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TMI Blog2021 (10) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... rials and other allied purchases to enhance manufacturing of a unit, which is financial assistance to the unit. Nowhere the ingredients of performance bank guarantee are seen in the terms/clauses of bank guarantee in present case. Moreover, the Respondent No. 2 bank while filing its claim before RP has included the amount of bank guarantee in its total claim which is admitted by RP. Thus, the same claim cannot be allowed considered as payable twice though submitted by parties in different capacities. The notices issued for invocation of bank guarantee by Respondent is quashed - application allowed. - IA No. 3139/ND/2020 in Company Petition No. (IB)-364(ND)/2019 - - - Dated:- 25-8-2021 - Dr. Deepti Mukesh, Member (J) And Sumita Purkayastha, Member (T) ORDER Dr. Deepti Mukesh, Member (J) 1. The present application is being filed by RP of the Corporate Debtor aggrieved by non-cooperative and obstructive actions of the Respondent No. 1, The National Small Industries Corporation Limited (for brevity NSIC) for violation of moratorium period consequent upon initiation of the CIRP from 06.02.2020 and for issuing necessary directions to the respondent No. 1 for illegal ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d period of 90 days, the Borrower shall be liable to pay additional interest Co. 3 percent per annum on the amount(s) of the said advance and processing and administrative charges to the Corporation. The Borrower agrees that such repayment of or reimbursement of the amount debited to its accounts will be made on or before the expiry of 90 days from the data of delivery of the material to the Borrower or date of payment by Corporation whichever is earlier. 6. That the raw material assistance under this Agreement shall be granted by the Corporation to the Borrower subject to furnishing of the following securities by the Borrower: A Bank Guarantees executed by a Nationalized/Approved Bank to the satisfaction of the Corporation. The Corporation shall be entitled to invoke and encash the said Bank Guarantees on the terms and conditions as stipulated in the said Bank Guarantees That the borrower hereby furnish the Bank Guarantees of the Nationalized Bank covering entire raw material assistance and requested the Corporation to waive the charge over hypothecated good/assets as the same are charged to the Bank. The Corporation has accordingly considered the request of the borrower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest @3% p.a. beyond 90 days and processing and administrative charges to the corporation. (Clause-4 of Agreement) ii. Raw material assistance been provided to the corporate debtor by the NSIC subject to furnishing of the BG in form of security. (Clause-6 of Agreement) iii. The Main features of the Scheme as displayed on NSIC website is Financial Assistance for procurement of Raw Material upto 90 days. Raw Material Assistance Scheme aims at helping MSMEs by way of financing the purchase of Raw Material. This gives an opportunity to MSMEs to focus better on manufacturing quality products. 8. The RP submits that the above clauses of the agreement and the features of the scheme, categorically evidencing that BGs as submitted by the Corporate Debtor are not Performance BGs but only financial guarantees as they were submitted only for obtaining raw material assistance against bank guarantee and not for securing the performance of providing any goods or services under any contract. The RP submits that in the bank guarantee, there is not a single word of performance bank guarantee rather the word 'bank guarantee', is only used. 9. The RP submits that the ration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroverting the averments made in the reply and has asserted as follows: i. That NSIC has failed to submit the proof that the bank guarantees in question falls under the performance bank guarantee. ii. That the NSIC mentioned that irrespective of nature of bank guarantee, Section 14(3)(b) of IBC, 2016 provides for non-applicability of section 14(1) meaning thereof the invocation of these bank guarantees shall not form part and parcel of the moratorium. It is submitted that the provisions of moratorium as per section 14(3)(b) are not applicable here, as the bank guarantee is given as Financial guarantee to assure the beneficiary about the corporate debtor's intent/capacity of paying money. iii. That once the moratorium under Section 14 of IBC, 2016 is declared, then there is a prohibition on any recovery proceedings against the company. Further section 238 of IBC, 2016 provides for an overriding effect of the code over anything in consistent therewith contained in any other law for the time being in force or any instruments having effect by virtue of any such law. Once, the moratorium under Section 14 of IBC is in place then no further proceedings, inconsistent wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n lieu of repayment of financial securities; (iii) Guarantees in lieu of margin requirements of exchanges; (iv) Guarantees for mobilisation advance, advance money before the commencement of a project and for money to be received in various stages of project implementation; (v) Guarantees towards revenue dues, taxes, duties, levies etc. in favour of Tax/Customs/Port/Excise Authorities and for disputed liabilities for litigation pending at courts; (vi) Credit Enhancements; (vii) Liquidity facilities for securitisation transactions; (viii) Acceptances (including endorsements with the character of acceptance); (ix) Deferred payment guarantees. b) Performance Bank Guarantee Performance guarantees are essentially transaction-related contingencies that involve an irrevocable undertaking to pay a third party in the event the counterparty fails to fulfill or perform a contractual non-financial obligation. In such transactions, the risk of loss depends on the event which need not necessarily be related to the creditworthiness of the counterparty involved. An indicative list of performance guarantees, attracting a CCF of 50 per cent is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serted the same averments as made in their reply. 15. Considering the documents on record and submissions made, we are of the view that the invocation of bank guarantee by NSIC in present case is not in consonance with provisions of code. While deciding this, aspect which needs to be looked into is whether present bank guarantee falls under the category of 'Performance Bank Guarantee' to qualify to exclude the same as per the provisions of section 3 (clause 31) of the I B Code, 2016 and allow the invocation of such performance bank guarantee irrespective of the moratorium under section 14 of the code. The answer is No. The definition and categorization of bank guarantees as per RBI guidelines clearly demarcates the area while considering particular bank guarantee for its classification. Name itself suggests financial bank guarantee for financial assistance and performance bank guarantee for non-performance of obligations in terms of performance of contract. NSIC admittedly was secured by bank guarantee against the purchase of raw materials and other allied purchases to enhance manufacturing of a unit, which is financial assistance to the unit. Nowhere the ingredients o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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