NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH,
NEW DELHI
COMPANY APPEAL (AT)(INSOLVENCY) NO.759 OF 2020
BHARAT ALUMINIUM CO. LTD V/S J.P. ENGINEERS PVT LTD. & ORS.
FACTS
1) Section 9 application was filed by an Operational Creditor (OC) against the Corporate Debtor for initiating Corporate Insolvency Resolution Process (CIRP) which was admitted by the National Company Law Tribunal (NCLT) on 26.02.2020.
2) The Appellant had entered into an agreement with the Corporate Debtor (Respondent No. 1) for the sale and purchase of aluminium and the Corporate Debtor issued a bank guarantee on 22.04.2019 for ensuring the payment.
3) The Corporate Debtor defaulted in the making of payments, therefore, the Appellant for invoking bank guarantee has written a letter dated 03.03.2020 to Respondent No. 2 (Andhra Bank) and also deposited the original bank guarantee to the concerned branch. Respondent No. 2 replied that they can encash bank guarantees only after taking approval from IRP.
4) IRP refused to allow encashment of Bank Guarantee citing moratorium under force. The Appellant filed an application in NCLT for enforcing bank guarantee which was refused by the NCLT.
5) The present appeal arises out of that Order passed by the NCLT.
ISSUES
Whether the Bank Guarantee (BG) can be invoked after the declaration of moratorium under Section 14 of the IBC?
ARGUMENTS
| For Appellant | For Respondents |
| 1) Counsel submitted that conjoined reading of the proviso to Section 3 (31) and Section 14 of the IBC does not include performance bank guarantees from the ambit of moratorium under Section 14 of the IBC and that the same reasoning would apply to the bank guarantee. 2) It further submitted that Section 14(3) (b) of the IBC provides that Moratorium will not be applicable ‘to a surety in a contract of guarantee to a corporate Debtor’. Therefore, Respondent No. 2 bank cannot take advantage of the moratorium. 3) Legislative intend behind Section 14 of the IBC is only to secure the Assets of the Corporate Debtor and the benefit of moratorium ought not to be extended to third parties i.e. surety, for this purpose. 4) Relying on UP State Sugar Corporations Vs. Sumac International irrevocable & unconditional bank guarantee should be encashed irrespective of the dispute. 5) Relying on Haryana Telecom Ltd. Vs. Aluminium Industries Ltd. the bank guarantee cannot be said to be the property of the Corporate Debtor simply because it is indirectly going to be affected by enforcement of the said bank guarantee by the beneficiary. | 1) Respondent No. 2 submitted that the guarantee in question is a Bank Guarantee and not a performance guarantee as held by NCLT. The Bank Guarantee is covered by the moratorium under Section 14 of the IBC thus, enforcing such security interest during the moratorium period would violate Section 14 of the IBC. 2) There is a difference between the performance bank guarantee and Financial Bank Guarantee. Thus, the intention of the legislature in carving out an exception for the Performance Bank Guarantee only is limited for excluding only the Performance Bank Guarantee from the ambit of moratorium under Section 14 of the IBC |
DECISION
A Bank Guarantee can be invoked during the moratorium period also.
RATIONALE
1) Assets of the surety are separate from those of the Corporate Debtor, and proceedings against the Corporate Debtor may not be seriously impacted by the actions against assets of a third party like surety.
2) Relying on the amendment made to Sec. 14 of the IBC, Sub-Section 3(b) the provision of Section 14(1) of the IBC shall not apply to the surety in the contract of guarantee to a Corporate Debtor.
3) Relying on the Supreme Court Order, in the Case of SBI Vs. V. Ramakrishnan & Ors. (2018) 17 SCC 394 read as under. We now come to the argument that the amendment of 2018, which makes it clear that Section 14(3), is now substituted to read that the provisions of sub-section (1) of Section 14 shall not apply to a surety in a contract of guarantee for the corporate debtor.
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About the Author: The summary of this Order has been composed by Mr. Shikhar Pandey (Research Associate-IBC Law Reporter).
Disclaimer: The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author and IBC Law Reporter do not take responsibility for the same and this document cannot used to be quoted before any authority under any law.
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