2021 (10) TMI 851 - Tri - Insolvency and Bankruptcy

Violation of moratorium period consequent upon initiation of the CIRP - seeking issuance of necessary directions to the respondent No. 1 for illegal action under the provision of IBC, 2016 - HELD THAT - The invocation of bank guarantee by NSIC in present case is not in consonance with provisions of code. While deciding this, aspect which needs to be looked into is whether present bank guarantee falls under the category of 'Performance Bank Guarantee' to qualify to exclude the same as per the provisions of section 3 (clause 31) of the I B Code, 2016 and allow the invocation of such performance bank guarantee irrespective of the moratorium under section 14 of the code. The answer is No. The definition and categorization of bank guarantees as per RBI guidelines clearly demarcates the area while considering particular bank guarantee for its classification - NSIC admittedly was secured by bank guarantee against the purchase of raw materials and other allied purchases to enhance manufacturing of a unit, which is financial assistance to the unit. Nowhere the ingredients of performance bank guarantee are seen in the terms/clauses of bank guarantee in present case. Moreover, the Respondent No. 2 bank while filing its claim before RP has included the amount of bank guarantee in its total claim which is admitted by RP. Thus, the same claim cannot be allowed considered as payable twice though submitted by parties in different capacities. The notices issued for invocation of bank guarantee by Respondent is quashed - application allowed.

Summary

Issues Involved:
1. Violation of the moratorium period under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Determination of the nature of the bank guarantees—whether they are performance bank guarantees or financial bank guarantees.
3. Invocation of bank guarantees by NSIC and its legality during the moratorium period.
4. The applicability of Section 14(3)(b) of IBC, 2016.
5. The duty of the Resolution Professional (RP) in protecting the assets of the corporate debtor during the Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Violation of the Moratorium Period under Section 14 of IBC, 2016:
The RP of the Corporate Debtor filed an application aggrieved by the actions of NSIC, which invoked bank guarantees during the moratorium period. Section 14(1)(c) of the IBC prohibits any action to foreclose, recover, or enforce any security interest created by the corporate debtor in respect of its property during the moratorium period. The RP argued that NSIC's actions violated this provision, as the moratorium was in place from 06.02.2020.

2. Determination of the Nature of the Bank Guarantees:
The RP contended that the bank guarantees provided were financial guarantees, not performance guarantees. The agreement between the corporate debtor and NSIC was for raw material financial assistance, which included interest and penal interest clauses, indicating a financial nature. The RP argued that the bank guarantees were submitted for obtaining raw material assistance and not for securing the performance of providing any goods or services under any contract. The RP emphasized that the term "performance bank guarantee" was not mentioned in the bank guarantees.

3. Invocation of Bank Guarantees by NSIC and Its Legality During the Moratorium Period:
NSIC invoked the bank guarantees on 14.02.2020, arguing that they were performance guarantees and hence not subject to the moratorium under Section 14 of IBC. The RP countered this by asserting that the guarantees were financial in nature and thus covered by the moratorium. The RP further argued that the invocation of these guarantees could be considered preferential transactions under Section 43(2) of IBC, 2016, and should be restored as per Section 44 of IBC, 2016.

4. Applicability of Section 14(3)(b) of IBC, 2016:
NSIC argued that Section 14(3)(b) of IBC, 2016, which provides for the non-applicability of the moratorium to certain transactions, allowed the invocation of the bank guarantees. The RP refuted this, stating that the provision was not applicable as the guarantees were financial in nature. The RP emphasized that the moratorium under Section 14 should prohibit any recovery proceedings against the corporate debtor.

5. Duty of the RP in Protecting the Assets of the Corporate Debtor During CIRP:
The RP highlighted the duty to protect the assets of the corporate debtor during the CIRP. It was argued that any creditor owed money by the corporate debtor must approach the IRP/RP and file its claim, rather than invoking a bank guarantee during the moratorium period. The RP asserted that allowing the invocation of bank guarantees would affect the CIRP proceedings and was barred by the moratorium.

Judgment:
The Tribunal concluded that the invocation of bank guarantees by NSIC was not in consonance with the provisions of the IBC. The bank guarantees were determined to be financial guarantees, not performance guarantees, based on the RBI guidelines and the nature of the agreement. The Tribunal quashed the notices issued for the invocation of the bank guarantees by NSIC and directed that the application be disposed of in terms of the order. The judgment emphasized that the same claim could not be considered payable twice, even if submitted by parties in different capacities.