2020 (8) TMI 574 - AT - Insolvency and Bankruptcy

Release of amount deposited with the Registrar General of the Hon ble High Court of Delhi upon invocation of the Bank Guarantee - asset of the Corporate Debtor given as security interest , or not - CIRP process - HELD THAT - The amount of ₹ 20 Crores deposited by way of Bank Guarantee was against the sum of ₹ 76.45 Crores awarded, therefore, said amount of ₹ 20 Crores, if payable to the Financial Creditor will be out of ₹ 76.45 Crores as awarded in its favour. Even if, it is accepted that said amount of ₹ 20 Crores, as deposited with the Registrar General of Delhi High Court, is meant for payment to the Appellant - Morgan Securities Credits Pvt. Ltd. against the awarded amount of ₹ 76.45 Crores - the Bank Guarantee of ₹ 20 Crores given by the Bank on behalf of the Corporate Debtor, relates to the claim of the Appellant - Morgan Securities Credits Pvt. Ltd. which has been taken care by the Resolution Professional against the claim preferred in the Corporate Insolvency Resolution Process. Such being the position, during the Corporate Insolvency Resolution Process, the amount will be deposited with the Resolution Professional and the Appellant s claim can be taken care by the Successful Resolution Applicant, if a resolution plan is approved. During the liquidation stage the amount of ₹ 20 Crores cannot be treated as Security Interest , merely because it was deposited against award amount of ₹ 76.45 Crores. The finding given by the Adjudicating Authority that the amount of ₹ 20 Crore is an asset of the Corporate Debtor is upheld - the observation that the amount was a security interest in Morgan s favour being against the facts and law is set aside - appeal dismissed.

Summary

Issues:
Challenge to rejection of release of amount by Adjudicating Authority
Interpretation of Bank Guarantee as security interest
Enforceability of lien or arrangement during moratorium
Ownership of the Bank Guarantee amount
Treatment of Bank Guarantee amount in insolvency proceedings

Analysis:
1. The Appellate Tribunal considered the challenge raised by the Appellant, a Financial Creditor, against the rejection of the release of an amount by the Adjudicating Authority. The amount in question was deposited with the Registrar General of the High Court upon the invocation of a Bank Guarantee issued by Allahabad Bank in favor of the Appellant.

2. The Adjudicating Authority held that the amount, being part of the Corporate Debtor's assets, should be deposited with the Resolution Professional of the Corporate Debtor. The Authority viewed the amount as security interest provided by the Corporate Debtor to the Financial Creditor.

3. The Resolution Professional contended that the Bank Guarantee was furnished by the Corporate Debtor as per a court order and was renewed at the Corporate Debtor's request. The Professional also highlighted that the Financial Creditor had filed a claim as part of the insolvency process, which was partially admitted.

4. The Appellant argued that the Bank Guarantee amount was not covered under the moratorium and should not be considered an asset of the Corporate Debtor. However, the Resolution Professional maintained that any pre-insolvency lien or arrangement could not be enforced during the moratorium period.

5. The Tribunal analyzed the ownership of the Bank Guarantee amount and its treatment in insolvency proceedings. It concluded that the amount, being part of the sum awarded to the Financial Creditor, should be handled by the Resolution Professional during the resolution process. The Tribunal dismissed the appeals by the Financial Creditor and allowed the appeal by the Corporate Debtor.

6. The Tribunal clarified that the Bank Guarantee amount should be added to the total assets of the Corporate Debtor for resolution planning or liquidation if necessary. It emphasized that the amount was not to be treated as security interest and should be managed within the insolvency framework.