Refund of Invoked Performance Bank Guarantee Is Not a Corporate Debtor Asset: NCLAT Delhi in UCO Bank Vs Sudip Bhattacharya
The National Company Law Appellate Tribunal (NCLAT), Delhi, in UCO Bank Vs Sudip Bhattacharya, dealt with a question that often arises when a bank guarantee is invoked before insolvency but the money flows back after the insolvency process has begun: does the refund become an asset of the corporate debtor that the moratorium protects? The Tribunal answered in the negative and allowed the bank's appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (the Code).
Background of the Dispute
The appeal challenged an order dated 29.01.2021 of the National Company Law Tribunal (NCLT), Ahmedabad Bench, in I.A. No. 911 of 2020 in C.P. (IB) No. 418/NCLT/AHM/2018. That application had been moved by the Resolution Professional of Reliance Naval and Engineering Ltd. (the Corporate Debtor) against UCO Bank (the Bank). The Resolution Professional wanted the Bank to deposit a refunded sum, with interest, into the Corporate Debtor's account on the footing that it was the Corporate Debtor's asset.
The key facts, as recorded in the order, were these:
- The Corporate Debtor had a contract (No. COM/0802/SAV/NR-15 dated 13.06.2016) with the Indian Navy for the normal refit of the ship INS Savitri, for a consideration of Rs. 33,49,04,579/-.
- A Performance Bank Guarantee of Rs. 3,34,90,458/- was issued by the Bank on 14.07.2016, in favour of the Indian Navy.
- In August 2019 the Indian Navy invoked the guarantee, saying the guarantee had not been extended to 15.11.2019 despite reminders. The Corporate Debtor's account was classified as an NPA and there was no sufficient margin, so the Bank paid the Navy from its own funds.
- The warranty period ended on 15.11.2019. The Bank asked the Navy for a refund on 19.12.2019 since no claims had emerged.
- The corporate insolvency resolution process (CIRP) began on 15.01.2020 on an application under
Section 7filed by IDBI Bank. - On 28.09.2020 the Indian Navy refunded the amount into the Corporate Debtor's current account maintained with the Bank. The Bank then adjusted it against its dues, which the Resolution Professional objected to.