2023 (12) TMI 1015 - AT - Insolvency and Bankruptcy

CIRP - Renewal of Bank Guarantee for customs duty exemption - Whether the Adjudicating Authority was justified in concluding that the Customs Bank Guarantees are not essential for the Going Concern nature of the Corporate Debtor Company? - HELD THAT - It is an admitted fact that the MPP status is important since it provides an exemption of Customs Duty - there are force in the contention of the Learned Counsel for the Respondent that since there are no goods being imported by KMPCL or its contractor, being SEPCO, from China during the CIRP of KMPCL, for the operationalisation of the units of KMPCL, there is no exemption which KMPCL can claim for customs duty liability and therefore, the Respondent has intimated the CoC that these renewals are not necessary for the Going Concern nature of KMPCL. A perusal of the Minutes of the Meetings dated 14.10.2020, 22.10.2020 and 19.09.2022 of the CoC evidence that the Respondent had informed the Appellants that the renewal of the Customs Bank Guarantees would only increase the financial burden of KMPCL which would have to bear the commission charges and renewal charges which are exorbitant amounts. It is also significant to mention that the Deputy Commissioner, Paradip Customs Division filed a claim dated 04.11.2019 with the IRP / RP of KMPCL stating that an amount of Rs. 7,19,98,48,660.49/- was payable by KMPCL as per the assessment Order. When there is no guarantee with respect to the MPP status of the Non-Operational Units and since there are no goods being imported by the Corporate Debtor Company as it is undergoing CIRP, there is no exemption which the Company can claim for Customs Duty liability and we are of the earnest view that the Corporate Debtor Company need not be burdened with the Commission and renewal charges approximately amounting to Rs. 70 Crores which would only increase the financial burden of the Corporate Debtor Company with no positive benefits accruing. Under Section 25(1), the RP is empowered to reject the CoC proposal for renewal of the Bank Guarantees provided by the Corporate Debtor Company, prior to the initiation of the CIRP as renewing those would not consequently lead to any advantage or any valuable gains. There are no substantial grounds to interfere with the well-considered order of the Adjudicating Authority - appeal dismissed.

Summary

Issues Involved:
The judgment involves the renewal of Bank Guarantees by the Corporate Debtor prior to the initiation of Corporate Insolvency Resolution Process (CIRP) and whether such renewal is essential for the 'Going Concern' nature of the Corporate Debtor Company.

Issue 1: Bank Guarantee Renewal and Corporate Debtor's Welfare
The Appellant Banks appealed against the Impugned Order dismissing the Application for renewal of Bank Guarantees. The Adjudicating Authority observed that the primary concern of the Applicants was the commission loss if the Guarantees were not renewed, rather than safeguarding the Corporate Debtor's property value. It was concluded that renewing the Guarantees did not contribute to the Corporate Debtor's ongoing operations or asset protection. The Resolution Professional was empowered to reject the CoC's proposal for renewal under Section 25(1) as it did not preserve the Corporate Debtor's assets or support its operations.

Issue 2: Arguments for Bank Guarantee Renewal
The Appellants argued that renewing the Bank Guarantees was crucial to avoid liability invocation and beneficial for prospective Resolution Applicants. They contended that renewal would improve the Corporate Debtor's turnaround chances and that the commission payable would be considered as CIRP costs. The moratorium under Section 14 of the Code was claimed not to hinder Guarantee invocation, and the RP was criticized for not prioritizing the Corporate Debtor's value preservation.

Issue 3: Custom Duty Exemption and Financial Liabilities
The Respondent emphasized that the renewal of Customs Bank Guarantees was unnecessary for the Corporate Debtor's 'Going Concern' status. The Customs Department's claim for Customs Duty liability was highlighted, and it was argued that non-renewal would not affect the Corporate Debtor's operations. The status of operational units and the importance of MPP status for Customs Duty exemption were discussed to support the Respondent's stance.

Judgment Assessment:
The Tribunal assessed whether the Customs Bank Guarantees were essential for the Corporate Debtor's 'Going Concern' nature. It was noted that due to the absence of imported goods during CIRP, no Customs Duty exemption could be claimed. The RP's duty to preserve assets and manage the Corporate Debtor effectively was highlighted, emphasizing that renewal charges would burden the Corporate Debtor without significant benefits. Under Section 25(1), the RP was justified in rejecting the renewal proposal, as it did not provide any advantage or valuable gains to the Corporate Debtor. The Appeal was dismissed, upholding the Adjudicating Authority's order.