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TMI Blog2020 (12) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee either by discharge or by efflux of time, then the Corporate Debtor is entitled for release of FDRs. Whether the asset held in Trust amounts to the asset of the Corporate Debtor or not? - HELD THAT:- The assets held under Trust cannot be considered as the asset of the Corporate Debtor. When margin money has character of Trust for the benefit of the beneficiary, as long as the Bank Guarantee Contract is not determined, the margin money will have the character of Trust. When it is not the asset of the Corporate Debtor, the Corporate Debtor, either during the CIRP process or after the CIRP period, will not have any legal right to have a claim on the said asset. Applicant has made another argument saying that this asset is covered by moratorium, therefore, Bank Guarantee cannot be invoked by DGFT nor Bank can release the same to the beneficiary - HELD THAT:- The margin money was no where covered under Sec. 14 of the Code, (a) deals with prohibition of initiation or continuation of legal proceedings against the Corporate Debtor, (b) deals with prohibition of creation of rights over the asset of the Corporate Debtor, (c) prohibition of action under SARFAESI, it need not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to approval of Resolution Plan) seeking directions against State Bank of India (R1 R2 - SBI) and Director General of Foreign Trade (DGFT) - R3 for release of Fixed Deposits Receipts of Anush Finlease and Construction Private Limited (AFCPL - the Corporate Debtor) maintained with SBI in the Controlled Account of the Corporate Debtor. 2. The issue involved in this case is - this Corporate Debtor had obtained authorisation for 40 export promotion capital goods (EPCG Authorisation) from CLA (The Additional Directorate General of Foreign Trade), New Delhi for Duty Saved Amount of ₹ 3,63,75,515.74 and Export Obligation of ₹ 29,80,86,017.92 and USD 5593452.05 for import of capital goods. 3. As against the authorisations and licenses, at the instance of the Corporate Debtor, SBI issued 23 Bank Guarantees on 100% margin on behalf of the Corporate Debtor involving total amount of ₹ 1,12,72,191 which are due to mature on different dates in the years 2021 2022. It says that the aforesaid bank guarantees were issued in favour of Government Departments/Deputy Commissioner of Customs and the Director General of Foreign Trade, New Delhi / the Beneficiaries. 4. In ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant submits that these FDRs being the asset of the Corporate Debtor and the Resolution Plan being approved by NCLT, this asset shall revert to the Corporate Debtor. He further states that the Resolution Plan envisages cancellation of all pledges/ lien/any other encumbrances upon the fixed deposits, therefore, the said bank guarantees for issuance of which the fixed deposits have been provided, ceased to be legally enforceable as the very liabilities for securing which they were issued ceased to be in force. 11. The applicant states that DGFT has not made any claim with the Resolution Professional, therefore it has to be construed that DGFT has no claim against the Corporate Debtor. As there is no claim by DGFT against the Corporate Debtor, for the same being shown as written off in the Resolution Plan, the very purpose of providing FDRs is not required to be achieved, henceforth they shall be returned to the Applicant. 12. In support of this contention, he relied upon the ratio held in the case of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar and Others in Civil Appeal No. 8766-67 of 2019 in Supreme Court, which is as follows: Para 67: A s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the primary contract between the person at whose instance the bank guarantee was given and the beneficiary... 5. It is equally settled law that in terms of the bank guarantee the beneficiary is entitled to invoke the bank guarantee and seek encashment of the amount specified in the bank guarantee. It does not depend upon the result of the decision in the dispute between the parties, in case of the breach. The underlying object is that an irrevocable commitment either in the form of bank guarantee or letters of credit solemnly given by the bank must be honoured. The court exercising its power cannot interfere with enforcement of bank guarantee/letters of credit except only in cases where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties... . 16. They further state that in Section 30(2) (e) of the Code, it has been envisaged that the Resolution Plan does not contravene any of the provisions for the time being in force, thus purported extinguishment of bank guarantee by way of the Resolution Plan is in contravention of Section 30(2)(e) of the Code and against the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Resolution Plan. In view of the same, this applicant cannot rely upon the resolution plan to state that the bank guarantees are extinguished based on the resolution plan proposing for write-off of the bank guarantee. 20. On hearing the submissions of either side, we have noted that the bank has not been discharged from the guarantees given to the beneficiary. 21. These FDRs are given towards margin money against the bank guarantees given to the beneficiary, not as FDRs to be realized by the Corporate Debtor as and when it wishes. We must say that as per RBI guidelines and also as per the ratio decided in various judgements, margin money is construed as substratum of a Trust created to pay to the beneficiary to whom Bank Guarantee is given. Once any asset goes into trust by documentation for the benefit of beneficiary, the original owner will not have any right over the said asset unless is it is free from the trust. In this case, the Bank Guarantee being given to Government Authority, 100% margin money is deposited in the form of FDRs. In the event the margin money is free from the Bank Guarantee either by discharge or by efflux of time, then the Corporate Debtor is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of the Reserve Bank guidelines and retained the same till the letters of credit were worked out or cancelled on expiry thereof. Even if it is to be assumed that the bank had the permission of the applicant to use the amount of specific deposit in the meanwhile for purposes of its business, it would make no difference to the conclusion of the court. A trust money does not cease to be trust money merely because of user thereof by the trustee. In such a case, the bank in bound to reimburse the beneficiary an equivalent amount and the doctrine of tracing the trust fund would clearly apply. The principles laid down in Hallet's case [1879-80] 13 Ch 696 were clearly approved by the Privy Council in the case of Official Assignee v. Bhatt [1933] LR 60 IA 203 and by our Supreme Court in Shanti Prasad Jain's case [1963] 33 Comp Cas 231 (SC). Thus, the factual aspects emphasised by Mr. Thakkar noted in paragraph 23 of this judgment have not bearing on the ultimate conclusion of the court on the principal questions formulated in paragraph . 23. Since it has been made clear margin money is to be construed as asset of the trust, now the point to be seen is, as whether the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties cannot be counted in as the asset of the Corporate Debtor. Ignoring this mandate, the Applicant counsel repeatedly canvassed that Sec. 18 envisages that IRP/RP is conferred with duties to take over the control and custody of the assets of the Corporate Debtor, therefore FDRs being asset of the Corporate Debtor; it shall come back to the Corporate Debtor. 26. As against this, if you put the functions of the interim Professional and the assets falling under liquidation estate under Sec. 36(3) juxtaposition to each other, it can be ascertained that Section 18(1) (f) is nothing but repetition of Section 36(3) of the Code. They are as follows: 36. (1) (2) . Section 36(3) (Liquidation Estate) Section 18(1)(f) (Duties of IRP) (3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following:-- (a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficiary, as long as the Bank Guarantee Contract is not determined, the margin money will have the character of Trust. When it is not the asset of the Corporate Debtor, the Corporate Debtor, either during the CIRP process or after the CIRP period, will not have any legal right to have a claim on the said asset. 28. The Applicant has made another argument saying that this asset is covered by moratorium, therefore, Bank Guarantee cannot be invoked by DGFT nor Bank can release the same to the beneficiary. 29. As to this point, we make it clear that margin money was no where covered under Sec. 14 of the Code, (a) deals with prohibition of initiation or continuation of legal proceedings against the Corporate Debtor, (b) deals with prohibition of creation of rights over the asset of the Corporate Debtor, (c) prohibition of action under SARFAESI, it need not be said separately that performance guarantee is exempted from the ambit of Code, (d) speaks of recovery of property in possession of the Corporate Debtor, the present issue is not relevant to (d). In effect, margin money is not covered under section 14 of the Code, Moratorium is indeed a calm period to be maintained, but Morat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor after the approval of the Resolution Plan, the Applicant can make use of this concept as a shield but not to use it as a sword to take over the asset that does not have the character of the asset of the Corporate Debtor. With regard to the ratio decided in Essar supra, first it is about a claim, that claim is also undecided claim; in this case, no claim has been made against the Resolution Applicant/Corporate Debtor. 32. Here, in this case, DGFT has not made any claim against the Corporate Debtor or the Resolution Applicant. Merely having some Clauses in the Resolution Plan will not alter the legal rights of the beneficiary, which are not affected by the Insolvency and Bankruptcy Code. Moreover, this Bench has made it clear that clauses not permissible under law in the Resolution Plan is held as not approved, therefore, this Applicant cannot cite some clause as a right conferred upon this Applicant to lay its hands on the margin money having character of Trust. 33. What assets are the assets of the Corporate Debtor is envisaged in Section 36 of the Code, as to Sec. 18, it is only about the duties conferred upon the IRP. Conferring upon a duty cannot to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip and other aspects such as avoidance transactions, fraudulent transactions and undervalued transactions, etc. but not with the other transactions not culminated into Creditor and Debtor jural relationship. In this case, since DGFT has already been covered by bank guarantee, in the event of default, DGFT will realise its dues through bank guarantee. It can be other way said that DGFT rendering services on advance payment in reserve. The Corporate Debtor cannot, under the cover of clean slate, collect anything and everything from everybody and anybody bulldozing the rights of other parties. It is equally important to see that by virtue of this resolution plan or by virtue of liquidation, other parties' rights shall not be affected beyond the scope and the ambit of IBC. The reason behind it is, that whenever anybody's pre-existing right is to be curtailed, it cannot be kept on stretching beyond the statute, indeed, it has been time and again said that strict interpretation to be given to the enactments when it deals with the legal rights of third parties. 38. Let us assume a situation tomorrow, the Beneficiary encashes the bank guarantee, in case FDRs are released to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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