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TMI BlogINVOKING BANK GUARANTEE DURING LIQUIDATION PROCEEDINGSX X X X Extracts X X X X X X X X Extracts X X X X ..... INVOKING BANK GUARANTEE DURING LIQUIDATION PROCEEDINGS - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 31-8-2024 - In VINEET K. CHAUDHARY VERSUS NTPC LIMITED AND KOHINOOR CRANE SERVICE VERSUS PETRON ENGINEERING CONSTRUCTION LIMITED - 2024 (8) TMI 1266 - NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH , the corporate debtor is engaged in providing services in mechanical, erection, piping, electrical, instrumentation, painting, refractory insulation work for Refineries other industrial plants. The Respondent is an Indian public sector undertaking, incorporated under Companies Act 1956 and which is engaged in generation of electricity and allied activities. The NTPC issued two work orders to the corporate debtor on 12.07.2013 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supply of electrical instruments, installation and erection works. The Corporate Debtor raised the running Accounts Bills from time to time out of which 10% of the amount was retained by NTPC. NTPC did not pay the pending dues to the corporate debtor to the tune of Rs.22.73 crore. For making the said payment NTPC demanded to provide a No Demand Certificate . In the meantime, corporate insolvency resolution process ( CIRP for short) was initiated against the corporate debtor. The application for CIRP was admitted by the Adjudicating Authority. The Adjudicating Authority ordered the corporate debtor into liquidation since no resolution plan has been received for this purpose. Despite CIRP the Corporate Debtor completed the installation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erection works in January, 2020 and completed the supply of electrical equipment in June, 2020. The Corporate Debtor issued a letter dated 05.07.2021 to the Respondent, requesting for granting completion certificate to the Corporate Debtor. It seems that NTPC did not issue the completion certificate and even did not reply of the corporate debtor dated 05.07.2021. The Corporate Debtor again on 15.07.2021 informed the NTPC regarding the factum of CIRP as well as Liquidation against the Corporate Debtor and requested the Respondent to release the outstanding amounts and Bank Guarantees of Corporate Debtor held up by NTPC. NTPC issued a letter on 16.07.2021 to the corporate debtor demanding liquidated damages to the tune of Rs.5.75 crore along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with GST amounting to Rs.1.03 crore. NTPC encashed the three bank guarantees issued by the corporate debtor to the tune of Rs.14.70 crore. On reconciliation of accounts NTPC, after making some adjustments, agreed the outstanding amount payable to the Corporate Debtor to the tune of Rs.12.34 crores. Since the said amount has not been paid by NTPC the liquidator of the corporate debtor filed the present IA petition before the Adjudicating Authority. The applicant submitted the following before the Adjudicating Authority- Despite repeated requests and several reminders by the Applicant, the Respondent is illegally and without any cause or dispute is withholding the unpaid dues of the Corporate Debtor. The process of liquidation is time bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process and if the amounts are not distributed to the other creditors within the requisite period, the liquidation proceedings will fail to reach its logical conclusion. The applicant put the prayer before the Adjudicating Authority to direct NTPC to release the pending money to the corporate debtor. The Applicant has relied upon the judgment of Hon ble Supreme Court of India in GUJARAT URJA VIKAS NIGAM LIMITED VERSUS MR. AMIT GUPTA AND ORS. - 2021 (3) TMI 340 - SUPREME COURT whereby it was held that all disputes pertaining to the issues of insolvency of the Corporate Debtor can be resolved under section 60(5) of the Code . The respondent submitted the following before the Adjudicating Authority- The Liquidator is conveniently trying to cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumvent the laws in regard to recovery of money and the various remedies available to it by wrongly invoking the residuary powers of the Tribunal. The recovery of any sum of money, even if payable, is not a dispute that is either arising out of or in relation to the liquidation or insolvency of the Corporate Debtor. The Liquidator or the Corporate Debtor cannot ask this Tribunal to act beyond its jurisdiction and become a fact-finding court to decide disputes in relation to recovery of money. Recovery matters are matters of fact and law and require extensive adjudication and evidence which is neither practical before this Tribunal nor permitted in law. The liquidator cannot invoke its residuary jurisdiction to adjudicate upon any and every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute which neither relates to nor arises out of the Liquidation proceedings of the Corporate Debtor. The Corporate Debtor has not completed the works of supply and erection as per the scope of the contract. No amount as alleged is payable by the respondent. This amount was only a reconciliation amount which the Respondent had asked the Corporate Debtor to check and sign. the Corporate Debtor has not submitted a No Demand Certificate which is a contractual obligation for smooth closing of contract. The Respondent, vide mail dated 08.12.2021, informed the Corporate Debtor that for release of Bank Guarantees, as per terms and conditions of the contract, all contractual obligations are to be fulfilled. The Corporate Debtor neither responded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the mail nor extended the validity of the Bank Guarantees. In order to safeguard the interest of the works to be executed and as per the terms of the contract, the Respondent, upon the Corporate Debtor's failure to fulfil the contractual conditions, invoked the Bank Guarantees. The Liquidated Damages were imposed supplies and works were delayed. The dispute with regard to the payment of outstanding dues, if any, by the Respondent to the Corporate Debtor has to be resolved by resorting to either arbitration proceedings or by filing appropriate proceedings in a civil court of competent jurisdiction and the provisions of Section 60(5) of the Code cannot be invoked as the disputes between the parties are purely contractual in nature whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h cannot be resolved under the residuary jurisdiction of this Tribunal. On the above grounds the respondent prayed before the Tribunal to reject the application. The ITAT observed the following- The Respondent has candidly and unequivocally admitted in the email dated 04.06.2022 its liability to pay a sum of INR 12,36,28,455/- to the Corporate Debtor. The non-obstante clause in Section 60(5) of the Code is designed for a purpose i.e. to ensure that NCLT alone has the jurisdiction when it comes to applications or proceedings by or against the Corporate Debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings and therefore, NCLT has jurisdiction to adjudicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputes which arise solely from or which relate to the insolvency of the corporate debtor. If the Applicant is relegated to civil court(s) or arbitral proceedings even in respect of admitted dues, it would definitely defeat the objects of the Code and the objective of concluding the process in a time bound manner would never be possibly adhered to. So far as the outstanding dues beyond the admitted dues of INR 12,36,28,455/- are concerned, the necessary permission can be granted u/s 33(5) of the Code to the liquidator to initiate appropriate legal proceedings. The Adjudicating Authority held that the application is to be allowed partly and the NTPC is directed to pay the admitted liability of Rs.12.36 crore. For the remaining amount the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidator is permitted to initiate appropriate legal proceedings. - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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