2019 (3) TMI 1747 - Tri - Insolvency and Bankruptcy

Direction to the resolution professional not to invoke bank guarantee - section 60(5) of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - It is clear that there is no material before the Adjudicating Authority that invocation of bank guarantees by the corporate debtor in the present case is a fraudulent action and that the applicant will sustain irreparable injury. The only grievance of the applicant that it has completed the contract work assigned to it. The question whether the applicant failed to perform part of the contract or not, is a question to be determined by way of evidence. The said dispute cannot be resolved by summary procedure. If bank guarantee is in terms of guarantee, then the corporate debtor is entitled to invoke it - So injunction as prayed cannot be granted in respect of two bank guarantees issued by OBC. Similarly, the corporate debtor cannot be directed to refund and/or indemnify in respect of three bank guarantees already invoked by Union Bank of India. Application dismissed.

Issues Involved:
1. Invocation of bank guarantees.
2. Allegation of fraud in invocation.
3. Jurisdiction of the Adjudicating Authority under section 60(5) of the Insolvency and Bankruptcy Code, 2016.
4. Relief of injunction against invocation of bank guarantees.
5. Claim for refund or indemnification for invoked bank guarantees.

Detailed Analysis:

Invocation of Bank Guarantees:
The applicant, a private limited company, sought a direction to prevent the resolution professional from invoking specific bank guarantees issued by the Oriental Bank of Commerce in favor of the corporate debtor. The applicant argued that it had substantially completed its contractual obligations and that the invocation of the guarantees was unjustified. The liquidator contended that the bank guarantees were invoked as per the terms of the contract, and the applicant failed to establish any fraud or irretrievable harm that would justify an injunction against the invocation.

Allegation of Fraud in Invocation:
The applicant alleged that the invocation of the bank guarantees was fraudulent and in violation of section 18 of the Insolvency and Bankruptcy Code, 2016. The liquidator countered that the applicant did not provide sufficient evidence to prove fraud. The Tribunal emphasized that fraud must be egregious and clearly established with evidence, which the applicant failed to do. The Tribunal referenced the Supreme Court's rulings, stating that mere allegations without substantial proof are insufficient to restrain the invocation of bank guarantees.

Jurisdiction of the Adjudicating Authority:
The liquidator argued that the Adjudicating Authority's jurisdiction under section 60(5) of the Insolvency and Bankruptcy Code, 2016, is limited to summary proceedings and does not extend to matters requiring detailed evidence. The Tribunal agreed, noting that the issues raised by the applicant involved questions of fact that could not be resolved through summary proceedings. The Tribunal cited several Supreme Court decisions to support this view, emphasizing that disputes requiring extensive evidence are beyond the scope of the Adjudicating Authority's jurisdiction.

Relief of Injunction Against Invocation:
The applicant sought an injunction to prevent the invocation of the bank guarantees. The Tribunal reiterated that injunctions against the invocation of bank guarantees are granted only in cases of clear fraud or irretrievable harm, neither of which was established by the applicant. The Tribunal highlighted that the applicant did not seek permanent injunction relief, which is a prerequisite for granting interim relief. The Tribunal referenced the Supreme Court's ruling in "State of Orissa v. Madan Gopal Rungta," which states that interim relief can only be granted in aid of final relief.

Claim for Refund or Indemnification:
The applicant sought a refund or indemnification for the bank guarantees already invoked by the Union Bank of India. The Tribunal noted that the guarantees were invoked before the application was filed, and the applicant must pursue its remedies through appropriate legal channels. The Tribunal emphasized that the applicant's claim for refund or indemnification did not fall within the definition of "claim" under section 3(6) of the Insolvency and Bankruptcy Code, 2016, and thus, the relief sought was not within the purview of section 60(5)(b).

Conclusion:
The Tribunal dismissed the application, stating that the applicant failed to establish any fraud or irreparable injury that would justify an injunction against the invocation of the bank guarantees. The Tribunal also noted that the issues raised required detailed evidence and could not be resolved through summary proceedings. Consequently, the interim order, if any, stood vacated.

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