2023 (9) TMI 85 - AT - Insolvency and Bankruptcy

Performance Bank Guarantees - Capital Investment till date made or not - Claim either for Invocation of Bank Guarantees or claim for Transmission Charges and or damages - scope of moratorium u/s 14 of IBC - HELD THAT - Undoubtedly Performance of Bank Guarantee is excluded from the definition Section of 3 (31) of the I B Code 2016. Viewed in that perspective this Tribunal unhesitatingly holds in a cocksure manner that the Performance Bank Guarantee does not fall under Moratorium in terms of Section 14 of the I B Code 2016 - As far as the present case is concerned in the various Joint Co-ordination Meetings it was categorically observed that there was an Adverse Progress as regards the Construction of Generating Station by the Corporate Debtor who was aware of the same. The Transmission Agreement dated 31.03.2016 entered into between the 1st Respondent / Power Grid Corporation of India Limited and M/s. Lanco Vidarbha Thermal Power Limited (vide Clause 1) unerringly points out that the Bank Guarantee shall be encashed by Powergrid in case of Adverse Progress of Work under the scope of LVTPL assessed during the Joint Co-ordination Meeting etc. As such it is clear that in the event of Adverse Progress encashment of Bank Guarantee is a compulsory one as per the Transmission Agreement entered into between the Parties. Thus bearing in mind of the well settled legal principle that the Bank Guarantee is neither an Asset nor a Liability of a Company considering the surrounding facts and circumstances of the case in an integral manner this Tribunal especially keeping in mind of a primordial fact that the Invocation of Eleven Performance Bank Guarantees furnished by the Corporate Debtor to the 1st Respondent / Power Grid Corporation of India Limited pursuant to the Transmission Agreement dated 31.03.2016 the Connectivity Regulations of the Central Commission and the detailed Procedure notified thereunder coupled with the Letters dated 17.12.2020 issued by the 1st Respondent to the Respondent Nos. 2 to 7 are just valid and legally tenable which cannot be found fault with. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the invocation of Bank Guarantees by the 1st Respondent.
2. Applicability of moratorium under Section 14 of the I&B Code, 2016.
3. Nature of the Bank Guarantees as Performance Bank Guarantees.

Summary:

Issue 1: Validity of the Invocation of Bank Guarantees
The Appellant challenged the impugned order dated 15.06.2023, which dismissed their petition against the invocation of Bank Guarantees by the 1st Respondent. The Appellant contended that the 1st Respondent did not fulfill its obligations under the Transmission Agreement dated 31.03.2016, and had already encashed Bank Guarantees worth Rs.30 Crores, seeking to unjustly enrich themselves by another Rs.36 Crores. The Appellant argued that the project was stalled due to financial issues of the Corporate Debtor's developer, and no capital investment was made by the 1st Respondent. The Tribunal observed that the adverse progress of work by the Corporate Debtor was established during Joint Coordination Meetings, justifying the encashment of Bank Guarantees by the 1st Respondent. The Tribunal concluded that the invocation letters issued by the 1st Respondent were valid and legally tenable.

Issue 2: Applicability of Moratorium under Section 14 of the I&B Code, 2016
The Appellant argued that the moratorium under Section 14 should prevent the invocation of Bank Guarantees. The Tribunal noted that Section 14 does not prohibit actions against the Corporate Debtor's guarantors and is limited to the assets of the Corporate Debtor. Section 14(3) explicitly excludes contracts of guarantee from the moratorium. The Tribunal held that the Performance Bank Guarantees do not fall under the moratorium provisions of the I&B Code, 2016.

Issue 3: Nature of the Bank Guarantees as Performance Bank Guarantees
The Appellant claimed that the Bank Guarantees were not in the nature of Performance Bank Guarantees and should be considered as security interests under Section 3(31) of the I&B Code, 2016. The Tribunal found that the Bank Guarantees were indeed Performance Bank Guarantees as per Clause 1.0(d) of the Transmission Agreement, which mandated encashment in case of adverse progress of work. The Tribunal affirmed that the Performance Bank Guarantees are excluded from the definition of security interest under Section 3(31) and do not fall under the moratorium.

Conclusion:
The Tribunal upheld the dismissal of the Appellant's petition, affirming that the invocation of the Bank Guarantees by the 1st Respondent was valid, legally tenable, and not affected by the moratorium under Section 14 of the I&B Code, 2016. The appeal was dismissed, and the connected pending IA No. 819 of 2023 was closed.