Indian Kanoon - Search engine for Indian Law

9. It is further submitted that Section 14(3) (b) of the IBC provides that Moratorium will not be applicable 'to a surety in a contract of guarantee to a Corporate Debtor'. Therefore, the Respondent No. 2 bank cannot take advantage of the moratorium that has been imposed upon the assets of the Corporate Debtor. For this purpose, placed reliance on the judgement of Hon'ble Supreme Court in the Case of SBI Vs. V. Rama Krishnan & Ors. (2018) 17 SCC 394.

10. It is also submitted that the legislative intend behind Section 14 of the IBC is only to secure the Assets of the Corporate Debtor and the benefit of moratorium ought not to be extended to third parties i.e. surety, for this purpose, placed reliance on the Para 5.10 and 5.11 of Report of Insolvency Law Committee March, 2018 which specifies that encashment of bank guarantee would not have a significant impact on the debt of the corporate COMPANY APPEAL (AT)(INSOLVENCY) NO.759 OF 2020 debtor as the right of the creditor against the corporate debtor is merely sifted to the respondent no. 2 bank, to the extent of payment by the bank.

14. In such circumstances, even after commencement of the moratorium the bank guarantee can be encashed and the Respondent No. 2 bank is liable to pay the money in its capacity as a surety of the Respondent No. 1. Thus, the impugned order is not sustainable in law and is liable to be set aside.

15. Learned Counsel for the Respondent No. 1 has not filed any Reply Affidavit since the issue in regard to bank guarantee is between the Appellant and Respondent No. 2.

16. Learned Counsel for the Respondent No. 2 submitted that the guarantee in question is a bank guarantee and not a performance guarantee as held by Ld. Adjudicating Authority. The bank guarantee is covered by the moratorium under Section 14 of the IBC thus, enforcing such security interest during the moratorium period would violate the Section 14 of the IBC. The provisions of Section 3(31) of the IBC makes it clears that the guarantee in question falls under the ambit of "any other agreement or arrangement securing payment or performance of any obligation of any person". This Appellate Tribunal in the case of State Bank of India Vs. Debashish Nanda CA (AT) (Ins) No. 49 of 2018 held that Financial Creditor cannot debit any amount from the Corporate Debtor accounts, after the COMPANY APPEAL (AT)(INSOLVENCY) NO.759 OF 2020 order of moratorium, as it may amount to recovery in violation of the Section 14 of the IBC. This Appellate Tribunal in the case of Indian Overseas Bank Vs. Mr. Dinker T Venkatsubramaniam Resolution Professional for Amtek Auto Ltd. (CA (AT) (Ins) No. 267 of 2017) held that once moratorium has been declared it is not open to any person including Financial Creditor to recover any amount from the account of the Corporate Debtor. For the same preposition, Learned Counsel for the Respondent No. 2 drew our attention towards the Judgment of this Appellate Tribunal in the case of IRP of Ruchi Soya Industry Ltd. Vs. ICICI Bank Ltd. MA No. 84 of 2018 in CP (IB) No. 1371-1372(MB)/2017.

17. It is also submitted that IBC being a special law prevails on the Indian Contract Act, 1872 which happens to be general law. Thus, the guarantee in question being a bank guarantee will be hit by moratorium under Section 14 of the IBC.

18. It is also submitted that there is difference between the performance bank guarantee and financial bank guarantee. Thus, the intention of the legislature in carving out an exception for the performance bank guarantee only is limited for excluding only the performance bank guarantee from the ambit of moratorium under Section 14 of the IBC. The Bank guarantee in question is a security interest of the Corporate Debtor. Thus, encashing the same would violate the provisions of Section 14 of the IBC and further would frustrate the Corporate Insolvency Resolution Process. 19 It is also submitted that the bank guarantee in question is an independent contract between the Appellant and Respondent No. 2 bank COMPANY APPEAL (AT)(INSOLVENCY) NO.759 OF 2020 then the Adjudicating Authority had no jurisdiction to entertain the Appellant's application. The Second amendment of Section 14(3) (b) has no bearing on the Appellant's case. Thus, there is no ground to interfere in the impugned order. The Appeal is liable to be dismissed.

22. In view of aforesaid admitted facts and the terms and conditions of the guarantee, Ld. Adjudicating Authority rightly held that bank guarantee in question is a financial bank guarantee and not a performance bank guarantee.

23. Now, we have to consider whether the financial bank guarantee can be invoked after issuance of moratorium under Section 14 of the IBC.

24. The Adjudicating Authority held that the bank guarantee does not fall within the purview of the proviso to Section 3(31) of the IBC because a bank guarantee cannot be described as performance bank guarantee. The bank COMPANY APPEAL (AT)(INSOLVENCY) NO.759 OF 2020 guarantee falls within the purview of the definition of 'security interest' as defined under section 3(31) of the IBC. Therefore, during the moratorium the bank guarantee cannot be invoked as the same may be prohibited under Section 14(1) (c) of the IBC.