The NCLAT upheld the legality of invoking a Performance Bank ...

Govt Allowed to Encash Bank Guarantees Despite Insolvency if Due Process Followed.

Case Laws     IBC

October 14, 2024

The NCLAT upheld the legality of invoking a Performance Bank Guarantee (PBG) by the Nominated Authority during the moratorium period. It relied on the Supreme Court's judgment in Standard Chartered Bank vs. Heavy Engineering Corporation Limited, which established that a bank is obligated to honor an unconditional and irrevocable bank guarantee, subject to exceptions like fraud or irretrievable harm. In the present case, the Corporate Debtor's default was established, and the Nominated Authority followed due process by issuing a show cause notice, considering the Scrutiny Committee's recommendation, and invoking the PBG as per the agreement's terms. The NCLAT found no error in the Adjudicating Authority's refusal to set aside the invocation letter, as subsequent letters were consequences of the earlier appropriation order. The Corporate Debtor's notice of dispute was disposed of, upholding the invocation decision. The NCLAT dismissed the appeal, finding no grounds for interference.

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