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2020 (12) TMI 322 - Tri - Insolvency and BankruptcyRelease of Fixed Deposits Receipts of Anush Finlease and Construction Private Limited (Corporate Debtor) maintained with SBI in the Controlled Account of the Corporate Debtor - whether or not margin money shall be released on the premise that it is the asset of the Corporate Debtor? HELD THAT - These FDRs are given towards margin money against the bank guarantees given to the beneficiary, not as FDRs to be realized by the Corporate Debtor as and when it wishes. We must say that as per RBI guidelines and also as per the ratio decided in various judgements, margin money is construed as substratum of a Trust created to pay to the beneficiary to whom Bank Guarantee is given. Once any asset goes into trust by documentation for the benefit of beneficiary, the original owner will not have any right over the said asset unless is it is free from the trust. In this case, the Bank Guarantee being given to Government Authority, 100% margin money is deposited in the form of FDRs. In the event the margin money is free from the Bank Guarantee either by discharge or by efflux of time, then the Corporate Debtor is entitled for release of FDRs. Whether the asset held in Trust amounts to the asset of the Corporate Debtor or not? - HELD THAT - The assets held under Trust cannot be considered as the asset of the Corporate Debtor. When margin money has character of Trust for the benefit of the beneficiary, as long as the Bank Guarantee Contract is not determined, the margin money will have the character of Trust. When it is not the asset of the Corporate Debtor, the Corporate Debtor, either during the CIRP process or after the CIRP period, will not have any legal right to have a claim on the said asset. Applicant has made another argument saying that this asset is covered by moratorium, therefore, Bank Guarantee cannot be invoked by DGFT nor Bank can release the same to the beneficiary - HELD THAT - The margin money was no where covered under Sec. 14 of the Code, (a) deals with prohibition of initiation or continuation of legal proceedings against the Corporate Debtor, (b) deals with prohibition of creation of rights over the asset of the Corporate Debtor, (c) prohibition of action under SARFAESI, it need not be said separately that performance guarantee is exempted from the ambit of Code, (d) speaks of recovery of property in possession of the Corporate Debtor, the present issue is not relevant to (d). In effect, margin money is not covered under section 14 of the Code, Moratorium is indeed a calm period to be maintained, but Moratorium will not alter or confer new rights upon anybody - Moreover, the period after approval of Resolution Plan will not fall within the ambit of Moratorium. DGFT has not made any claim against the Corporate Debtor or the Resolution Applicant. Merely having some Clauses in the Resolution Plan will not alter the legal rights of the beneficiary, which are not affected by the Insolvency and Bankruptcy Code. Moreover, this Bench has made it clear that clauses not permissible under law in the Resolution Plan is held as not approved, therefore, this Applicant cannot cite some clause as a right conferred upon this Applicant to lay its hands on the margin money having character of Trust - SBI is not a Creditor to the Corporate Debtor. As long as claim is not raised by the beneficiary against the Corporate Debtor, no claim is considered to have come into existence The Resolution Plan shall not contravene any of the provisions of the laws for time being in force, the same is again reiterated in Section 238 of the Code saying that this Code will have overriding effect over other laws which are inconsistent with the provisions of this Code. Harmonisation of statutes is the hall mark of justice, not invalidating the rights conferred under one enactment by another enactment save and except to the extent mentioned - Security Interest shall not include the Performance Guarantee, the incidental actions to the performance guarantee cannot be called as falling within the ambit of the Code. On the day the Bank is discharged, the applicant can get back this money from the Bank. Application dismissed.
Issues Involved:
1. Release of Fixed Deposits Receipts (FDRs) held as margin money against bank guarantees. 2. Fulfillment of export obligations under EPCG Authorisation. 3. Legal status of bank guarantees and margin money as assets of the Corporate Debtor. 4. Impact of the approved Resolution Plan on the rights of beneficiaries of bank guarantees. Detailed Analysis: 1. Release of Fixed Deposits Receipts (FDRs) Held as Margin Money Against Bank Guarantees: The application was filed by the Chairman of the Monitoring Committee seeking directions for the release of Fixed Deposits Receipts (FDRs) of the Corporate Debtor maintained with SBI. The FDRs were held as margin money against bank guarantees issued by SBI on behalf of the Corporate Debtor. The primary issue for adjudication was whether the margin money should be released, considering it as the asset of the Corporate Debtor. 2. Fulfillment of Export Obligations Under EPCG Authorisation: The Corporate Debtor had obtained EPCG Authorisation for import of capital goods with specific export obligations. The DGFT argued that the export obligations remained unfulfilled, and as per the conditions of the EPCG Authorisation and Foreign Trade Policy, the Corporate Debtor was still bound to fulfill these obligations. Consequently, DGFT maintained its right over the bank guarantees issued by SBI on behalf of the Corporate Debtor. 3. Legal Status of Bank Guarantees and Margin Money as Assets of the Corporate Debtor: SBI and DGFT contended that bank guarantees are independent contracts between the bank and the beneficiary, and the margin money held as FDRs is not refundable to the Corporate Debtor unless the bank is discharged from its liabilities. The Tribunal referred to Supreme Court judgments which established that bank guarantees are distinct contracts independent of the underlying transactions, and the margin money acquires the character of a trust for the benefit of the beneficiary. The Tribunal emphasized that assets held in trust for third parties cannot be considered assets of the Corporate Debtor, as per Section 36(4) of the Insolvency and Bankruptcy Code (IBC). 4. Impact of the Approved Resolution Plan on the Rights of Beneficiaries of Bank Guarantees: The applicant argued that the Resolution Plan approved by the NCLT envisaged the cancellation of all pledges, liens, or encumbrances on the fixed deposits, thereby extinguishing the bank guarantees. However, the Tribunal noted that the Resolution Plan approval order explicitly stated that exemptions or discounts not permissible under law were not approved. The Tribunal held that the Resolution Plan could not extinguish the bank guarantees as they constituted independent contracts between the bank and the beneficiary. The Tribunal also clarified that the moratorium under Section 14 of the IBC did not cover margin money held against bank guarantees. Conclusion: The Tribunal dismissed the application, holding that the margin money held as FDRs was not the asset of the Corporate Debtor but was impressed with the character of a trust for the benefit of the beneficiaries of the bank guarantees. The Tribunal emphasized that the Resolution Plan could not invalidate the pre-existing rights of third parties, and the margin money could only be released once the bank guarantees were discharged. The application was deemed misconceived and dismissed accordingly.
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