Supreme Court Dismisses Appeal Against NCLAT Order Validating Pre-CIRP Bank Guarantee Invocation in Margin Money Dispute
Background of the Case
Consortium of GSEC Limited Vs Indian Overseas Bank & Anr. (Supreme Court of India)
The Supreme Court of India recently dismissed an appeal challenging an order of the National Company Law Appellate Tribunal (NCLAT) in a dispute arising from the Corporate Insolvency Resolution Process (CIRP) of Diamond Power and Infrastructure Ltd. The dispute centred on whether Indian Overseas Bank was entitled to appropriate margin money amounting to ₹1,58,59,294 — held in the form of earmarked term deposits — against bank guarantees that had already been invoked before the commencement of CIRP.
The Supreme Court's order, as supplied, records dismissal of the appeal in terms of the signed order and disposal of all pending applications. The order does not independently set out substantive reasoning; the legal analysis underlying the dispute was developed at the NCLAT level.
Factual Matrix
Timeline of Key Events
The sequence of events is critical to understanding how the legal issues arose:
- 21 April – 23 May 2018: Indian Overseas Bank invoked the bank guarantees issued in favour of beneficiaries, with Diamond Power and Infrastructure Ltd. as the corporate debtor.
- 24 August 2018: CIRP formally commenced against Diamond Power and Infrastructure Ltd.
- 27 September 2018: The bank recorded the appropriation of the margin money (earmarked term deposits) against the already-invoked guarantees.
- Indian Overseas Bank thereafter submitted a revised claim of ₹51,54,93,366 after adjusting the margin money amount from its outstanding dues.
The successful resolution applicants — Consortium of GSEC Limited and Rakesh Shah — subsequently raised objections to the bank's appropriation of the margin money, arguing it violated the moratorium imposed under the Insolvency and Bankruptcy Code, 2016.
Proceedings Before NCLT Ahmedabad
The matter was first brought before the National Company Law Tribunal (NCLT), Ahmedabad. On 24 April 2024, NCLT directed Indian Overseas Bank to reverse ₹1,58,59,294 — the amount that had been appropriated as margin money. This direction effectively treated the appropriation as an impermissible post-CIRP action that disturbed the settled terms of the approved resolution plan.
Indian Overseas Bank challenged this reversal direction before NCLAT under Section 61 of the Insolvency and Bankruptcy Code, 2016.
Competing Arguments Before NCLAT
Bank's Position
Indian Overseas Bank contended that: