2017 (9) TMI 1899 - HC - Insolvency and Bankruptcy

Restraint on respondent no.3 from making any payment pursuant to the request for invocation of the bank guarantee - HELD THAT - In view of the rival submissions, it is required to be stated that normally the Court would declined to interfere with the invocation of the bank guarantee or the performance guarantee as it has been settled law that the Court should decline interference with the invocation of the bank guarantee except on limited grounds. However, the Law declared and observation made has reference to ordinary commercial transaction and performance guarantee. In the facts of the case, subsequent application of the Insolvency and Bankruptcy Code, 2016 will have to be considered, which provides for a separate procedure in case of such Company, which is under resolution process. Notice to the respondents returnable on 5 October, 2017.

Summary

Issues:
- Invocation of bank guarantee during insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.

Analysis:
The judgment pertains to a petition filed by a Resolution Professional under Article 226 of the Constitution of India and the Insolvency and Bankruptcy Code, 2016. The petitioner sought relief to restrain the respondent from making any payment pursuant to the bank guarantee invocation request. The petitioner's advocate argued that the company was under the resolution process as per the Insolvency and Bankruptcy Code, 2016, and therefore, a moratorium was in place as per Section 14(1)(c) of the Code. The advocate highlighted that the National Company Law Tribunal had previously restrained the recovery or enforcement of any security interest, including bank guarantees, under the Code. It was contended that allowing the bank guarantee invocation would contradict the Tribunal's order and the statutory provisions of the Code.

The Court acknowledged the general principle that interference with the invocation of bank guarantees should be limited, especially in ordinary commercial transactions. However, in the present case, the Court recognized the unique circumstances arising from the application of the Insolvency and Bankruptcy Code, 2016 to a company undergoing resolution. The Court noted that the Code outlined a distinct procedure for such companies, necessitating a different approach compared to routine commercial dealings. Consequently, the Court decided to issue a notice to the respondents, making the matter returnable on a specified date. Additionally, interim relief was granted until the next hearing, and direct service of the order was permitted on the same day. The petitioner's advocate was also allowed to convey the order via fax for immediate communication.

In conclusion, the judgment delves into the complex interplay between bank guarantee invocation and insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. It emphasizes the need to consider the specific provisions of the Code when dealing with companies undergoing resolution, highlighting the importance of aligning legal procedures with the unique circumstances of insolvency cases.