2022 (2) TMI 252 - AT - Insolvency and Bankruptcy

Refusal of the Bank to invoke the Bank Guarantee - Adjudicating Authority has taken the view that since CIRP proceedings were continuing the Bank Guarantee cannot be invoked - HELD THAT - The Appellant was clearly entitled for invocation of Bank Guarantee, hence, we remit the matter back to the Adjudicating Authority to pass appropriate orders with regard to claim of the Appellant to the amount to ₹ 19 Lakhs as included in the Bank Guarantee. Appropriate orders be passed by the Adjudicating Authority in accordance with law. Appeal allowed.

Summary

Issues:
1. Invocation of Bank Guarantee during Corporate Insolvency Resolution Process (CIRP).
2. Interpretation of the moratorium period under the Insolvency and Bankruptcy Code.
3. Applicability of legal precedent in invoking Bank Guarantee.

Analysis:
1. The Appellant filed an Interlocutory Application (IA) seeking direction for payment of a Bank Guarantee of ?19 Lakhs given by the Corporate Debtor to secure electricity dues. The Bank refused to invoke the Bank Guarantee citing the moratorium in place during the Corporate Insolvency Resolution Process (CIRP). The Adjudicating Authority rejected the application based on the existence of the moratorium, preventing the invocation of the Bank Guarantee during ongoing CIRP proceedings.

2. The Appellant cited a precedent judgment of the National Company Law Appellate Tribunal in the case of 'Bharat Aluminum Company Ltd. Vs. J. P. Engineers Pvt. Ltd.' where it was held that Bank Guarantee can be invoked even during the moratorium period under the Insolvency and Bankruptcy Code. The Tribunal emphasized the irrevocable and unconditional nature of the Bank Guarantee, separate from the assets of the Corporate Debtor, allowing for its invocation without hindrance during the CIRP.

3. Relying on the legal precedent, the Appellate Tribunal set aside the Adjudicating Authority's order, stating that the Appellant had the right to invoke the Bank Guarantee. The Tribunal highlighted clause 11 of the Bank Guarantee, entitling the Appellant to claim within 12 months from the expiry date, which was done promptly after the initiation of CIRP proceedings. The matter was remitted back to the Adjudicating Authority for appropriate orders regarding the claim of ?19 Lakhs included in the Bank Guarantee.

4. The Resolution Professional mentioned the pending approval of the Resolution Plan before the Adjudicating Authority. The Tribunal concluded that the Appellant was entitled to the invocation of the Bank Guarantee, directing the Adjudicating Authority to pass suitable orders in accordance with the law. Consequently, the appeal was allowed, overturning the previous decision and granting relief to the Appellant for the payment claim under the Bank Guarantee.