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2020 (1) TMI 593 - HC - Insolvency and BankruptcyWinding up petition - Order and direction against the Prothonotary Senior Master of this Court to encash the bank guarantee and to receive the funds in his account - whether the bank guarantee furnished by the respondent pursuant to an order passed by this Court on 5th April, 2017 could be encashed or not in view of the order passed by the National Company Law Tribunal under section 14(1) of the Insolvency Bankruptcy Code, 2016 and thereafter if encashed, the applicant could apply for release of the amount lying with the office of the learned Prothonotary Senior Master of this Court or not? HELD THAT - It is not in dispute that in this company application the applicant had prayed for an order and direction against the learned Prothonotary Senior Master of this Court to encash the bank guarantee and to receive the funds in his account vide prayer clause (a) of the company application. By prayer clause (b), the applicant has applied for an order and direction against the learned Prothonotary Senior Master of this Court to encash the bank guarantee and to release the said sum of ₹ 38,53,000/- to the applicant from the date of passing of this order on this company application - Under section 126 of the Indian Contract Act, 1872, it is provided that the person who gives the guarantee is called surety . Under section 14(3)(b) of the Insolvency Bankruptcy Code, 2016, it is provided that the provision to sub section 1 of section 14 shall not apply to a surety in a contract of guarantee to a corporate debtor. It is thus clear that the respondent was a surety in a contract of guarantee given to the corporate debtor for carrying out the acts set out in section 14(1) of the Insolvency Bankruptcy Code, 2016. The order passed by this Court on 6th September, 2019 in this company application allowing prayer clause (a) thereof directing the learned Prothonotary Senior Master of this Court to encash the bank guarantee has attained finality, there is no bar against the applicant from seeking release of the said amount encashed by the learned Prothonotary Senior Master of this Court lying deposited with the office of the learned Prothonotary Senior Master of this Court under section 14(1) of the Insolvency Bankruptcy Code, 2016. This company application thus cannot be considered as an application for execution of the arbitral award. This company application filed by the applicant for seeking an order of release of the amount encashed by the learned Prothonotary Senior Master of this Court pursuant to the order passed by this Court which order had attained finality is not an application for execution of the arbitral award against any of the assets of the respondent company. The bar prescribed under section 14(1) of the Insolvency Bankruptcy Code, 2016 thus even otherwise would not apply to this application - The company application thus filed by the applicant for the reliefs sought therein is maintainable. The Learned Prothonotary Senior Master of this Court is directed to release the amount already realized upon encashment of the bank guarantee to the applicant within one week from the date of the applicant furnishing an undertaking to the effect that if the respondent succeeds in the arbitration petition filed by the respondent under section 34 of the Arbitration Conciliation Act, 1996 impugning the arbitral award dated 22nd March, 2019 and if the applicant is directed to return the said amount, the applicant would return the amount with interest at such rate which this Court may direct.
Issues Involved:
1. Encashment of the bank guarantee. 2. Applicability of the moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016. 3. Execution of the arbitral award. 4. Status of the bank guarantee as an independent contract. 5. Impact of the National Company Law Tribunal (NCLT) order and Supreme Court stay. Issue-wise Detailed Analysis: 1. Encashment of the Bank Guarantee: The applicant sought an order directing the Prothonotary & Senior Master of the Court to encash the bank guarantee and release the sum of ?38,53,000/- to the applicant. The bank guarantee was furnished by the respondent pursuant to a court order dated 5th April 2017. The Court noted that the bank guarantee was unconditional and irrevocable. The learned arbitrator allowed the applicant's claim and directed the respondent to pay ?38,53,000/- along with interest and costs. The Prothonotary & Senior Master was directed to encash the bank guarantee, which was done, but the respondent opposed the release of the funds, citing the moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016. 2. Applicability of the Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016: The respondent argued that the moratorium order passed by the NCLT on 29th January 2019 prohibited the encashment of the bank guarantee. However, the Court held that the bank guarantee furnished by the Indian Bank in favor of the Prothonotary & Senior Master would not enjoy the benefit of the moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016. The Court noted that the moratorium order had been stayed by the Supreme Court. It was further observed that the bank guarantee was an independent contract and thus not subject to the moratorium provisions. 3. Execution of the Arbitral Award: The respondent contended that the arbitral proceedings and the award were invalid due to the moratorium. The Court, however, clarified that the application for encashment of the bank guarantee was not an execution of the arbitral award but an independent contractual obligation. The Court emphasized that the bank guarantee was encashed pursuant to a consent order and not as a step in executing the arbitral award. 4. Status of the Bank Guarantee as an Independent Contract: The Court reiterated that the bank guarantee was an independent contract and thus fell outside the purview of the moratorium under Section 14(1) of the Insolvency & Bankruptcy Code, 2016. The Court referenced Section 126 of the Indian Contract Act, 1872, and Section 14(3)(b) of the Insolvency & Bankruptcy Code, 2016, to support this view. It was held that the encashment of the bank guarantee was not a step in execution of any arbitral award and thus was rightly encashed. 5. Impact of the NCLT Order and Supreme Court Stay: The Court noted that the NCLT order dated 29th January 2019 was not disclosed by the respondent to the arbitrator or the applicant. The Supreme Court's stay on the NCLT order was considered, and it was concluded that the stay rendered the moratorium inapplicable. The Court held that the application for release of the encashed amount was maintainable and not barred by the moratorium. Conclusion: The Court directed the Prothonotary & Senior Master to release the encashed amount to the applicant within one week upon the applicant furnishing an undertaking to return the amount with interest if the respondent succeeds in the arbitration petition. The application was disposed of on these terms, emphasizing that the bank guarantee was an independent contract and not subject to the moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016.
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