report of 2018, these Bonds, Bank Guarantees and FDs cannot be asked to be returned to the Liquidator, nor can it be considered as part of Liquidation Estate, moreso since all the Eight Bank Guarantees were Performance Bank Guarantees (against Fixed Deposits of the Corporate Debtor) amounting to Rs. 89,16,128/-. Of these, as per the terms of issue, 5 (five) have auto-renewal clause, and in at least 3 (three) Bank Guarantees, there is auto-pay clause upon non-renewal. 14. Assets of surety are separate from assets of Corporate Debtor, and proceedings against Corporate Debtor may not be seriously impacted by actions against assets of third parties like sureties. 15. Bank Guarantee is an independent contract between Bank and beneficiary, moreso since it is unconditional to be acted only on demand guarantee. 16. FDs lying with the Bank are not simple FDs but are akin to the underlying margin money for the Bank Guarantees....
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....25 dated 30.07.2014 22. The export obligation discharge period of the aforesaid licenses was till 31.04.2021 and 25.06.2020. Thus, it is clear that the Corporate Debtor/importer has made no attempt to fulfil their commitment to the Appellant, and no Export Obligation Discharge Certificate was issued. Due to this, a staggering amount of Rs. 1,81,27,632/- is payable to the Customs Department as Government dues. 23. Since these Bonds and Bank Guarantees (along with underlying FDs) are not assets of Corporate Debtor, so it would not be a part of Liquidation Estate under Section 36, by virtue of being excluded as per Section 36 (4) of the IBC, and so there can be no question of its distribution under Section 53 of the IBC. More so, because Section 36(4) of IBC states that assets owned by a third party those are in possession of the Corporate Debtor, including assets held in trust for any third party, do not form part of the liquidation estate. Also, as per Explanation to Section 18 of the IBC, the term "assets" shall not include assets owned by a third party in possession of the Corporate Debtor which is being held under trust or under a contractual arrangements. 24. Bank Guara....
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.... Guarantees to Respondent No. 1, as the Bank Guarantees had not expired. Thus, the impugned order passed by the Ld. NCLT is liable to be set aside as it was passed on the erroneous presumption that Bank Guarantees have expired, which is admittedly not the case. 30. Thus, it is prayed that the Hon'ble NCLAT be pleased to allow the appeal. Submissions of Respondent No. 2/Bank of Baroda 31. The aforesaid Bank Guarantee is a Performance Bank Guarantee, a position also rightly observed by the Ld. NCLT vide impugned order dated 19.12.2024. 32. The Respondent No. 2 had issued a letter dated 26.12.2024 to the Appellant, thereby requesting it to return the original Bank Guarantees to the Bank in compliance with the Order dated 19.12.2024. Since the Bank Guarantees were not returned by the Appellant Department, the Respondent Bank was constrained to file an application bearing I.A. No. 762 of 2025 in CP(IB) No. 809 (ND) of 2021 before the Ld. NCLT, praying for directions to the Appellant Department of Customs to return the original Bank Guarantees to the Bank, and the said Application was dismissed vide Order dated 14.02.2025 of the Ld. Tribunal. 33. Thereafter, the Respondent....
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....e hold that the judgments relied upon by the Appellant and the common underlying ratio contained therein are applicable to the facts of the present case. Firstly, Margin Money is a contribution on the part of the borrower who seeks BG; secondly, Margin Money as BG becomes part of substratum of trust created to pay to a beneficiary to whom a BG was given and hence such assets held under trust cannot be considered to be the assets of the corporate debtor or said to be a security interest under Section 3(31) of IBC and thirdly, that the provisions of Section 14(1) of IBC are not applicable to a surety in a contract of guarantee to a Corporate Debtor. 29. This brings us to the related issue as to whether the Margin Money could have been appropriated by the Appellant bank post filing of claims and post moratorium having come into play. Company Appeal (AT) (Insolvency) No. 943 of 2024 Page 23 of 29. 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....
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....hah Vs. in Indian Overseas Bank, Civil Appeal No. 12254 of 2025. 38. Therefore, in view of the above it is submitted that in case the Bank Guarantees have expired, the margin money becomes free and is liable to be refunded. However, in case Bank Guarantees have not expired, margin money remains as margin money and continues to remain outside the liquidation estate. In relation thereto, the Explanation to Section 18 of the IBC provides: "Explanation. -For the purposes of this sub-section, it is hereby clarified that the assets of the corporate debtor shall not include the following, namely: - (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;" 39. Besides that Section 36(4) of the IBC defines "liquidation estate" and provides "(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: - (a) assets owned by a third party which are in possession of the corporate debtor, including- (i) assets held in trust for any third party;" However, the moot question before this Hon'ble Tribunal is whether the....
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....oduce any such letter before this Hon'ble Tribunal. 44. The Corporate Debtor had given 8 Bank Guarantees to the Appellant in order to discharge under EPCG Bond. The details of 8 Bank Guarantees are as follows: S. No. B.G. No. Date Amount (Rs.) Expiry Date 1. 6017IBGIS140064 01.07.2014 15,03,000/- 01.07.2022 2. 6017IBGIS140065 01.07.2014 10,46,000/- 30.06.2016 3. 6017IBGIS140086 22.08.2014 3,52,000/- 22.08.2016 4. 6017IBGIS140087 22.08.2014 16,50,000/- 21.08.2024 5. 6017IBGIS140064 03.09.2014 13,03,128/- 03.09.2016 6. 6017IBGIS140064 02.06.2015 8,70,000/- 01.06.2021 7. 6017IBGIS140064 08.06.2015 3,80,000/- 07.06.2023 8. 6017IBGIS140064 31.07.2015 18,12,000/- 30.07.2017 Till filing of the present Application, 7 out of 8 BG had expired and it was never renewed by the Appellant also, there was no auto renewal clause in the BG issued by the Respondent No. 2/BoB. The relevant clause of the BG read as follows: "3) That if this bank guarantee is not renewed for the reason what so ever on or before expiry of this Guarantee, the entire amou....
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....014 to 2015. Admittedly the Appellant did not take any action against the Corporate Debtor in order to realise the amount outstanding against the Corporate Debtor. Also, the Appellant did not take any action for renewal of BGs or encash the BGs. 48. In the matter of Indian Overseas Bank vs. Arvind Kumar, [Company Appeal (AT) (Insolvency) No. 558 of 2020], it was held by the Hon'ble NCLAT: "13. The 'margin money' is the contribution on the part of the borrower who seeks 'Bank Guarantee. The said margin money remains with the Bank, as long as the Bank Guarantee is alive. If the bank guarantee expires without being invoked, then the margin money reverse back to the borrower, 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 towards payment of bank guarantee to the beneficiary and nothing remains with the financial institutions, which can be reversed to the corporate debtor" 49. Also, in the matter of Phoenix ARC Pvt. Ltd. Vs. Anush Finleash & Construction Pvt. Ltd. [IA No. 2075(PB)/2020 in CP(IB) No. 1705(PB)/2018] the Ld. NCLT, Principal Bench, Ne....
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....t of the export obligations as specified in the said notification and the licence, I/ We the obligor(s) hereby undertake to pay the custom duty but for the exemption and also interest as per applicable rate for per annum thereon forthwith and without any demur of the government" 52. The export obligation discharge period expired in the year 2020 & 2021 and thus the import duty to the tune of Rs. 1,81,27,632/- became outstanding amount against the CD. The relevant para of the Reply of Appellant is as follows: "13. It is further submitted that the export obligation discharge period of the said licenses ended in the year 2020 & 2021. Thus, it is clear that the importer has made no attempt to fulfil their commitment to the Respondent. Due to this, a staggering amount of Rs. 1,81,27,632/-along with applicable interest to the Respondent as Government dues." 53. The Appellant did not claim the BGs, since, 2020, as all the BGs had expired, the Appellant could not encash the BGs. Also, the Appellant had failed to send any notice to the bank for the renewal of BGs. Therefore, the amount against the BGs revert back to the Corporate Debtor and became asset of the Corporate Debto....
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....idation Process) Regulation, 2016 (hereinafter referred as "Liquidation Regulation") provides that if a creditor does not take a call on relinquishment/non-relinquishment of security, then after expiry of 30 days, the security shall be deemed to be relinquished by the creditor. The relevant provision of the Liquidation Regulation is as follows: "Regulation 21A: Presumption of security interest. (1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II: Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate. (2) Where a secured creditor proceeds to realise its security interest, it shall pay - (a) as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53, as it would have shared in case it had relinquished the security interest, to the liquidator within nine....
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.... the terms and conditions specified in the said notification and license. Whereas I/We the obligor(s) has / have undertaken to fulfill the export obligation as specified in the said notification and the license and to produce evidence of having so fulfilled the export obligation within 30 days from the expiry of the specified export Obligation period to the satisfaction of the Government. 4. In the event of failure to fulfil full or part of the export obligations as specified in the said notification and the license I/ We the obligor(s) hereby undertake to pay the customs duly but for the exemption and also interest as per applicable rate for per annum thereon forthwith and without any demur of the government." 63. Liquidator brings to our notice that as per the terms of the Bond executed by the Corporate Debtor, if the Corporate Debtor failed to fulfil the export obligations, then the Corporate Debtor is liable to pay the custom duty along with penal interest. It was also brought to our notice by the liquidator that as per the notification no. 102/2009-CUSTOM, 96/2009 - CUSTOMS both dated 11.09.2009 and 22/2013 - CUSTOMS dated 18.04.2013 the EPCG Bond executed....
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.... the Bank Guarantees were never renewed by the Respondent No. 2 after expiry therefore the guarantee expired after the term. 66. We further observe that as per the EPCG Bond, in event of failure in performing the export obligation till expiry of the period, the Corporate Debtor was liable to pay the custom duty along with interest. The export obligation discharge period expired in the year 2020 & 2021 and thus the import duty to the tune of Rs. 1,81,27,632/- became outstanding amount against the Corporate Debtor. We further find that the appellant never claimed the bank guarantee for non-performance of the export obligations of the Corporate Debtor. 67. We observe that the liquidation proceedings were initiated against the CD (Corporate Debtor) vide order dated 21.11.2023; the Appellant filed its claim on 15.12.2023 in form 'B' (Rs. 1,81,27,632/- became outstanding amount against the Corporate Debtor) for non-fulfilment of export obligation and in a way chose to relinquish its security interest by filing of claim in Form 'B'. The Appellant's claim against import duty and non-fulfilment of export obligation was admitted also by the Respondent No. I in full. 68. Howe....