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2024 (10) TMI 573 - AT - IBCEncashment of PBG during moratorium - Legality of invocation of the Performance Bank Guarantee (PBG) by the Nominated Authority during the moratorium period - HELD THAT - The judgment of the Hon ble Supreme Court in Standard Chartered Bank vs. Heavy Engineering Corporation Limited and Anr. 2019 (12) TMI 843 - SUPREME COURT noticed, where the Hon ble Supreme Court has laid down that Bank Guarantee is an independent contract between Bank and the beneficiary and the Bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. Few exceptions were also noticed in the judgment, i.e. fraud, irretrievable harm or injustice. The present is a case where Show Cause notice was issued to the Appellant and after Show Cause notice, decision was taken by Scrutiny Committee, recommending for invocation. The Nominated Authority after considering the recommendation, facts and circumstances, took the decision to invoke the Bank Guarantee as per the terms of the Agreement. Default on the part of the Corporate Debtor was established, hence, present was not a case where Court ought to have exercised its discretion, restraining the Bank from enforcing the Bank Guarantee. The Adjudicating Authority rightly took the decision to not grant the relief as prayed by the Appellant. There are no error in the order of the Adjudicating Authority, refusing the prayer to set aside the letter sent by Respondent No.1 to the Bank for invocation of Bank Guarantee. It is further to be noticed that letters, which were sent to the Bank were all in consequence to the earlier decision taken on 27.10.2023 by the Nominated Authority to invoke the Bank Guarantee, which was Appropriation Order. Subsequent letters were only follow-up and in consequence to the earlier order and by letter dated 28.03.2024, notice of dispute given by the Corporate Debtor was disposed of, upholding the earlier decision. There are no ground to interfere with the order of the Adjudicating Authority in this Appeal. There is no merit in the Appeal - Appeal is dismissed.
Issues Involved:
1. Whether the invocation of the Performance Bank Guarantee (PBG) by the Nominated Authority during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code (IBC) is permissible. 2. Whether the decision of the Nominated Authority to appropriate the PBG was valid and in accordance with the law. 3. Whether the order of the Adjudicating Authority refusing to restrain the invocation of the PBG was correct. Issue-wise Detailed Analysis: 1. Invocation of PBG During Moratorium: The central issue was whether the invocation of the PBG during the moratorium period imposed under Section 14 of the IBC was permissible. The Appellant argued that the Nominated Authority should not have proceeded with the invocation of the PBG after the moratorium was enforced by the Adjudicating Authority on 01.02.2024. The Appellant contended that such action was in contravention of the moratorium provisions under Section 14(1)(a) of the IBC, which restricts the continuation of proceedings against the Corporate Debtor. The Tribunal, however, noted that Section 14(3) of the IBC, as amended, explicitly states that the provisions of the moratorium do not apply to a surety in a contract of guarantee to a corporate debtor. This interpretation was supported by precedents, including the judgment in Bharat Aluminium Co. Ltd. vs. J.P. Engineers Pvt. Ltd., where it was held that bank guarantees can be invoked even during the moratorium period. Additionally, the Supreme Court in State Bank of India vs. V. Ramakrishnan clarified that the moratorium does not extend to the assets of guarantors, reinforcing that the invocation of a PBG is not barred during the moratorium. 2. Validity of the Nominated Authority's Decision: The Appellant challenged the decision of the Nominated Authority to appropriate the PBG, arguing that it was taken after the moratorium was imposed. The Tribunal examined the timeline and found that the Appropriation Order by the Nominated Authority was issued on 27.10.2023, prior to the commencement of the Corporate Insolvency Resolution Process (CIRP) on 01.02.2024. The Tribunal noted that the decision to appropriate the PBG was based on the recommendations of the Scrutiny Committee, which had determined that the Corporate Debtor failed to comply with the Efficiency Parameters outlined in the Coal Mine Development and Production Agreement. The Tribunal further observed that the Writ Petition filed by the Corporate Debtor before the Delhi High Court was against the Minutes of the Scrutiny Committee Meeting and not the Appropriation Order. The Writ Petition was dismissed as withdrawn, and thus, did not impact the validity of the Appropriation Order. The Tribunal concluded that the Nominated Authority's decision was valid and in accordance with the law. 3. Order of the Adjudicating Authority: The Appellant sought an injunction from the Adjudicating Authority to restrain the invocation of the PBG. The Adjudicating Authority, however, held that Section 14 of the IBC does not prohibit the encashment of PBG during the moratorium. The Tribunal upheld this view, emphasizing that a performance guarantee is not considered a security interest under Section 3(31) of the IBC and thus, is not subject to the moratorium's restrictions. The Tribunal also referred to the Supreme Court's judgment in Standard Chartered Bank vs. Heavy Engineering Corporation Limited, which established that a bank guarantee is an independent contract and should be honored unless there is a case of fraud, irretrievable injustice, or special equities. The Tribunal found no such exceptions in the present case, as the default by the Corporate Debtor was established, and the invocation of the PBG was in accordance with the terms of the Agreement. In conclusion, the Tribunal dismissed the appeal, affirming the order of the Adjudicating Authority and allowing the invocation of the PBG. The Tribunal found no merit in the Appellant's arguments and held that the Nominated Authority's actions were lawful and justified.
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