NCLAT held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 does not bar the encashment of a Performance Bank Guarantee.
National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) was hearing an appeal and observed that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 does not bar the encashment of a Performance Bank Guarantee (PBG) during the Corporate Insolvency Resolution Process (CIRP), as the assets of a guarantor are separate from those of the corporate debtor, and enforcement of such guarantees is permissible under the amended provisions of the IBC.
This appeal challenged the order dated 29.04.2024 passed by the NCLT, Mumbai Bench, which was disposed of by the Adjudicating Authority. The case arose from a Coal Mine Development and Production Agreement dated 16.03.2015 between the Central Government and Indrajit Power Pvt. Ltd. The Corporate Debtor, Indrajit Power, had submitted a Performance Bank Guarantee (PBG) as part of this agreement.
In 2022, the Nominated Authority issued a show-cause notice to Indrajit Power for failing to meet scheduled production targets for several financial years. Following the recommendations of the Scrutiny Committee, the Nominated Authority issued an Appropriation Order on 27.10.2023 to encash the PBG. Indrajit Power filed a writ petition in the Delhi High Court to challenge the Scrutiny Committee’s recommendations, which was later withdrawn.
The CIRP against Indrajit Power commenced on 01.02.2024, with Respondent No.1 submitting a claim as an Operational Creditor. Indrajit Power sought to prevent the encashment of the PBG during the moratorium period under Section 14 of the IBC by filing an application before the NCLT. The Adjudicating Authority ruled that Section 14 does not bar the encashment of PBGs during the moratorium.
On appeal, the NCLAT upheld the NCLT’s decision, referencing the precedent that the moratorium under Section 14 of the IBC does not affect the enforcement of bank guarantees. The Appellate Tribunal cited judgments from both the NCLAT and the Supreme Court to support its decision that bank guarantees can be invoked even during the moratorium period, concluding that the Nominated Authority’s actions were valid and in accordance with the IBC provisions.
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