The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice M. Venugopal, Judicial Member and Ajai Das Mehrotra, Technical Member was hearing an appeal on Wednesday and held that the irrevocable and unconditional Bank Guarantees can be invoked during the moratorium period under the Insolvency and Bankruptcy Code.
In a recent NCLAT judgment, National Small Industries Corporation Limited (NSIC) Delhi filed an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) against an order dated 25.08.2021 in I.A. No. 3139/ND/2020 in C.P. (IB) No.–364(ND)/2019. The appeal was related to the invocation of Bank Guarantees by NSIC against M/s. Ganesh Fire Equipments Private Limited (Corporate Debtor) and whether it violated the moratorium provisions of IBC, 2016.
The Appellant had entered into an Agreement with the Corporate Debtor for raw material financial assistance against the Bank Guarantee under the 'Raw Material Assistance Scheme.'
Initially, the financial assistance was for Rs. 1 Crore, which was later increased to Rs. 2.99 Crores. The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (CIRP) on the application of M/s. Jasmeet Associates. NSIC invoked the Bank Guarantees, and a dispute arose regarding whether this action violated the moratorium under Section 14(1)(c) of IBC, 2016.
The Adjudicating Authority ruled in favour of the Corporate Debtor, stating that the Bank Guarantees did not qualify as 'Performance Bank Guarantees'; thus, their invocation was not permitted during the moratorium. NSIC appealed the decision, arguing that the Bank Guarantees were irrevocable and unconditional and should be exempt from the moratorium under Section 14(3)(b) of IBC, 2016.
The NCLAT found that the Bank Guarantees were irrevocable and unconditional and fell under the exception provided in Section 14(3)(b) of IBC, 2016. Therefore, the moratorium provisions did not apply to their encashment. The NCLAT referred to a previous judgment in IDBI Bank Limited v. Indian Oil Corporation Limited and Another, REED 2023 NCLAT Del 01544, which supported this interpretation. Consequently, the NCLAT set aside the Adjudicating Authority's order and allowed the appeal. No costs were awarded, and any pending interlocutory applications were closed.
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