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TMI Blog2020 (11) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, Issue No. 1 is answered in affirmative. Respondent no. 1 cannot invoke Bank Guarantee before expiry of 120 months from the date of import. Whether the impugned Bank Guarantees can be termed as PBGs and are exempted from the moratorium under section 14(a)(1) of the IBC as amended by Insolvency and Bankruptcy Code (Amendment) Act, 2020? - HELD THAT:- The important question to decide is whether the impugned Bank Guarantees issued by Corporate Debtor are PBGs or NBGs. When we go into the purpose for which the impugned Bank Guarantees are issued, we understand that these were issued for availing the benefits of exemption from payment of customs duty. Even though the underlying action is to furnish final Mega Power Project Status Certificate in time, then only this exemption is available to the Corporate Debtor. The basic object of this Bank Guarantee is to avail exemption only, not for completion of the project. Therefore, these Bank Guarantees cannot be termed as PBG. These can be termed as NBGs only. As such these guarantees are covered under security interest under section 14(1)(c) of the Code, and not under section 14(3)(b) of the Code, which was amended by Insolvency an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 to respondent no. 3 seeking to recover amounts from Bank Guarantees be quashed. 2. The applicant also sought interim relief seeking directions to respondent no. 2 not to release/deposit amounts from Bank Guarantees to respondent no. 1 pursuant to letter-Exhibit A2 issued by respondent no. 1; and further directions to respondent no. 3 not to release/deposit amounts from Bank Guarantees to respondent no. 1 pursuant to letter-Exhibit A2 issued by respondent no. 1. 3. BRIEF FACTS: 3.1 The petition filed by respondent no. 3 under section 7 of the I B Code against the Corporate Debtor has been admitted vide order dated 03.10.2019 (EXHIBIT A1) with appointment of the applicant as IRP for the Corporate Debtor. Subsequently appointment of said IRP has been confirmed as Resolution Professional vide order dated 19.03.2020. 3.2 The present IA is filed by the applicant/Resolution Professional aggrieved by two letters, both dated 19.05.2020 (Annexure A-2 Collectively of this TA), seeking recovery of the following amounts from Bank Guarantees. (i) Letter dated 19.05.2020 (EXHIBIT A2) issued by respondent no. 1 to respondent no. 2/UCO Bank, seeking recovery of aggregate amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41BGF00094 03.02.16 15322561 20.06.19 2 IDBI 160041BGF00091 03.05.16 3226208 20.06.19 3 IDBI 160041BGF00097 03.05.16 2400642 20.06.19 4 Punjab National Bank 46151LG000116 04.08.16 61727845 20.06.20 5 UCO Bank 19451GFN002016 08.08.16 26984293 30.06.20 6 UCO Bank 19451GFN002016 08.08.16 2760676 30.06.20 7 Punjab National Bank 46151LG007611 30.05.11 10000000 31.05.21 3.6 Copies of Bank Guarantees and bills of 12.09.2011 and 19.10.2011 are at Exhibit A4 Colly. 3.7 It is averred in paras 8 and 9 (page 6) of the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz. in 2021 in the present case, if the project is not completed. The applicant undertakes to renew the Bank Guarantees subject to directions of the Tribunal. Thus, invocation of Bank Guarantees now is illegal. 3.12 It is averred in paras 20 and 21 of the application that invocation of Bank Guarantees would affect CIRP of the Corporate Debtor. The recovery sought to be made by respondent no. 1, by invocation of Bank Guarantees would defeat the object of the Code and would diminish the possibility of Corporate Debtor sailing as a going concern. 4. SUBMISSIONS DATED 25.06.2020 ON BEHALF OF RESPONDENT No. 1: 4.1 It is averred in para 2(a) of the Submissions that in pursuance of the application of Corporate Debtor, respondent no. 1/Department has issued licence dated 06.06.2012 under section 58 of the Customs Act, 1962, for the Customs Bonded Warehouse situated in Wardha District, Maharashtra. 4.2 It is averred in paras 2(b) and (c) of the Submissions that the Corporate Debtor had imported goods described in para 2(b) having Invoice value of ₹ 421122906/- and duty involved of ₹ 367418630/-, for up a Mega Power Project, availing the benefit of Notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TION COMPANY, BOMBAY ANOTHER, (1996) 1 SCC 735 (paras 13 and 14). 4.8 It is averred in para (2)(ii), on page 5, of the Submission that section 14 of the I B Code, 2016 has been amended to ensure that guarantor does not escape from an independent and co-extensive liability to pay the amount of the Bank Guarantee. In support of the above submission respondent no. 1 relies on a decision (Document No. II of this Submission) of the NCLT, New Delhi, Principal Bench in the case of M/s. LEVCON VALVES (P) LTD Vs. ENERGO ENGINEERING PROJECTS LTD., rendered in CA No. 453 (PB)/2017 in CP No. (IB)- 160 (NO)/2017. 5. WRITTEN NOTE OF ARGUMENT DATED 28.06.2020 FILED BY RESPONDENT NO. 1. 5.1 It is averred in paras 3(a) and (b) of the Written Argument that having obtained licence dated 06.06.2012 issued by the concerned Assistant Commissioner, Customs Central Excise, Division-II, Nagpur under section 58 of the Customs Act, 1962, the Corporate Debtor had imported goods as detailed in para 3(b) of this Written Argument availing the benefit of Notifications dated 17.03.2012 and 27.06.2012. 5.2 It is averred in paras 3(e) and (f) of the Written Argument that there is no indication as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoking Bank Guarantees. Nor it is open for the respondent/Banks to avoid payment of the amount of the said Bank Guarantees to respondent no. 1. 5.6 It is averred in para (ii), page 5 of the Written Argument that bar under section 14 of the I B Code is not applicable in case of Bank Guarantee. On the contrary section 14 of the I B Code is amended with a view to see that Guarantors do not escape from an independent and coextensive liability to pay the amount of the said Bank Guarantee. In this regard respondent no. 1 relies on decision of the NCLT, Principal Bench, New Delhi in M/s. LEVCON VALVES (P) LTD Vs. ENERGO ENGINEERING PROJECTS LTD., rendered in CA No. 453 (PB)/2017 in CP No. (IB)- 160 (ND)/201? (DOCUMENT-II of the Submission dated 25.06.2020). 6. WRITTEN NOTE OF ARGUMENT DATED 09.07.2020 FILED BY THE APPLICANT, 6.1 The applicant/Resolution Professional, in para 2 of the Written Argument, has reiterated the averments made in para 4 of the IA that the Corporate Debtor, a Special Purpose Vehicle (SPV) of Lanco Group has been granted Provisional Mega Power Project Certificate dated 21.11.2011. 6.2 The applicant/Resolution Professional has averred in para 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (EXHIBIT A1), CIRP has commenced and the applicant has issued a public announcement on 05.10.2019 inviting submissions of claims by creditors of the Corporate Debtor for payments due as on insolvency commencement date, viz. 03.10.2019. In response thereto, respondent no. 1 submitted proof of claim on 20.03.2020 and submitted claim of custom duty payable on the goods kept in the private bonded warehouse of the Corporate Debtor and the applicant requested respondent no. 1 to share the working of claims on 15.05.2020. Such process of claim verification is pending. 6.6 It is averred in para 11 of the Written Argument that when the claim of respondent no. 1 was being examined, respondent no. 1 issued the letters impugned seeking invocation of Bank Guarantees in question issued by respondent no. 3. Respondent no. 1, by way of its Submissions [para (2), on page 4] broadly raised two objections, namely: (i) Protection of moratorium in terms of section 14(1) of the Code is not applicable in view of Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which came into effect on 06.06.2018, by which section 14(3)(b) in inserted, which reads as under: 14(3)(b) a surety in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Any action to recover under section 14(1) of the Code deserves immunity. (iii) In view of the above the purpose of issuance of Bank Guarantees in question was to provide a security to respondent no. 1 and it is not in the nature of a PBG. Thus, the Bank Guarantees in question are security interest and are no enforceable, [para 18] (iv) The applicant relied on decision of the Hon'ble NCLAT in the matter of GAIL (INDIA) LIMITED Vs. RAJEEV MANAADIR OTHERS, rendered in Company Appeal (AT) (Insolvency) No. 319 of 2018, (ANNEXURE A-4 COLLY of the Written Note of Argument dated 09.07.2020 of the applicant), wherein it is held that PBGs are not covered under moratorium under section 14 of the Code. However, NBGs are covered within the meaning of 'security interest' and thus, enjoy immunity from any action under section 14(1) of the Code, [para 19] (v) The applicant relied on decision of the NCLT, Mumbai Bench in the case of IDBI BANK LTD Vs. EPC CONTRUCTIONS INDIA LIMITED [MA No. 661/2018 MA No. 1011/2018 in CP No. 1832/IBC/NCLT/MB/MAH/2017] (ANNEXURE A-4 COLLY of the Written Note of Argument filed on behalf of the applicant), wherein it is observed that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the claims submitted to the Resolution Professional. Such an action by respondent no. 1 would jeopardize the CIRP of the Corporate Debtor, [para 25] (ii) Action of respondent no. 1 seeking to invoke Bank Guarantees issued by Corporate Debtor, if allowed, it would diminish the value of assets of the Corporate Debtor and would decrease chance of Corporate Debtor getting a viable resolution plan. [para 26] 6.9 EFFECT OF INVOCATION OF BANK GUARANTEE (i) The Corporate Debtor has been issued Provisional Mega Power Project Certificate by Ministry of Power (pages 29-30) dated 21.11.2011, which is a licence. It enables the qualified project to avail benefit/concession by giving exemption from paying customs duty and excise duty on imports of machinery, etc. to be used in the project, by submitting equivalent amount of FDR/Bank Guarantee. The security shall be released on furnishing Final Mega Power Certificate. Such exemption is given (a) to accelerate construction of power projects and bridging widening energy deficit, and (b) to help power plants in reduction of capital cost, which results into reduction in tariff per unit, [paras 30-31] (ii) Invocation Bank Guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period; 6.11 The Provisional Certificate issued by the Custom authorities being licence pursuant to which the Corporate Debtor is entitled to avail benefit of exemption of customs duty and excise duty after submission of Bank Guarantee. The 'Explanation' to the above amended section 14(a)(1) of the Code provides that licence/Provisional Certificate 'shall not be suspended or terminated on the grounds of insolvency'. Since the Corporate Debtor is not in default of its liabilities towards respondent no. 1, invocation of Bank Guarantee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x authorities is extended to 120 months instead of 60 months from the date of import. The period of 10 years as mentioned in the above notification shall be calculated from the year 2011 with regard to the Corporate Debtor. Therefore, the applicant has prayed to restrain respondent no. 1 from recovering the amounts whatsoever by invoking the said Bank Guarantees and also from recovering any amounts whatsoever with regard to the said project. 10. The applicant has further submitted that this Tribunal vide order dated 03.10.2019 initiated CIRP against the Corporate Debtor in terms of the I B Code and vide order dated 19.03.2020 confirmed appointment of the applicant as its RP. The applicant issued public announcement dated 05.10.2019, inviting claims of the creditors of the Corporate Debtor and other service providers for payments due as on insolvency commencement date, viz. 03.10.2019. He further submitted that proof of claim has been submitted by respondent no. 1 on 20.03.2020 in response to the above public announcement issued by the applicant. The applicant requested respondent no. 1 to share working of claim on 15.05.2020, which has been submitted by respondent no. 1 and veri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee, Further section 14(1) of the I B Code states as under: 14(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor in a time bound manner while aiming for optimization of value of assets keeping in view the interest of all stakeholders. The applicant contended that by invoking Bank Guarantees after filing its claim with the RP, respondent no. 1 is attempting to better its position as against other creditors of the same class. Such an action of respondent no. 1 is at the cost of diminishing the value of the Corporate Debtor and jeopardize the CIRP of the Corporate Debtor. It also leads to destruction of value of the assets of the Corporate Debtor and any act of recovery of monies under the Bank Guarantee would cause irreparable damage, besides causing hardship to the entire resolution process of the Corporate Debtor and further decreases the chances of the Corporate Debtor getting a viable resolution plan. 16. The applicant further contended that the action of respondent no. 1 in invoking Bank Guarantees is an act of suspending/withdrawing the benefit it granted to the Corporate Debtor, which is valid upto 2021 and the action to claim of custom duty is unjust and unfair and is violative of section 14(1) of the I B Code. 17. In response to the above contention of the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract. Duty of the Bank, under the PBG, is created by the document itself. Once the documents are in order, the bank giving guarantee must honour the same and make payment. In support of the above submission, respondent no. 1 has cited case law decided by the Hon'ble Supreme Court in the matter of STATE OF MAHARASHTRA ANOTHER Vs. NATIONAL CONSTRUCTION COMPANY, BOMBAY ANOTHER, (1996) 1 SCC 735. 19. Respondent no. 1 also contended that section 14 of the I B Code is not applicable and not attracted in case of Bank Guarantee. It is submitted that the amendment is made to section 14 of the IBC with an object of not allowing the guarantors from escaping from an independent and coextensive liability to pay the amount of the said Bank Guarantee. In support of this contention respondent no. 1 quoted the case law decided by the NCLT, New Delhi, Principal Bench in the case of M/s. LEVCON VALVES (P) LTD Vs. ENERGO ENGINEERING PROJECTS LTD., rendered in CA No. 453 (PB)/2017 in CP No. (IB)- 160 (ND)/2017. In the light of the above submissions, learned counsel for respondent no. 1 contended that there is no merit in the application filed by the Resolution Professional and the same only n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten Argument. Thereafter, Ministry of Power, vide O.M. No. A-3/2015-IPC dated 12.04.2017, annexed as ANNEXURE A-5 of the application, amended Mega Power Policy, 2009 for Provisional Mega Power Project and inter alia, approved time period for Provisional Mega Projects, for furnishing Final Mega Certificates to the Tax authorities be extended to 120 months instead of 60 months from the date of import. Further, as per serial no. 20 of Annexure-1 of the above referred OM, status of the Provisional Mega Power Project, which was granted to the Corporate Debtor, was extended for 10 years from 2011. We agree with the contention of the applicant as regards issue no. 1 as the Corporate Debtor was given time to submit Final Mega Power Project Certificate within the period of 120 months and in the instant case the Corporate Debtor has imported machinery in the year 2011 and it enjoys benefit of exemption from payment of customs duty for 120 months till 2021. We therefore, have no hesitation in accepting the contention of the applicant that respondent no. 1 is estopped from recovering any amounts whatsoever upto the said period of 120 months from the date of import. Accordingly, Issue No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ylem Water Solutions India Put Ltd (hereinafter referred as 'applicant') against the RP of the Corporate Debtor seeking a direction for the RP to discharge the Bank guarantee bearing No. 5802687607 (84176), Bank guarantee bearing No. 5800687607 (84174) issued and Bank Guarantee baring No. 5801687607 (84175) dated 18.10.2013 issued by respondent no. 5, Citi Bank Ltd., in favour of respondent no. 3 Kotak Mahindra Bank Ltd. At the behest of the applicant for a sum of ₹ 2 crores and return the Original Counter Bank Guarantee(s) in terms thereof as extended from time to time Further, the decision of the NCLT, Mumbai Bench in the case of KOHINOOR CRANE SERVICES Vs. PETRON ENGINEERING CONSTRUCTIONS LIMITED [MA 384/(MB) 2018 in CP 1374/I BC/'MB/MAH/2017] also had an important bearing on this case which decided that when moratorium is also imposed alienation of any asset or recovery from any property of the Corporate Debtor is prohibited, hence action of revocation of the Bank Guarantee is against the provisions of the Code. Further, we look at the impact of invocation of Bank Guarantees on the value maximization of the Corporate Debtor. We are of the considered v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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