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2021 (5) TMI 6 - Tri - Insolvency and BankruptcySeeking prohibition from invoking Bank Guarantee given by the applicant - seeking restraint on respondent No. 2 from remitting an amount of ₹ 1,40,42,898/- to respondent No. 1 - HELD THAT - It is the fact that the Corporate Debtor has executed BG bearing No. 151331BGP00535 (ANNEXURE-3, Page 146) in favour of respondent No. 1 to the tune of ₹ 1,40,42,898/- issued by IDBI, which was valid till 30.07.2016. It was extended from time to time and it is valid till 31st March 2021, as the Adjudicating Authority has extended the same vide order dated 23.12.2020. When Completion Certificate is issued by NEA, whether respondent No. 1 is entitled to invoke PBG executed by the Corporate Debtor? - HELD THAT - NEA has given Completion Certificate to the applicant even though there are minor pending works as claimed by the applicant and it is also the fact that the project is in commercial operation by NEA - It is further, observed that respondent No. 1 has invoked BG, even though NEA has not resorted to similar invocation - It is true that PBGs are not included under section 14 of the I B Code. However, we have to go into the facts of the case before deciding the issue in question. In the present case NEA has given Completion Certificate to the applicant even though there are minor pending works as claimed by the applicant and it is also the fact that the project is in commercial operation by NEA. The Hon'ble Supreme Court in M/S GANGOTRI ENTERPRISES LTD. VERSUS UNION OF INDIA OTHERS 2016 (5) TMI 516 - SUPREME COURT , observed that every case has to be decided with reference to the facts of the case involved therein. Thus, it becomes clear that PBG or regular BG involves only compensation payable to the party, which suffered losses. In the present case it is the contention of the applicant that in absence of invocation of BG by NEA in terms of contract dated 09.09.2011, the question that has to be decided is, can respondent No. 1 invoke BG executed by the Corporate Debtor. Respondent No. 1 has not pointed out that NEA has invoked the BG issued to them. In such case, whether it is correct on the part of respondent No. 1 to invoke BG issued by the applicant, more so when the Corporate Debtor is under CIRP, which certainly result into erosion of value of assets of the Corporate Debtor. Even though the subject matter is PBG, which is not covered under moratorium, but finally any BG is reduced to financial terms. Further, each BG has to be dealt with on merits of each case as decided by the Hon'ble Supreme Court in the matter of M/s. Gangotri Enterprises Ltd. Vs. Union of India and others - thus, invocation of BG by respondent No. 1 against the Corporate Debtor appears to be farfetched. In the instant case, the contention of respondent No. 1 that PBG is not covered under moratorium may not hold good. Application restraining respondent No. 1 from invoking Bank Guarantee is allowed - respondent No. 1 are directed to crystallise residuary works, if any, in financial terms and may file claim with the Resolution Professional in this regard - application allowed.
Issues Involved:
1. Whether the security provided by the applicant falls under section 14(3) of the Insolvency and Bankruptcy Code (IBC). 2. Whether the security offered falls under section 3(31) of the IBC. 3. Whether respondent No. 1 is entitled to invoke the Bank Guarantee (BG) in the absence of a similar demand by Nepal Electricity Authority (NEA). 4. Whether respondent No. 1 has invoked the BG in terms of the specified clauses in the BG. Issue-wise Detailed Analysis: 1. Whether the security provided by the applicant falls under section 14(3) of the IBC: The applicant contended that the moratorium under section 14(1)(c) of the IBC prevents the invocation of the BG by respondent No. 1. The respondent argued that a Performance Bank Guarantee (PBG) is excluded from the definition of 'security interest' as per section 3(31) of the IBC, and hence, the moratorium does not apply. The Tribunal observed that while PBGs are not included under section 14, each case must be decided based on its facts. The Tribunal noted that NEA had issued a Completion Certificate, and the project was in commercial operation, indicating no immediate need for invoking the BG by respondent No. 1. 2. Whether the security offered falls under section 3(31) of the IBC: The respondent argued that the PBG provided by the applicant is not covered under section 14(1)(c) of the IBC, citing the proviso to section 3(31) which excludes performance guarantees from the definition of 'security interest'. The Tribunal acknowledged this but emphasized the need to consider the specific facts of the case. Given that NEA had not invoked the BG and the project was operational, the Tribunal found the invocation by respondent No. 1 unjustified. 3. Whether respondent No. 1 is entitled to invoke the BG in the absence of a similar demand by NEA: The applicant argued that since NEA had not invoked the BG, respondent No. 1 had no grounds to do so. The Tribunal agreed, noting that NEA’s Completion Certificate and the commercial operation of the project indicated no breach by the applicant. The Tribunal concluded that respondent No. 1's invocation of the BG was not justified, especially when the principal employer, NEA, had not made a similar demand. 4. Whether respondent No. 1 has invoked the BG in terms of the specified clauses in the BG: The applicant contended that the BG required a written statement stating that the applicant was in breach of its obligations under the contract, which respondent No. 1 failed to provide. The Tribunal observed that respondent No. 1 did not demonstrate any breach by the applicant and noted that the BG was invoked without following the specified terms. The Tribunal found that the invocation was not in accordance with the BG terms and thus, not justified. Observations: The Tribunal noted that the project was completed and operational, with NEA issuing a Completion Certificate. The Tribunal emphasized that PBGs are not covered under the moratorium, but each case must be considered on its merits. The Tribunal cited relevant case law, including the Supreme Court's decision in M/s. Gangotri Enterprises Ltd. Vs. Union of India, which highlighted the importance of case-specific facts. The Tribunal concluded that respondent No. 1's invocation of the BG was unjustified, as NEA had not invoked the BG and the project was operational. Order: The Tribunal allowed the application, restraining respondent No. 1 from invoking the BG. It directed respondent No. 1 to crystallize any pending works in financial terms and file a claim with the Resolution Professional. The Tribunal emphasized that invoking the BG would diminish the value of the Corporate Debtor's assets and defeat the objectives of the IBC.
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