2018 (9) TMI 1396 - Tri - Insolvency and Bankruptcy

Corporate insolvency process - Held that - The application has been opposed by filing a counter affidavit on behalf of non applicant-respondent no. 1. A precise submission made in the counter affidavit is that the encashment of the bank guarantees is dependent on an independent agreement and therefore, it is a lawful act permissible in law. The Corporate Insolvency Resolution Professional pending before us relates to the applicant-Energo Engineering Projects Limited. The answering respondent has not been a party to the same. The bank guarantees has already been encashed and the amount stood transferred to the bank account of respondent no. 1 on 16.12.2017. The application in any case has been rendered infructuous. Having heard the learned counsel for the parties and perusing the pleadings with their able assistance we are of the view that the application would not warrant acceptance. The question of law raised in the instant application would not survive for consideration as the Legislation itself has taken care of the situation like the one in hand. Provision would make it patent that moratorium would not apply to a surety in a contract of guarantee to a Corporate Debtor. It is therefore evident that Section 14(1) of the Code, 2016 would not come in the way of the non applicant-respondent no. 1 to encash the bank guarantee. When the aforesaid principles are applied to the facts of the present case it becomes evident that the performance guarantee furnished by State Bank of India and Bank of Maharashtra would not enjoy the benefit of moratorium as envisaged under Section 14 of the Code, 2016 and therefore, those guarantees have been rightly invoked. There is thus no doubt left that the interim order dated 08.03.2018 would also stand vacated. As a sequel to the above discussion, this application fails and the same is dismissed. In the peculiar facts and circumstances of this case the parties are left to bear their own cost.

Summary

Issues involved:
1. Whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 could be extended to bank guarantees?
2. Whether the bank guarantees furnished by non-applicant-respondents could be restrained from encashment during the insolvency proceedings?

Analysis:

Issue 1:
The Resolution Professional filed an application under Section 60(5) of the Code, 2016 to determine if the moratorium could be extended to bank guarantees. The Corporate Debtor was engaged in EPC services and had issued bank guarantees for security. The bank guarantees were to be furnished to the beneficiary, Andhra Pradesh State Power Generation Corporation Limited. The Resolution Professional received emails stating that the bank guarantees were being invoked for payment to the beneficiary. The Resolution Professional requested the bank to withhold encashment, citing the moratorium imposed under Section 14 of the Code, 2016. An interim order was passed to maintain status quo regarding encashment.

Issue 2:
The non-applicant-respondent no. 1 opposed the application, stating that the encashment of bank guarantees was lawful as it depended on an independent agreement. They argued that the application had become infructuous as the bank guarantees had already been encashed. The Tribunal analyzed the amended Section 14(3) of the Code, 2016, which clarified that moratorium does not apply to a surety in a contract of guarantee to a Corporate Debtor. Referring to a judgment of the Supreme Court, the Tribunal concluded that the bank guarantees could be encashed as they were independent agreements and not covered by the moratorium. The Tribunal dismissed the application, stating that the bank guarantees had been rightly invoked, and the interim order was vacated.

In conclusion, the Tribunal held that the moratorium under Section 14 of the Code, 2016 does not extend to bank guarantees provided by non-applicant-respondents. The bank guarantees were found to be independent agreements and could be encashed during the insolvency proceedings. The application was dismissed, and parties were directed to bear their own costs in the circumstances of the case.