Performance Bank Guarantee does not fall under Moratorium, in terms of Sec 14 of the IBC, rules NCLAT, Read Judgement

The NCLAT, Chennai Bench opined that Performance of Bank Guarantee, is excluded from the definition Section of 3 (31) of the IBC. Therefore, it was ruled that the Performance Bank Guarantee does not fall under Moratorium, in terms of Section 14 of the IBC. 

It was expounded that the Bank Guarantee is neither an Asset nor a Liability of a Company and hence, the invocation of the Bank guarantees by the Respondent No.1 were held to be valid as the same were pursuant to the Transmission Agreement. 

Brief Facts:

The present appeal has been preferred against the order of the NCLTA vide which the Petition under Section 60(5) R/w Section 14 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) was dismissed. 

Contentions of the Appellant: 

It was argued that NCLT did not consider that the Respondent No.1 never implemented its obligations for the construction of the Transmission Lines under the Agreement. Further, bank guarantees were already encashed by the Respondent No.1. 

It was further argued that Bank Guarantee’, was issued on behalf of the Corporate Debtor to compensate for the damages for Loss, hence, in the absence of any Claim, for the loss, the question of damages, did not arise. 

Observations of the Tribunal:

It was noted that the Appellant had prayed for a relief of declaration of the invocation of Bank Guarantees as void. 

The Tribunal opined that Section 14 of the IBC  does not prohibit actions against the Corporate Debtor’s Guarantors’, and further, the ambit of Moratorium, is confined, only to the Assets of the Corporate Debtor. 

It was opined that Performance of Bank Guarantee, is excluded from the definition Section of 3 (31) of the IBC. Therefore, it was ruled that the Performance Bank Guarantee does not fall under Moratorium, in terms of Section 14 of the IBC. 

It was expounded that the Bank Guarantee is neither an Asset nor a Liability of a Company and hence, the invocation of the Bank guarantees by the Respondent No.1 were held to be valid as the same were pursuant to the Transmission Agreement. 

The decision of the Tribunal:

Based on the aforementioned analysis, the NCLAT upheld the decision of the NCLT. 

Case Title: Mr. Vijay Kumar Garg v. Power Grid Corporation of India Limited & Ors. 

Case No.: Company Appeal (AT) (CH) (INS.) No. 260 of 2023

Coram: Justice M. Venugopal, Dr. Alok Srivastava (Technical Member)

Advocates for Appellant: Advs. Mr. A. Abdul Hameed,  Ms. Anbarasi Rajendran 

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