2024 (4) TMI 968 - AT - Insolvency and Bankruptcy

Rejection of Section 7 Application - NPA - live guarantee constitute debt or not - existence of default or not - Corporate Debtor unable to de-risk the live BGs within the time allowed - A settlement was reached between the parties, where the Corporate Debtor agreed to pay a certain amount and de-risk live Performance Bank Guarantees (PBGs) within specified timelines. - HELD THAT - It is clear that settlement amount having been paid, the Adjudicating Authority did not commit any error in rejecting Section 7 Application, which was only based on Corporate Debtor not being able to de-risk the live BGs within the time allowed. The present is not a case that BGs were invoked and the Corporate Debtor was asked to deposit the amount for invoked BGs. The BG were given by the Bank with regard to various contracts, which were undertaken by the Corporate Debtor and Corporate Debtor was always ready to deposit the amount by 100% cash margin or by giving CBGs. The learned Senior Counsel for the Corporate Debtor has further submitted that after filing of the Appeal the Corporate Debtor has deposited amount of Rs.3.38 crores, which was required by the Bank for extension of two BGs, which were expiring and the amount of Rs.3.38 crores was deposited by the Corporate Debtor, reducing the amount of live BGs to the extent of Rs.4.27 crores only. In the facts of the present case, the ends of justice will be served in directing the Corporate Debtor to deposit the amount of Rs.3.68 crores with the Appellant, which will be kept in no lien account, to be utilized for clearing the liabilities pertaining to outstanding PBGs, if any. The SBI after adjusting all its liabilities towards live PBGs, may refund the balance amount to the Corporate Debtor. On deposit of the amount of Rs.3.68 crores by the Corporate Debtor, the SBI to release all securities over subject facilities. The impugned order of the Adjudicating Authority dated 18.07.2023 dismissing Section 7 Application filed by the Appellant, is upheld - The Corporate Debtor to deposit the amount of Rs.3.68 crores with the Appellant within thirty days from today, which shall be kept in no lien account, to be utilized for clearing the liabilities of existing live PBGs, if any. After satisfaction of all live PBGs, the SBI to refund the balance amount to the Corporate Debtor - On deposit of amount of Rs.3.68 crores, the Appellant shall release securities over subject properties and handover the relevant documents to the Corporate Debtor. Appeal disposed off.

Issues Involved:

1. Rejection of Section 7 Application.
2. Settlement and Payment of Settlement Amount.
3. De-risking of Live Bank Guarantees (BGs).
4. Invocation of BGs and Existence of Debt.
5. Use of IBC Proceedings for Recovery.

Summary:

1. Rejection of Section 7 Application:
This Appeal by a Financial Creditor challenges the order dated 18.07.2023 by the National Company Law Tribunal, Mumbai Bench-IV, which rejected the Section 7 Application filed by the Appellant. The Appellant, aggrieved by the rejection, has come up in this Appeal.

2. Settlement and Payment of Settlement Amount:
The Appellant extended various financial facilities to the Respondent, resulting in a default that led to the account being classified as a Non-Performing Asset (NPA) on 04.09.2019. A Section 7 Application was filed on 12.03.2021, claiming a default amount of Rs.58,44,90,194/- as on 01.03.2021. During the pendency of the application, a settlement was reached, and the State Bank of India (SBI) accepted a settlement offer of Rs.47.47 crores along with de-risking of live Performance Bank Guarantees (PBG) aggregating to Rs.30.40 crores. The Corporate Debtor paid the settlement amount within the extended time granted by the Adjudicating Authority.

3. De-risking of Live Bank Guarantees (BGs):
The Corporate Debtor faced issues with the format of the Counter Bank Guarantees (CBG) provided by ICICI Bank, which were not accepted by SBI. Despite further attempts to resolve the issue, including offering 100% cash margin against the outstanding BGs, SBI rejected these offers, leading to the contention that the compromise had failed.

4. Invocation of BGs and Existence of Debt:
The Adjudicating Authority held that since the entire settlement amount of Rs.47.47 crores was paid, no debt was due, and the BGs could not qualify as a 'debt' unless invoked. The Adjudicating Authority noted that the Corporate Debtor had made bonafide efforts to de-risk the BGs, which were not accepted due to the obstructive attitude of the Financial Creditor.

5. Use of IBC Proceedings for Recovery:
The Adjudicating Authority emphasized that the Insolvency and Bankruptcy Code (IBC) is not a mere recovery legislation but aims at the revival and continuation of the corporate debtor. The Financial Creditor's use of IBC proceedings for recovery, despite the settlement amount being paid, was deemed inappropriate.

Conclusion:
The Appeal was disposed of with the following directions:
(I) The impugned order dismissing the Section 7 Application was upheld.
(II) The Corporate Debtor was directed to deposit Rs.3.68 crores with the Appellant within thirty days, to be kept in a no-lien account for clearing liabilities of existing live PBGs.
(III) Upon deposit, the Appellant shall release securities over subject properties and hand over relevant documents to the Corporate Debtor.

Parties shall bear their own costs.

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