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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 ..... on) from CLA (The Additional Directorate General of Foreign Trade), New Delhi for Duty Saved Amount of Rs. 3,63,75,515.74 and Export Obligation of Rs. 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 Rs. 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 addition, there are three Bank Guarantees issued in favour of Customs Department, two of which have expired on 15.02.2019 and one expired on 19.02.2019. However, the department of customs has written to SBI for revalidating the said Bank Guarantees by laying their claim on these Bank Guarantees stating that it is not accepting that these three Bank Guarantees have expired, therefore not discharged the Bank and not returned the original Bank Guarantees to the Bank. 5. The point for adjudication now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of Indian Contract Act with regard to the bank guarantee. The same has been held in "IMICL Dighi Maritime Ltd. v. Dighi Port Ltd., [2019] 107 taxmann.com 431 (NCLT - Mum.), that the resolution applicant in its resolution plan, cannot seek to terminate agreements that have created legal rights in favour of third parties without adhering to due process of law by which those agreements could have been terminated in case there was no CIRP in place. Such termination of legally binding agreements would violate law under which such contracts are go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 entitled for release of FDRs. 22. This ratio held in the judgment in between Reserve Bank of India vs. Bank of Credit And Commerce (1993 78 Comp Cas 207 Bom) clearly indicates that margin money acquires the character of trust when it is given against the Bank Guarantee issued to the beneficiary, which is reflected in the para below: "34. In my judgment, the facts of this case clearly indicate that the margin moneys in question were undoubtedly impressed with trust and the bank held the same as trustee for the benefit of the depositor to the extent of unut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 asset held in Trust amounts to the asset of the Corporate Debtor or not. 24. To find out that the asset held in Trust is not the asset of the Corporate Debtor, we shall read Sec. 36(4) of the Code, which is as follows: Section 36:- Liquidation Estate: 1 ....... 2 ....... 3 ....... Section 36(4) Sec. 18(1) Explanation "(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation:-- (a) assets owned by a third party which are in possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained 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 any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor; (b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets; (c) tangible assets, whether movable or immovable; (d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank 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 Moratorium will not alter or confer new rights upon anybody. Moreover, the period after approval of Resolution Plan will not fall within the ambit of Moratorium. Section 14 is as follows: "214. (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 proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate 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 construed as determination of the character of the assets of the Corporate Debtor. However, comparative study has above made so as to show that duties endowed upon the IRP over the assets are not over and beyond the liquidation estate mentioned in Section 36 of the Code. 34. The beneficiary is not a party to the resolution plan and it has not made any claim. It need not claim also because the beneficiaries are always at liberty to directly realize its dues from the bank guarantee instead of initiating proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 Corporate Debtor on being asked by this Chairman/Applicant, who would be liable for the loss Bank incurs. What way public money is to be lost just by looking at the lofty principles of maximisation and going concern concept? Of course, they are the concepts applicable while dealing with CIRP process for timely conclusion of CIRP, for timely conclusion of liquidation, for timely realization from avoidance, undervalued, extortionate credit, fraudulent trading and fraudulent transactions and for timely approval of Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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