2018 (7) TMI 2144 - AT - Insolvency and Bankruptcy

Stay on invocation of the Performance Bank Guarantee - stand of the Resolution Professional is that the Performance Bank Guarantee cannot be invoked during the Moratorium - HELD THAT - From sub-section (31) of Section 3, it is clear that the security interest do not include the Performance Bank Guarantee , therefore, we hold that the security interest mentioned in clause (c) of Section 14(1) do not include the Performance Bank Guarantee . Thereby the Performance Bank Guarantee given by the Corporate Debtor in favour of the Appellant- GAIL (India) Ltd. is not covered by Section 14. The Appellant- GAIL (India) Ltd. is entitled to invoke its Performance Bank Guarantee in full or in part - If it is invoked, the Appellant will inform it to the Interim Resolution Professional who will maintain the record and make it clear that the Performance Bank Guarantee in full or part has been invoked by the Appellant which should also be brought to the notice of the Resolution Applicant(s) . Appeal allowed.

Summary

Issues involved:
Interpretation of 'Moratorium' under Section 14 of the Insolvency and Bankruptcy Code, 2016 in relation to invoking a Performance Bank Guarantee.

Analysis:
The case involved the Appellant, 'GAIL (India) Ltd.,' seeking to invoke a Performance Bank Guarantee against the Corporate Debtor, 'M/s. Petron Engineering Construction Limited.' The Resolution Professional contended that the Performance Bank Guarantee cannot be invoked during the Moratorium period. The Adjudicating Authority had earlier prohibited GAIL from invoking the guarantee during the Moratorium period.

The Appellant argued that they intended to invoke only a part of the Performance Bank Guarantee, not the entire amount. The Resolution Professional maintained that the guarantee cannot be invoked during the Moratorium period as per Section 14 of the Insolvency and Bankruptcy Code, 2016.

Section 14 of the I&B Code deals with Moratorium, empowering the Adjudicating Authority to declare a Moratorium to prohibit actions like foreclosing, recovering, or enforcing any security interest created by the Corporate Debtor. The term 'security interest' is defined under the Code, excluding a Performance Guarantee from its scope.

The Tribunal held that a Performance Bank Guarantee does not fall under the definition of 'security interest' as per the Code. Therefore, the Performance Bank Guarantee provided by the Corporate Debtor to GAIL is not covered by Section 14, allowing GAIL to invoke it either in full or in part. The Tribunal directed GAIL to inform the Interim Resolution Professional if the guarantee is invoked, ensuring transparency with the Resolution Applicant(s).

The Adjudicating Authority's order was set aside as it failed to consider the relevant provisions. The Tribunal allowed GAIL to extend the Bank Guarantee period for another six months to align with the Moratorium period. The appeal was allowed with these observations and directions.