2019 (8) TMI 1306 - HC - Insolvency and Bankruptcy

CIRP against VIL - to whom the amount belongs - an Award dated 29th April, 2013 was passed in favour of the Appellant and against the Respondent/ Videocon Industries Limited (VIL). That Award was challenged by VIL - as per the direction of the court to keep the amount with the Registrar General (RG) of the Court in a fixed deposit so that it could earn interest - amendment to Section 14 (3) of the Insolvency of Bankruptcy Code 2016 - HELD THAT - The BG in question was encashed on 16th August, 2018 and the amount as a result of such encashment was kept as Fixed Deposit in the name of the Registrar General of this Court, so that it could earn interest. After that day and definitely on the date of passing of the impugned order dated 7th February, 2019, there was no BG in existence. The question therefore of the applicability of Section 14 (3) (b) of the IBC to any such BG on the date of the impugned order i.e. 7th February, 2019 would not arise. It is then contended by Mr. Datta that in any event, the amount obtained as a result of encashment of the bank guarantee was not the asset of VIL. According to him, at best it was the asset of the bank, which was now being held by the Registrar General of this Court pursuant to the order dated 16th August, 2018. It is contended that under Section 18 (f) of the IBC, it is only those assets which are under the ownership of the corporate debtor i.e. in this case VIL as recorded in the balance sheet of VIL that would form the subject matter of the insolvency proceedings, since it is only the said asset that the Interim Resolution Professional (IRP) is allowed to take control of under the IBC - The Court finds that the above submission overlooks the fact that the amount of ₹ 20 crores which was obtained as a result of encashing the bank guarantee was kept with the Registrar General not as the asset of the bank but as an asset of VIL itself. As on the date of such encashment i.e. 16th August, 2018 it remained as an asset of VIL, for only then it could be offered as a security to protect the interests of the present Appellant in the arbitration proceedings. It was not yet the asset of the Appellant as well. This is because the outcome of the petition i.e. OMP 665/2013 filed by VIL was not yet known on 16th August, 2018. Appeal dismissed.

Summary

Issues:
1. Appeal against order under Section 9 of the Arbitration and Conciliation Act, 1996.
2. Encashment of bank guarantee and retention of funds during insolvency proceedings.
3. Applicability of Section 14 of the Insolvency and Bankruptcy Code, 2016.
4. Ownership and control of funds obtained from encashed bank guarantee.

Analysis:

1. The appeal was filed against an order under Section 9 of the Arbitration and Conciliation Act, 1996, related to an Award passed in favor of the Appellant against the Respondent. The Respondent had challenged the Award, leading to various court orders regarding a bank guarantee of ?20 crores.

2. During the pendency of the proceedings, the Appellant filed an application under Section 9 of the Act to encash the bank guarantee and keep the funds in a fixed deposit with the Registrar General of the Delhi High Court. The court directed the invocation of the bank guarantee and retention of the amount during insolvency proceedings involving the Respondent.

3. The Appellant argued that the funds obtained from the encashed bank guarantee should not be subject to the orders of the National Company Law Tribunal (NCLT) in the insolvency proceedings, citing an amendment to Section 14 of the Insolvency and Bankruptcy Code, 2016. However, the court held that the amendment did not apply to the situation as the bank guarantee had already been encashed before the impugned order.

4. The court further analyzed the ownership of the funds obtained from the bank guarantee, concluding that the amount belonged to the Respondent and was rightfully kept with the Registrar General as an asset of the Respondent. As the insolvency proceedings had commenced, the moratorium under Section 14 of the IBC applied, and the funds, along with any accrued interest, would be subject to the orders of the NCLT in the insolvency proceedings.

In conclusion, the court dismissed the appeal and applications, upholding the impugned order directing the retention of the funds with the Registrar General during the insolvency proceedings, as the funds were considered assets of the Respondent and subject to the moratorium under the Insolvency and Bankruptcy Code.