2020 (7) TMI 757 - Tri - Insolvency and Bankruptcy

Invocation/encashment of Bank Guarantee - within the scope of Moratorium or not - HELD THAT - The recital of guarantee clearly provides that the guarantee in question is a bank guarantee and not a performance guarantee as contended by the counsel for the applicant. In the case on hand the bank guarantee is offered to the seller, (the Applicant) on account of purchasing goods by the borrower viz., CD on credit and the bank viz., the non- Applicant No. 2 hand given a bank guarantee to the effect that it will pay certain unsettled sum on behalf of the buyer (CD) to the seller i.e. the Applicant. Once this position becomes clear then the bank guarantee does not fall within the purview of the proviso to Section 3(31) of IBC 2016, because a bank guarantee cannot be described as performance bank guarantee. Therefore, the contention of the counsel for the applicant that the guarantee is a performance bank guarantee stands rejected. Whether the bank guarantee in question can be invoked during the moratorium declared under Section 14(1) of IBC 2016? - HELD THAT - As per section 14(1)(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is prohibited. It is well settled position that the bank guarantee falls within the purview of the definition of Security interest as defined under Section 3(31) of the IBC, which is already quoted. Therefore, during the moratorium the bank guarantee cannot be invoked as the same is prohibited under Section 14(1)(c) of the IBC. Application dismissed.

Summary

Issues:
1. Invocation of Bank Guarantee during moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.
2. Nature of the Bank Guarantee and its applicability as a performance guarantee.

Issue 1: Invocation of Bank Guarantee during Moratorium:
The case involved two applications - one by the Applicant seeking declaration that the Bank Guarantee can be invoked despite the moratorium, and the other by the non-applicant seeking to prevent the invocation. The Applicant argued that the Bank Guarantee could be invoked during the moratorium as it fell under the Proviso to Section 3(31) of the IBC, which excludes performance guarantees from the definition of security interest. However, the non-applicant and the IRP opposed this, stating that the application was not maintainable against a non-corporate entity. The Tribunal referred to Section 14(1)(c) of the IBC, which prohibits actions to enforce security interests during moratorium, including bank guarantees. The Tribunal relied on precedent from the NCLT, Ahmedabad Bench to support this interpretation, highlighting that bank guarantees are considered security interests and cannot be invoked during the moratorium period.

Issue 2: Nature of Bank Guarantee as a Performance Guarantee:
The second issue revolved around the nature of the Bank Guarantee in question. The Applicant contended that the guarantee was a performance guarantee, which could be invoked even during the moratorium. However, the Tribunal analyzed the guarantee's wording and context, concluding that it was a bank guarantee provided by the non-applicant to the seller (Applicant) for the buyer (Corporate Debtor). The Tribunal emphasized that the guarantee did not fall under the Proviso to Section 3(31) of the IBC, as it was not a performance bank guarantee. The Tribunal referred to specific clauses in the guarantee to establish its nature as a bank guarantee rather than a performance guarantee. This distinction was crucial in determining the applicability of the moratorium under Section 14 of the IBC.

In conclusion, the Tribunal dismissed the Applicant's application seeking invocation of the Bank Guarantee during the moratorium, emphasizing that bank guarantees are considered security interests and are protected under Section 14 of the IBC. The non-applicant's application was allowed, directing the Applicant not to demand the release of the Bank Guarantee amount during the moratorium period. The Tribunal's decision was based on a clear interpretation of the legal provisions and established precedents regarding the nature and invocation of bank guarantees in the context of insolvency proceedings.