Invoked Bank Guarantee Margin Money Can Be Appropriated After CIRP Begins: NCLAT on Indian Overseas Bank Vs Consortium of GSEC Limited and Rakesh Shah
In Indian Overseas Bank Vs Consortium of GSEC Limited and Rakesh Shah, the National Company Law Appellate Tribunal (NCLAT), Delhi, considered whether a bank could be ordered to reverse margin money that it adjusted after the corporate insolvency resolution process (CIRP) started, when the underlying bank guarantees had been invoked before CIRP. The Tribunal allowed the bank's appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) and set aside the direction to reverse Rs 1,58,59,294/-.
Facts
- The Corporate Debtor, Diamond Power and Infrastructure Ltd. (DPIL), enjoyed credit facilities from Indian Overseas Bank, including a bank guarantee (BG) facility. As a term of the facility, DPIL kept cash margin in the form of term deposits.
- The bank issued several BGs for third-party beneficiaries. The beneficiaries invoked them between 21.04.2018 and 23.05.2018, and the bank paid them, using the margin money term deposits against the invoked BGs.
- The bank filed an application under
Section 7, which was admitted on 24.08.2018. It filed its claim with the Resolution Professional on 05.09.2018. - The term deposits were adjusted in the bank's books on 27.09.2018. A revised claim was filed on 09.11.2018, reflecting the adjustment of Rs 1,58,59,294/-; after adjustment the claim stood at Rs 51,54,93,366/-.
- The Resolution Professional considered the revised claim and showed it in the Information Memorandum. The Committee of Creditors (CoC) approved the resolution plan in its 23rd meeting on 06.01.2022 with an 89.46% vote share, and the Adjudicating Authority approved it on 20.06.2022.
- The successful resolution applicant (SRA) took over DPIL's management on 17.09.2022. While reconciling the books, it noticed the deduction, asked the bank for an explanation, sent a legal notice on 13.02.2023 and then filed IA No. 440 of 2023.
- By the impugned order dated 24.04.2024 (NCLT Ahmedabad, Division Bench-I, in IA/440(AHM) 2023 in CP(IB)/137(AHM)2018), the Adjudicating Authority directed the bank to reverse Rs 1,58,59,294/- to the SRA.