9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (9) TMI 932 - AT - Insolvency and BankruptcyAsset of the Corporate Debtor - Revocation of performance guarantee - Seeking to refund the amount and deposit the same in the Account of the Corporate Debtor with interest as it forms part an Asset of the Corporate Debtor - whether the Corporate Debtor has any right with respect to money received from reversal of invocation of a Performance Bank Guarantee (which had been invoked prior to the initiation of CIRP), specifically when the margin money was also not deposited by the Corporate Debtor ? - Can the said refund amount be construed as an asset belonging to the Corporate Debtor ? HELD THAT - The definition of security interest under the Code includes an interest that has been created in favour of the Secured Creditor by a transaction which secures payment or performance of an obligation, but though it includes performance obligations, the Legislature decided to exclude performance based Guarantees from the definition. The Legislature by carving out an exception for Performance Guarantee under Section 3(31) intended invocation of Performance Bank Guarantee during the Moratorium period. The observations of the Insolvency Law Committee Report, 2018 specify that the assets of the surety are separate from those of the Corporate Debtor and proceedings against the Corporate Debtor may not be seriously impacted by the actions against asset of third party like sureties . A simple interpretation would mean that the contractual principles of the guarantee are required to be respected even during the Moratorium period and any alternate interpretation could not have been the intention of the Code as is clear from a plain reading of Section 14. The intent of the Code was not to terminate Agreements that have created legal rights in favor of third parties without adhering to due process of Law. Such a termination of legally binding Agreements would be in violation of the provisions of Section 30(2)(e). In the instant case, the issue pertains to amounts refunded by reversal of invocation of Performance Bank Guarantee where even the margin money was paid by the Bank and not by the Corporate Debtor - the liabilities under a Performance Bank Guarantee cannot be terminated by action of a third party. A Bank which gives a Performance Guarantee must honour the guarantee according to its terms. Thus, the amount refunded on reversal of the invocation by the Indian Navy cannot be said to be an asset of the Corporate Debtor , under IBC, Performance Guarantees are to be dealt with specifically keeping in view the provisions and exclusions under Section 14(3)(b) and Section 3(31) of the Code - there is no violation of Section 14 of the Code as the money appropriated by the Bank is not the asset of the Corporate Debtor - appeal allowed.
Issues Involved:
1. Whether the refunded amount from the reversal of a Performance Bank Guarantee (PBG) invoked prior to the initiation of CIRP constitutes an asset of the Corporate Debtor. 2. Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC) regarding the moratorium on the refunded amount. 3. Interpretation of "security interest" under Section 3(31) of the IBC. 4. Impact of the second amendment to Section 14(3) of the IBC on the Performance Bank Guarantee. Issue-wise Detailed Analysis: 1. Refunded Amount as an Asset of the Corporate Debtor: The primary issue is whether the refunded amount from the reversal of the PBG, invoked before the initiation of CIRP, can be considered an asset of the Corporate Debtor. The tribunal observed that the Corporate Debtor did not provide margin money for the PBG; instead, the bank funded it. Hence, the refunded amount cannot be treated as an asset of the Corporate Debtor. The tribunal emphasized that a Bank Guarantee is an independent contract between the bank and the beneficiary, and the bank must honor the guarantee according to its terms, irrespective of the Corporate Debtor’s financial status. 2. Applicability of Section 14 of the IBC: Section 14(1) of the IBC imposes a moratorium on the institution of suits, transferring assets, and other actions against the Corporate Debtor during CIRP. However, the tribunal clarified that Section 14(3)(b) specifies that the moratorium does not apply to a surety in a contract of guarantee to a Corporate Debtor. The tribunal concluded that the refunded amount from the PBG does not fall under the moratorium provisions, as the PBG is excluded from the definition of "security interest" under Section 3(31) of the IBC. 3. Interpretation of "Security Interest": The tribunal highlighted that "security interest" under Section 3(31) of the IBC explicitly excludes Performance Guarantees. This exclusion indicates the legislature's intent to allow the invocation of Performance Bank Guarantees during the moratorium period. The tribunal referenced the Insolvency Law Committee Report, which stated that assets of sureties are separate from those of the Corporate Debtor, and proceedings against the Corporate Debtor should not impact the assets of third parties like sureties. 4. Impact of the Second Amendment to Section 14(3) of the IBC: The second amendment to Section 14(3) of the IBC, effective from 06.06.2018, clarifies that the moratorium does not apply to sureties in a contract of guarantee to a Corporate Debtor. The tribunal noted that this amendment reinforces the exclusion of Performance Guarantees from the moratorium provisions. The tribunal also referred to various judgments, including those by the Supreme Court, which consistently held that Bank Guarantees are independent contracts and must be honored according to their terms, irrespective of the underlying disputes between the parties. Conclusion: The tribunal concluded that the refunded amount from the reversal of the PBG is not an asset of the Corporate Debtor. The exclusion of Performance Guarantees from the definition of "security interest" under Section 3(31) and the provisions of Section 14(3)(b) of the IBC support this conclusion. Therefore, the tribunal held that there is no violation of Section 14 of the IBC, and the bank's appropriation of the refunded amount is justified. Judgment: The appeal is allowed, and the impugned order is set aside. No order as to costs.
|
