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2019 (8) TMI 1596 - Tri - Insolvency and BankruptcyInjunction against the invocation of four Bank Guarantees - HELD THAT - The provisions of the I B Code are clear that the invocation of Performance Bank Guarantee cannot be stayed since as per the Proviso the Moratorium does not apply on performance bank guarantees . But fact of the each case ought to have bearing for applying the provisions of a Statute. Therefore, in view of the facts of the present case, since there was an ongoing dispute between the parties regarding the issue of non-completion of contract, hence the entitlement of encashment of a Bank Guarantee got jeopardised. This is a contractual dispute and has to be adjudicated by the Commercial court in view of the arbitration clause in the contract. The correctness of invocation of performance bank guarantees shall be decided by the Arbitrator post moratorium in view of the fact that the arbitration proceedings are stayed during moratorium. There is an ongoing dispute regarding completion of work and arbitration proceedings are pending to that effect. The purpose of the Counter Bank Guarantee as per Clause 4.2 of the contract was to enable the Corporate Debtor to furnish a Bank Guarantee of the corresponding amount to the Jamnagar municipal Corporation. Parties have made efforts for an amicable settlement. The proceedings are stated to be stayed due to the moratorium. In a situation when the question is that whether it is matured that a Bank Guarantee is fit to be invoked or that the claim has become final having no scope of contingency, then only the question of dealing with a Bank Guarantee can be decided under the provisions of the Insolvency Code. Else, the issue of invocation of a Bank Guarantee is better left to be decided by the Arbitral Authorities. The Counter bank guarantee cannot be ordered to be released during the CIRP because of the suspension of amicable settlement - Application rejected.
Issues Involved:
1. Injunction against the invocation of Bank Guarantees by Jamnagar Municipal Corporation. 2. Discharge of Bank Guarantees issued by CitiBank Limited on behalf of Xylem Water Solutions India Private Limited. Detailed Analysis: A) Miscellaneous Application No. 661/2018 1. Corporate Insolvency Resolution Process (CIRP) Initiation: - The CIRP of EPC Constructions India Limited (Corporate Debtor) began on 20.04.2018, following the admission of a Section 7 application filed by IDBI Bank Ltd. Mr. Abhijit Guhathakurta was appointed as the Interim Resolution Professional (IRP) and later as the Resolution Professional (RP). 2. Injunction Against Invocation of Bank Guarantees: - The RP sought an injunction against the invocation of four Bank Guarantees (BG) by Jamnagar Municipal Corporation (JMC), totaling ?23 Crores. The BGs were issued by Axis Bank Ltd., Kotak Mahindra Bank, and Union Bank of India. 3. Contractual Obligations and Performance: - The Corporate Debtor, in a joint venture with M/s. Thermax Ltd., submitted a bid for designing, building, operating, and transferring a 70 MLD capacity Sewage Treatment Plant (STP) for JMC. The contract was executed on 08.10.2013, and BGs worth ?23 Crores were submitted. 4. Completion and Certification: - The Corporate Debtor completed the Commissioning/Performance Guarantee Test (PGT) on 31.08.2016, and a Work Completion Certificate and Operational Acceptance Certificate were issued by JMC on 30.08.2017. 5. Dispute and Show Cause Notice: - JMC raised an objection on 03.11.2015, claiming the Corporate Debtor did not set up a pipeline network for the utilization of treated water, which was not an obligation under the contract. JMC issued a show cause notice on 21.12.2017, threatening to terminate the contract and invoke the BGs. 6. Legal Proceedings and Moratorium: - The Corporate Debtor initiated arbitration proceedings and sought a stay on the invocation of BGs due to the moratorium imposed by the Tribunal. The RP argued that invocation of BGs during the moratorium is prohibited under the Insolvency and Bankruptcy Code (I&B Code). 7. Tribunal's Decision: - The Tribunal acknowledged that the moratorium does not apply to performance bank guarantees as per Section 14(3) of the I&B Code. However, due to the ongoing contractual dispute, the entitlement to encash the BGs was jeopardized. The matter was to be adjudicated by the Commercial Court post-moratorium. The assets of the Corporate Debtor were ordered to be protected and preserved by the RP. B) Miscellaneous Application No. 1011 of 2019 1. Parties Involved: - Xylem Water Solutions India Private Limited (Applicant) vs. EPC Constructions India Limited (Respondent No.1), Mr. Abhijit Guahathakurtha (Respondent No.2), Kotak Mahindra Bank Limited (Respondent No.3), Jamnagar Municipal Corporation (Respondent No.4), and CitiBank Limited (Respondent No.5). 2. Application for Discharge of Bank Guarantees: - The Applicant sought a direction for the RP to discharge three Bank Guarantees issued by CitiBank Ltd. in favor of Kotak Mahindra Bank Ltd. for a sum of ?2 Crores and return the original Counter Bank Guarantees. 3. Sub-Contractual Obligations and Completion: - The Corporate Debtor entered into a sub-contract with the Applicant for electromechanical and instrumentation works of the STP. The Applicant furnished a BG of ?6 Crores, which was to be reduced to ?2 Crores after the defect liability period. The work was completed in July 2016, and a completion certificate was issued on 14.09.2016. 4. Dispute and Arbitration: - Despite the completion of work, there was an ongoing dispute regarding the completion, and arbitration proceedings were pending. The Applicant argued that the BG should be discharged as all obligations were fulfilled. 5. Tribunal's Decision: - The Tribunal noted that the issue of invoking the BG was better left to be decided by the Arbitral Authorities. The Counter BG could not be ordered to be released during the CIRP due to the suspension of amicable settlement. Hence, MA 1011 of 2019 was rejected. Conclusion: The Tribunal ruled that the invocation of Performance Bank Guarantees cannot be stayed under the moratorium, but the specific contractual dispute must be resolved through arbitration. The assets of the Corporate Debtor were to be protected during the CIRP. The application for the discharge of BGs by Xylem Water Solutions India Private Limited was rejected, leaving the matter to be decided post-moratorium.
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