Case Note & Summary
The appeal was filed by WAPCOS Ltd. against an order of the National Company Law Tribunal, Special Bench Mumbai, dated 20.01.2022, which directed the appellant to refund an amount of Rs.11,95,41,056/- to the Resolution Professional of D. Thakkar Constructions Pvt. Ltd. The amount represented the proceeds of a bank guarantee that had been invoked and encashed by the appellant during the Corporate Insolvency Resolution Process (CIRP) of the respondent. The NCLT had allowed the application of the Resolution Professional under Section 14(1)(c) of the Insolvency and Bankruptcy Code, 2016 (IBC), holding that the moratorium barred the invocation. The appellant challenged this, arguing that the law settled by the NCLAT in Bharat Aluminium Company Ltd. v. Jaypee Engineers (CA(AT) (Ins) No. 759 of 2020, decided on 26.02.2021) clearly states that bank guarantees are not hit by the moratorium. The respondent did not dispute the legal position but requested that the arbitration proceedings be decided uninfluenced by the appeal. The NCLAT, relying on its earlier judgment, set aside the impugned order and allowed the appeal, holding that the moratorium under Section 14 IBC does not bar the invocation of bank guarantees.
Headnote
A) Insolvency and Bankruptcy Code - Moratorium - Bank Guarantee Invocation - Section 14(1)(c) IBC, 2016 - The issue was whether the moratorium under Section 14(1)(c) prohibits the invocation of a bank guarantee during CIRP. The NCLAT held that the moratorium does not bar invocation of bank guarantees, as they are independent contracts and not 'property' of the corporate debtor. The amendment to Section 14 further clarifies that there is no restraint on invocation of performance bank guarantees during CIRP. The impugned order directing refund of the encashed amount was set aside. (Paras 1-3)
Issue of Consideration
Whether invocation of a bank guarantee during the Corporate Insolvency Resolution Process (CIRP) is barred by the moratorium under Section 14(1)(c) of the Insolvency and Bankruptcy Code, 2016.
Final Decision
Appeal allowed. Impugned order dated 20.01.2022 set aside.
Law Points
- Moratorium under Section 14 IBC does not bar invocation of bank guarantees
- Bank guarantee is an independent contract not hit by moratorium
- Amendment to Section 14 IBC clarifies no restraint on performance bank guarantee invocation during CIRP
