IDBI BANK LTD. VS Indian Oil Corporation Limited & Anr.
Company Appeal (AT) (Ins) No. 543 of 2021
Facts:
1.An I.A. No. 2184 of 2020 filed by the ‘Resolution Professional’ (RP) of Punj Lloyd Ltd. (Corporate Debtor) seeking encashment of the Bank Guarantees issued by the Appellant and Central Bank of India. The Bank Guarantees were issued on behalf of the Corporate Debtor, as required Company Appeal (AT) (Ins) No. 543 of 2021 under the terms of IOCL’s EPCC-2 package of ‘Aishwarya Project’ at its Haldia Refinery in West Bengal.
2.Against the above order the appellant has filed the present appeal.
Issue: whether Bank Guarantees can be invoked/encashed during moratorium under Section 14 of the Code?
Arguments:
For Appellant:
1.Counsel for Appellant contended that the ‘Advance Bank Guarantees’ (ABG) issued by the Appellant Bank have been wrongfully utilised by the IOCL, contrary to the terms of the Bank Guarantee. It is submitted that the Advance Bank Guarantee was provided to secure part of the mobilisation advance of Rs. 107 Crore and against 10% supply payment which has been wrongfully utilised by the Corporate Debtor to secure some other additional advances from IOCL, contrary to the contract and without concurrence from the Appellant bank, which is the issuer of the Advance Bank Guarantee and a party to the Bank Guarantee (BG) Agreement.
2.It is contended that the Corporate Debtor has illegally promised to keep the BG’s issued by the Appellant alive for full value on its own, without any concurrence from the Appellant Bank.
3.Counsel contended that the Advance Bank Guarantees were fraudulently misused by IOCL and PLL in contravention of the Bank Guarantee terms as well as their inter-se contract. Counsel submitted that there is a categorical admission on the part of the IOCL regarding recovery of advances and no denial whatsoever of the factual aspects raised by the Banks regarding ‘fraud’. IOCL has already recovered the entire mobilisation advance and has gone ahead and recovered an amount much higher than that and a backdoor arrangement has been entered into between the Corporate Debtor and IOCL.
4.It was submitted that Advance Bank Guarantees are not the same as Performance Bank Guarantees and therefore, are not covered under the exception to Section 3(31) of the Code and hence, cannot be invoked during moratorium under Section14 of the Code.
For Respondent:
1.Counsel for the first Respondent/IOCL submitted that disputes between IOCL and Corporate Debtor are pending adjudication before the Hon’ble ‘Arbitral Tribunal’ and the same BGs are before the ‘Arbitral Tribunal’, wherein the Corporate Debtor has filed an application under Section 17 of the Arbitration and Conciliation Act, 1996 praying for stay on the encashment of the same BGs. The Application was dismissed by the Hon’ble Arbitral Tribunal on 21.10.2021 and the BGs were encashed by the Bank on 22.10.2021. No appeal has been preferred by the Corporate Debtor against the dismissal of the application under Section 17 of the Arbitration and Conciliation Act, 1996 and hence the same has
attained finality.
2.Counsel submitted that no case of fraud whatsoever was made out and that Banks are not allowed to contest the decision of the first Respondent as to any breach and the Appellant Bank is bound to honour encashment of the unconditional BGs and the decision of the first Respondent is binding upon the Bank and the same cannot be contested
Decision:
Rationale:
1.Hon’ble NCLAT relying on Arbitration Award referring to the same BGs and encashment thereof and the observation of the Hon’ble Arbitral Tribunal that there was no reason to interfere with the encashment of ABGs by IOCL and that there was no injustice or harm caused to it by the encashment, we do not see any substantial ground to delve into the issue of any breach of terms of the contract or any alleged fraud between IOCL and the Corporate Debtor.
2.Bank Guarantees are outside the scope of the moratorium under Section 14 of the Code and Section 3 (31) specifically excludes Performance Bank Guarantees (PBGs).
Order:
