Assistant Commissioner (Epm) vs Ms. Shruti Gupta & Ors

[(Arising out of the Impugned Order dated 19.12.2024 passed by the 'Adjudicating Authority' (National Company Law Tribunal, New Delhi, Bench-III in I.A No.1357/2024 of 2024 in IB-809 (ND)/2021)]

IN THE MATTER OF: Assistant Commissioner (EPM), O/o The Principal Commissioner of Customs (Import), ICD Tughlakabad, New Delhi-110020 Rep. by Adv. Aakarsh Srivastava, Standing Counsel for Customs ...Appellant

Versus

1. Ms. Shruti Gupta, Liquidator M/s. Metalite Eco Future Labs Private Limited Having its office at: 227, Sharda Niketan, Pitampura Delhi-110034. ...Respondent No.1

2. The Branch Manager, Bank of Baroda, 2/10 Ansari Road, Darya Ganj, Delhi-110002. ...Respondent No.2

3. Metalite Eco Future Labs Private Limited 4417/7, Ansari Road, Daryaganj, New Delhi-110002 ...Respondent No.3

Present: For Appellant : Mr. Aakarsh Srivastava, Sr. Standing Counsel, Mr. Utkarsh Srivastava, Mr. Ashish Bansal, Mr. Ankit Kumar, Mr. Dhananjay Parth and Mr. Anand Pandey, Advocates

For Respondent : Mr. Rachit Mittal, Mr. Parish Mishra, Mr. Kanishk Raj, Ms. Srishti Agrawal, Mr. Abhishek Sinha, Mr. Shivansh Bansal, Ms. Aayushi Kiran, Ms. Nisha Verma, Advocates for R-1. Mr. Sougat Sinha, Ms. R. Gayathri Manasa, Mr. Vishal Majumdar and Mr. Anurag Singh, Advocates for R-2.

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)] The present appeal is filed against the Impugned Order dated

19.12.2024 passed by the Ld. National Company Law Tribunal, New Delhi

Bench in IA No.1357 of 2024 in IB-809(ND)/2021, wherein the Hon'ble

Adjudicating Authority has allowed the IA - 1357/2024, thereby directing the

Appellant herein to return the original bonds pertaining to the Bank

Guarantees and further directing the Manager, Bank of Baroda to immediately

remit the amount of the FDR's to the Liquidation Account so that the same

could form a part of the Liquidation Estate of the Corporate Debtor.

Brief Facts

2. We note that the Corporate Debtor is a company incorporate on

09.12.2010 under the Companies Act 1956 registered with the Registrar of

Companies, Delhi. The Corporate Debtor was involved in the business of

research and development in natural sciences, medical sciences, agriculture

and engineering & technology.

3. During the year 2014 and 2015, the Corporate Debtor imported some

goods and availed benefit of scheme of custom duty exemption floated by

Government of India. For availing the said scheme, the Corporate Debtor had

executed eight EPCG Bonds with the Appellant for some export obligations to

be fulfilled by the Corporate Debtor within prescribed timelines. Further as

Company Appeal (AT) (Insolvency) No. 745 of 2025 2 of 31 per the terms of the aforesaid bond, and on the request of the Corporate

Debtor, Bank Guarantee was executed by the Respondent No. 2 in favour of

the Appellant for each EPCG Bond. The details of each Bank Guarantees are

as follows:

S. No. B.G. No. Date Amount (₹) Expiry Date 1. 6017IBGIS140064 01.07.2014 15,03,000/- 01.07.2022 2. 6017IBGIS140065 01.07.2014 10,46,000/- 30.06.2016 3. 6017IBGIS140086 22.08.2014 3,52,000/- 22.08.2016 4. 6017IBGIS140087 22.08.2014 16,50,000/- 21.08.2024 5. 6017IBGIS140064 03.09.2014 13,03,128/- 03.09.2016 6. 6017IBGIS140064 02.06.2015 8,70,000/- 01.06.2021 7. 6017IBGIS140064 08.06.2015 3,80,000/- 07.06.2023 8. 6017IBGIS140064 31.07.2015 18,12,000/- 30.07.2017

4. The Corporate Debtor moved an application under section 10 of

Insolvency and Bankruptcy Code, 2016 (hereinafter referred as "IB Code")

before Hon'ble NCLT, New Delhi. The Ld. NCLT vide its order dated

14.03.2023 admitted the Corporate Debtor into insolvency and appointed Mr.

Sunil Kumar Agarwal as IRP. Thereafter, the Ld. NCLT vide order dated

21.11.2023 passed liquidation order against the Corporate Debtor and

appointed the Respondent No. 1 as liquidator.

5. The Respondent No. 1 issued public announcement on 07.12.2023,

inviting all the stakeholders to file its claim with Respondent No. 1. As per the

public announcement, last date of submission of claim was 03.01.2024. The

Appellant filed its claim in Form 'C' with the liquidator on 01.02.2024 for an

amount of ₹ 1,81,27,632/- and the same was admitted by the Liquidator in

full.

Company Appeal (AT) (Insolvency) No. 745 of 2025 3 of 31

6. On 14.02.2024, the Respondent No. 1 issued a letter to the Respondent

No. 2 requesting to release the expired Bank Guarantees executed on

instruction of the Corporate Debtor and to credit the maturity amount to the

liquidation account of the Corporate Debtor. The Liquidator also issued a

letter dated 19.02.2024 to the Appellant informing admission of entire claim

of the Appellant to the tune of ₹ 1,81,27,632/- and requested the Appellant

to issue a letter to Respondent No. 2 for removal of lien. The Respondent No.

2 vide letter dated 29.02.2024 refused to credit of the maturity amount for

the reason that the Bank Guarantees are not expired and requested to raise

such issue with the Appellant.

7. Thereafter, The Respondent No. 1 filed an application bearing IA No.

1357 of 2024 before Hon'ble NCLT seeking direction against the Appellant to

return the original Bank Guarantee to Respondent No. 2 and direction against

the Respondent No. 2 to release the amount into liquidation account of the

Corporate Debtor.

8. That Hon'ble NCLT vide order dated 19.12.2024 allowed the aforesaid

application and directed the Appellant to return the original Bank Guarantee

to the Respondent No. 2 and directed Respondent No. 2, to release the

maturity amount in the liquidation account of the Corporate Debtor and the

relevant parts of the said Order are reproduced hereinbelow:

" 6. It is ordered as follows:

i. In view of the reasons mentioned above, the IA-1357/2024 stands allowed.

Company Appeal (AT) (Insolvency) No. 745 of 2025 4 of 31 ii. Having regard to the facts and circumstances of the case, we direct the Respondent. 1/Shri Devindra Kumar, Assistant Commissioner, to immediately return the original bonds pertaining to the Bank Guarantees.

iii. We further direct the Respondent no. 2/Manager, Bank of Baroda, to immediately remit the amount of the FDRs to the Liquidation Account so that the same could form part of the Liquidation Estate of the Corporate Debtor.

......"

Submissions of the Appellant

9. The Corporate Debtor moved an application for the insolvency under

section 10 of the Code, which was duly admitted and the CIRP (Corporate

Insolvency Resolution Process) was initiated. After failure of Form G, as no

resolution plan was received, the proceeding of liquidation were initiated

against the Corporate Debtor. The Corporate Debtor was ordered to be

liquidated by an order of 21.11.2023 and the Respondent No. 1/ Liquidator

was appointed by the Ld. NCLT as Liquidator in this case. Consent of the

liquidator was filed on 06.12.2023 and a Public Announcement was made on

07.12.2023 in two local newspapers i.e. Financial Express (English) and

Jansatta (Hindi) inviting claims from the stakeholders to be submitted latest

by 03.01.2024. In response to the Public Announcement, claims were

submitted by M/s. Vishnu Traders, M/s. Satya Traders, M/s. Meva Lal

Traders, Principal Commissioner of Customs (ICD, Import, Tughlakabad) and

M/s. A Periwal & Co Chartered Accountants (Auditor-Related Party). Out of

the above, claim of Principal Commissioner of Customs (ICD-Import)

Tughlakabad, New Delhi (Appellant herein) was against non-fulfilment of

Company Appeal (AT) (Insolvency) No. 745 of 2025 5 of 31 export obligation against Bonds, those were executed by the Corporate

Debtor. The department has Bank Guarantees with Auto-Renewable Clause

(against Fixed Deposits of the Corporate Debtor) amounting to ₹ 89,16,128/-

(Rupees

10. The Respondent No. 1/Liquidator simultaneously took up the matter

with the Department of Customs. Assistant Commissioner of Customs (EPM)

expressed his inability to release the Bank Guarantee Bonds in view of the

order passed by the Hon'ble NCLAT on 16.10.2023 in the matter of National

Small Industries Corporation Limited v/s Prabhakar Kumar (Liquidator).

11. The FDs in the possession of the Bank of Baroda and the Bonds

pertaining to the Bank Guarantees in possession of the Department of

Customs were earmarked for the specific purpose of ensuring the guarantee

agreement remains alive and the guarantor didn't shirk their obligation and

liability to pay the debt which is still due to the answering-respondent herein.

12. The Learned Hon'ble NCLT erred by directing for return of Original

Bonds pertaining to Bank Guarantees and by directing the Bank (Respondent

No 2) to remit the amount of FDRs to the Liquidation Account so that it can

become part of Liquidation Estate

13. As per Sections 14, 18 and 36(4) of IBC and Insolvency Committee

Report of 2018, these Bonds, Bank Guarantees and FDs cannot be asked to

be returned to the Liquidator, nor can it be considered as part of Liquidation

Estate, moreso since all the Eight Bank Guarantees were Performance Bank

Guarantees (against Fixed Deposits of the Corporate Debtor) amounting to ₹

Company Appeal (AT) (Insolvency) No. 745 of 2025 6 of 31 89,16,128/-. Of these, as per the terms of issue, 5 (five) have auto-renewal

clause, and in atleast 3 (three) Bank Guarantees, there is auto-pay clause

upon non-renewal.

14. Assets of surety are separate from assets of Corporate Debtor, and

proceedings against Corporate Debtor may not be seriously impacted by

actions against assets of third parties like sureties.

15. Bank Guarantee is an independent contract between Bank and

beneficiary, moreso since it is unconditional to be acted only on demand

guarantee.

16. FDs lying with the Bank are not simple FDs but are akin to the

underlying margin money for the Bank Guarantees.

17. The Learned NCLT erred in holding that the Bank Guarantees had

expired, since 5 (five) have auto-renewal clause, and in at least 3 (three) Bank

Guarantees, there is auto-pay clause upon non-renewal.

18. There are various judicial pronouncements in the past on the said

issue, which have determined to be in favour of the Appellant. The Appellant

relies upon: -

o Punjab National Bank V/s. Supriyo Kumar Chaudhari and Ors- Company Appeal (AT) (Insolvency) No. 657 of 2020.

o Ansal Engineering Projects Ltd V/s. Tehri Hydro Development Corporation Ltd. And Anr. 1996 (5) SCC

450.

Company Appeal (AT) (Insolvency) No. 745 of 2025 7 of 31 o Monitoring Agency of Anush Finlease & Construction Private Limited V/s. State Bank Of India and Ors.-

Company Appeal (AT) (Insolvency) No. 902 of 2020.

o Naresh Kumar Goel Liquidator of B.R. Knitwears Pvt. Ltd. V/s. Indian Overseas Bank & Anr.- Company Appeal (AT) (Insolvency) No. 14 of 2024 & I.A. No. 05 of 2024.

o Bharat Aluminium Co. Ltd V/s. M/S J.P. Engineers Pvt Ltd. And Ors- Company Appeal (AT) (Insolvency) No. 759 of 2020.

19. These are Performance Bank Guarantees, and the FDs lying with the

Bank are not simple FDs, but rather are akin to the underlying margin money

for the Bank Guarantees. They are for the specific purpose of honouring the

Bank Guarantees and are not simple fixed deposits available for liquidation.

20. The Appellant has 8 Bank Guarantees (against Fixed Deposits of the

Corporate Debtor) amounting to ₹ 89,16,128/-. Of these, as per the terms of

issue, 5 (five) have auto-renewal clause, and in at least 3 (three) Bank

Guarantees, there is auto-pay clause upon non-renewal. IA dated 31.01.2025

filed by Bank of Baroda before the Hon'ble NCLT also supports this position.

Moreover, upon reading the Terms and conditions of the Bank Guarantees

will also affirm this position.

21. In the present case, these are Performance Bank Guarantees, i.e. the

Corporate Debtor had imported goods duty free under the condition that they

will export and earn foreign exchange. The details of Licences issued to the

Corporate Debtor are: -

Company Appeal (AT) (Insolvency) No. 745 of 2025 8 of 31 License No. 0510389140 dated 26.06.2014 License No. 0530162969 dated 26.06.2014 License No. 0510394397 dated 02.06.2015 License No. 0530164813 dated 01.05.2015 License No. 0510394843 dated 08.07.2015 License No. 0530163125 dated 30.07.2014

22. The export obligation discharge period of the aforesaid licenses was till

31.04.2021 and 25.06.2020. Thus, it is clear that the Corporate

Debtor/importer has made no attempt to fulfil their commitment to the

Appellant, and no Export Obligation Discharge Certificate was issued. Due to

this, a staggering amount of ₹ 1,81,27,632/- is payable to the Customs

Department as Government dues.

23. Since these Bonds and Bank Guarantees (along with underlying FDs)

are not assets of Corporate Debtor, so it would not be a part of Liquidation

Estate under Section 36, by virtue of being excluded as per Section 36 (4) of

the IBC, and so there can be no question of its distribution under Section 53

of the IBC. More so, because Section 36(4) of IBC states that assets owned by

a third party those are in possession of the Corporate Debtor, including assets

held in trust for any third party, do not form part of the liquidation estate.

Also, as per Explanation to Section 18 of the IBC, the term "assets" shall not

include assets owned by a third party in possession of the Corporate Debtor

which is being held under trust or under a contractual arrangements.

24. Bank Guarantees are payable on demand without demur, and courts

are not to ordinarily interfere with their enforcement. It is also settled law that

Company Appeal (AT) (Insolvency) No. 745 of 2025 9 of 31 bank guarantee is irrevocable and unconditional and payable on demand

without demur. Besides it is also settled law that the assets of the surety are

separate from those of the Corporate Debtor, and proceedings against the

corporate debt may not be seriously impacted by the actions against assets

of third party like surety. Bank guarantee can be invoked even during

moratorium period issued under Section 14 of the IBC in view of the amended

provision under Section 14 (3)(b) of the IBC.

25. The liquidator cannot claim assets held in trust or under independent

contractual arrangements such as Bank Guarantees and their underlying

margin money/FDs.

26. Respondent No. 1 sought to rely on Regulation 21(a) of Liquidator

Regulations, but it does not help her in the present case. Appellant submitted

its substantive claim with the Liquidator on 15.12.2023, within thirty days of

liquidation on 21.11.2023, however, since the Liquidator informed the

Appellant that inadvertently a wrong Form was submitted, later on the correct

Claim Form dated 24.01.2024 was submitted. Also, in the correct Claim

Form, the Appellant expressly recorded "No" against relinquishment of

security. However, the Performance Bank Guarantees and underlying FDs do

not form an asset that would form part of the liquidation estate, and thus,

there can be no question of its distribution under Section 53 of the IBC.

27. Also, reliance of Respondent No. 1 on Notification 102/2009 dated

11.09.2009 is not proper and does not support her case, as it is an attempt

to enter the domain of Customs Act violations, whereas the present case is

Company Appeal (AT) (Insolvency) No. 745 of 2025 10 of 31 limited to the Appellants request of non-return of Bank Guarantees and

underlying Margin Money and is to be governed by IBC.

28. It is settled law that as per Sections 14, 18 and 36(4) of IBC and

Insolvency Committee Report of 2018, these Bonds, Bank Guarantees and

underlying FDs cannot be asked to be returned to the Liquidator, nor can

they be considered as part of Liquidation Estate, as these are independent

contracts between the Bank and the beneficiary.

29. From reply filed by Respondent No. 1, it can categorically be seen that

Respondent No 1 herself is stating that Respondent No.2 did not credit the

maturity amount of Bank Guarantees to Respondent No. 1, as the Bank

Guarantees had not expired. Thus, the impugned order passed by the Ld.

NCLT is liable to be set aside as it was passed on the erroneous presumption

that Bank Guarantees have expired, which is admittedly not the case.

30. Thus, it is prayed that the Hon'ble NCLAT be pleased to allow the

appeal.

Submissions of Respondent No. 2/Bank of Baroda

31. The aforesaid Bank Guarantee is a Performance Bank Guarantee, a

position also rightly observed by the Ld. NCLT vide impugned order dated

19.12.2024.

32. The Respondent No. 2 had issued a letter dated 26.12.2024 to the

Appellant, thereby requesting it to return the original Bank Guarantees to the

Bank in compliance with the Order dated 19.12.2024. Since the Bank

Company Appeal (AT) (Insolvency) No. 745 of 2025 11 of 31 Guarantees were not returned by the Appellant Department, the Respondent

Bank was constrained to file an application bearing I.A. No. 762 of 2025 in

CP(IB) No. 809 (ND) of 2021 before the Ld. NCLT, praying for directions to the

Appellant Department of Customs to return the original Bank Guarantees to

the Bank, and the said Application was dismissed vide Order dated

14.02.2025 of the Ld. Tribunal.

33. Thereafter, the Respondent Bank had even approached the Hon'ble

High Court of Delhi by way of a Writ Petition (C) No. 5298 of 2025, praying for

directions to the Department of Customs to return the original Bank

Guarantee to the Bank. On 25.04.2025, before the Hon'ble High Court, it was

submitted by the Counsel for the Appellant Department that they have

preferred an appeal before this Hon'ble Tribunal against the Order dated

19.12.2024 and the same is under defect and they will take adequate steps

for the listing of the appeal. In view of the submissions made by Appellant

herein the Respondent Bank had withdrawn the Writ Petition with liberty left

open to take appropriate remedies in accordance with law.

34. On the question of laws, the Respondent No. 2 is ad idem with the

Appellant. In the matter of Phoenix ARC Pvt. Ltd. v. Anush Finlease &

Construction Pvt. Ltd. [I.A. No. 2075(PB)/2020 in CP(IB) No. 1705(PB)/

2018] dated 04.08.2020, the Hon'ble NCLT Principal Bench, Mumbai had

referred to the decision and held that:

"21. These FDRs are given towards margin money against the bank guarantees given to the beneficiary, not as FDRs to be realised by the

Company Appeal (AT) (Insolvency) No. 745 of 2025 12 of 31 corporate debtor as and when it wishes. We must say that as per RBI guidelines and also as per the ratio decided in various judgements, margin money is construed as substratum of a trust created to pay to the beneficiary to whom bank guarantee is given. Once any asset goes into trust by documentation for the benefit of beneficiary, the original owner will not have any right over the said asset unless it is free from the trust. In this case, the bank guarantee being given to Government authority, 100% margin money is deposited in the form of FDRs. In the event the margin money is free from the Bank Guarantee either by discharge or by efflux of time, then the corporate debtor is entitled for release of FDRs."

That the above-mentioned judgement has been also upheld by this Hon'ble

Tribunal in Monitoring Agency of Anush Finlease & Construction Private

Limited V/s. State Bank Of India and Ors.- Company Appeal (AT)

(Insolvency) No. 902 of 2020.

35. This Hon'ble Tribunal held in Indian Overseas Bank Vs. Consortium

of GSEC Limited and Rakesh Shah Company Appeal (AT) (Insolvency) No.

943 of 2024, that:

XXX "28. Thus, to answer the first issue that we have framed for our consideration, we hold that the judgments relied upon by the Appellant and the common underlying ratio contained therein are applicable to the facts of the present case. Firstly, Margin Money is a contribution on the part of the borrower who seeks BG; secondly, Margin Money as BG becomes part of substratum of trust created to pay to a beneficiary to whom a BG was given and hence such assets held under trust cannot be considered to be the assets of the corporate debtor or said to be a security interest under Section 3(31) of IBC and thirdly, that the provisions of Section 14(1) of IBC are not applicable to a surety in a contract of guarantee to a Corporate Debtor.

Company Appeal (AT) (Insolvency) No. 745 of 2025 13 of 31

29. This brings us to the related issue as to whether the Margin Money could have been appropriated by the Appellant bank post filing of claims and post moratorium having come into play. Company Appeal (AT) (Insolvency) No. 943 of 2024 Page 23 of 29

30. We have already noticed for the reasons stated above that Margin Money in the given factual matrix does not fall within the definition of 'security interest'. No security interest is created as such by the Corporate Debtor on the Margin Money. The Margin Money in the form of term deposit was a condition precedent for sanction of BGs. Margin Money in this case is the contribution on the part of the borrower seeking Bank Guarantee and the said Margin Money remained with the Bank as long as the Bank Guarantee was alive but once the Bank Guarantee was invoked by the beneficiary, the Margin Money went towards payment of Bank Guarantee to the beneficiary. The Margin Money component was in effect not the asset of the Corporate Debtor anymore. This Margin Money could be utilized by the Appellant Bank against invoked BGs as a matter of right under the Facility Agreement executed with the DPIL. Even if the appropriation of the Margin Money was not carried out by the Appellant Bank concurrently with the invocation of BG, the terms of the Facility Agreement did not impair the right of the Bank to credit unto itself the Margin Money sum at a later point of time. Even if the deduction was not carried out contemporaneously, it did not amount to extinguishment of the Bank's contractual rights to do so subsequently. Once the BG is invoked by the beneficiary, the Margin Money lying with the bank goes towards payment of BG to the beneficiary leaving no scope for reversal of the Margin Money to the borrower as it is no longer part of the corpus of the Corporate Debtor. Thus, the Margin Money not being part of the asset of the Corporate Debtor anymore, the provisions of Section 14 do not become applicable on the Margin Money....."

XXX

36. In the above-said judgement, this Hon'ble Tribunal also discussed the

following cases:

Company Appeal (AT) (Insolvency) No. 745 of 2025 14 of 31

a) Gail India Ltd. Vs Rajeev Manaadiar in CA (AT) (Ins.) No. 319 of 2018,

b) Indian Overseas Bank Vs Arvind Kumar, Resolution Professional/Liquidator in CA (AT) (Ins.) No. 558 of 2020,

c) UCO Bank vs Sudip Bhattacharya, Resolution Professional in CA (AT) (Ins.) No. 335 of 2021,

d) Monitoring Agency of Anush Finlease & Construction Pvt. Ltd Vs SBI in CA (AT) (Ins.) No. 902 of 2020.

e) Punjab National Bank Vs Supriyo Kumar Chaudhuri Resolution Professional in CA (AT) (Ins) No. 657 of 2020.

37. The judgement in Indian Overseas Bank Vs. Consortium of GSEC

Limited and Rakesh Shah Company Appeal (AT) (Insolvency) No. 943 of

2024 has also been upheld by Hon'ble Supreme Court of India vide order

dated 15.10.2025 in Consortium of GSEC Limited and Rakesh Shah Vs. in

Indian Overseas Bank, Civil Appeal No. 12254 of 2025.

38. Therefore, in view of the above it is submitted that in case the Bank

Guarantees have expired, the margin money becomes free and is liable to be

refunded. However, in case Bank Guarantees have not expired, margin money

remains as margin money and continues to remain outside the liquidation

estate. In relation thereto, the Explanation to Section 18 of the IBC provides:

"Explanation. --For the purposes of this sub-section, it is hereby clarified that the assets of the corporate debtor shall not include the following, namely: -- (a) assets owned by a third party in possession of the corporate

Company Appeal (AT) (Insolvency) No. 745 of 2025 15 of 31 debtor held under trust or under contractual arrangements including bailment;"

39. Besides that Section 36(4) of the IBC defines "liquidation estate" and provides "(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: -- (a) assets owned by a third party which are in possession of the corporate debtor, including-- (i) assets held in trust for any third party;"

However, the moot question before this Hon'ble Tribunal is whether the Bank

Guarantees have expired or not.

40. The wording of Bank Guarantees coupled with the fact that that the

Appellant has not invoked them ought to be considered for deciding whether

they have expired or not. Thus, the Respondent No. 2 prays to this Hon'ble

Tribunal that the present appeal may be decided on merits.

Submissions of the Respondent No.1 / Liquidator

41. The liquidation proceedings were initiated against the CD (Corporate

Debtor) vide order dated 21.11.2023 and the Respondent No. 1 was appointed

as Liquidator. The Appellant filed its claim on 15.12.2023 in form 'B' and

chose to relinquish its security interest.

42. Appellant on 01.02.2024 filed its claim under Form C amounting to

₹1,81,27,632/-. The Appellant filed the claim against import duty and non-

fulfilment of export obligation which was admitted by the Respondent No. I in

full. While submitting the aforesaid claim against the import duty, the

Appellant chose to relinquish the Bank Guarantee given by the Corporate

Company Appeal (AT) (Insolvency) No. 745 of 2025 16 of 31 Debtor and thus the Appellant will be treated as per waterfall mechanism

under Section 53 of the IB Code. However, as per Section 21A of the

Liquidation Regulation, relinquishment/non relinquishment of security

interest must be informed within 30 days of Liquidation Commencement Date

which the Appellant failed to do so. Thus BGs became part of liquidation

estate. Important dates and events as follows:

21.11.2023 Liquidation commenced against the CD by Hon'ble NCLT.

15.12.2023 Claim filed by Appellant in Form 'B', however, no intimation regarding relinquishment of security.

20.12.2023 30 days expired (period of relinquishment in terms of Reg. 21A expired. Thereafter security was deemed to be part of liquidation estate).

01.02.2024 Claim filed in Form 'D' and relinquishment of security was claimed after expiry of 30 days.

43. Respondent No. 1/Liquidator issued a letter dated 14.02.2024 to the

Respondent No. 2/Bank of Baroda (BoB) for release of expired BGs. The

Respondent No. 2/BoB vide letter dated 29.02.2024 informed the Respondent

No. 1 that the BGs executed by the Respondent No. 2 in favour of Appellant,

have an auto renewal clause thus, not expired. Further the Respondent No.

2 mentioned a letter dated 14.10.2022 issued by the Appellant for renew of

Company Appeal (AT) (Insolvency) No. 745 of 2025 17 of 31 all the BGs, however, the Respondent No. 2 failed to produce any such letter

before this Hon'ble Tribunal.

44. The Corporate Debtor had given 8 Bank Guarantees to the Appellant in

order to discharge under EPCG Bond. The details of 8 Bank Guarantees are

as follows:

S. No. B.G. No. Date Amount (₹) Expiry Date 1. 6017IBGIS140064 01.07.2014 15,03,000/- 01.07.2022 2. 6017IBGIS140065 01.07.2014 10,46,000/- 30.06.2016 3. 6017IBGIS140086 22.08.2014 3,52,000/- 22.08.2016 4. 6017IBGIS140087 22.08.2014 16,50,000/- 21.08.2024 5. 6017IBGIS140064 03.09.2014 13,03,128/- 03.09.2016 6. 6017IBGIS140064 02.06.2015 8,70,000/- 01.06.2021 7. 6017IBGIS140064 08.06.2015 3,80,000/- 07.06.2023 8. 6017IBGIS140064 31.07.2015 18,12,000/- 30.07.2017

Till filing of the present Application, 7 out of 8 BG had expired and it was

never renewed by the Appellant also, there was no auto renewal clause in the

BG issued by the Respondent No. 2/BoB. The relevant clause of the BG read

as follows:

"3) That if this bank guarantee is not renewed for the reason what so ever on or before expiry of this Guarantee, the entire amount become forthwith due and payable to the government and the bank on its own shall pay to the government without any demur."

45. Thus, in the event of non-renewal of the BG, the amount of BG reverse

back to the Corporate Debtor and as such it became part of the liquidation

estate. The Respondent No. 2 failed to produce any document regarding

renewal of the BG and as such the Appellant cannot claim the BGs.

Company Appeal (AT) (Insolvency) No. 745 of 2025 18 of 31

46. As per the Notification No. 102/2009-CUSTOM, 96/2009-CUSTOMS

both dated 11.09.2009 and 22/2013 CUSTOMS dated 18.04.2013 the EPCG

Bond executed by the Corporate Debtor was valid only for a period of six years

from the date of execution of the aforesaid Bond. The relevant excerpt

extracted is here in below:

"(6) that the importer executes a bond in such form and for such sum and with such surety or security as may be specified by the Deputy Commissioner of Customs or Assistant Commissioner of Customs binding himself to comply with all the conditions of this notification as well as to fulfill export obligation on Free On Board (FOB) basis equivalent to six times the duty saved on the goods imported as may be specified on the authorization, or for such higher sum as may be fixed or endorsed by the Licensing Authority or Regional Authority in terms of Para 5.10 of the Handbook of Procedures Vol I, issued under para 2.4 of the Foreign Trade Policy, within a period of six years from the date of issue of Authorization, in the following proportions, namely:-

Provided also that spares (including refurbished/reconditioned spares), moulds, dies, jigs, fixtures, tools, refractory for initial lining and catalyst for initial charge, for the existing plant and machinery (imported earlier, under EPCG or otherwise), shall be allowed to be imported under the EPCG scheme subject to an export obligation equivalent to 50% of the normal export obligation prescribed above, to be fulfilled in 6 years reckoned from the date of issue of the Authorization, subject to the condition that the CIF value of import of the above spares etc. will be limited to 10% of the CIF value of the plant and machinery imported under the EPCG authorization or 10% of the book value of the plant and machinery imported earlier otherwise than under EPCG Scheme, as the case may be."

Company Appeal (AT) (Insolvency) No. 745 of 2025 19 of 31

47. All the EPCG Bond was executed by the Corporate Debtor in favour of

the Appellant between 2014 to 2015. Admittedly the Appellant did not take

any action against the Corporate Debtor in order to realise the amount

outstanding against the Corporate Debtor. Also, the Appellant did not take

any action for renewal of BGs or encash the BGs.

48. In the matter of Indian Overseas Bank vs. Arvind Kumar, [Company

Appeal (AT) (Insolvency) No. 558 of 2020], it was held by the Hon'ble

NCLAT:

"13. The 'margin money' is the contribution on the part of the borrower who seeks 'Bank Guarantee. The said margin money remains with the Bank, as long as the Bank Guarantee is alive. If the bank guarantee expires without being invoked, then the margin money reverse back to the borrower, and in case the bank guarantee is invoked by the beneficiary, the margin money goes towards payment of bank guarantee to the beneficiary, and nothing remains towards payment of bank guarantee to the beneficiary and nothing remains with the financial institutions, which can be reversed to the corporate debtor"

49. Also, in the matter of Phoenix ARC Pvt. Ltd. Vs. Anush Finleash &

Construction Pvt. Ltd. [IA No. 2075(PB)/2020 in CP(IB) No.

1705(PB)/2018] the Ld. NCLT, Principal Bench, New Delhi vide order dated

08.04.2020 held that

"21. These FDRs are given towards margin money against the bank guarantees given to the beneficiary, not as FDRs to be realised by the corporate debtor as and when it wishes. We must say that as per RBI guidelines and also as per the ratio decided in various judgements, margin money is construed as substratum of a Trust created to pay to the

Company Appeal (AT) (Insolvency) No. 745 of 2025 20 of 31 beneficiary to whom bank guarantee is given. Once any asset goes into trust by documentation for the benefit of beneficiary, the original owner will not have any right over the said asset unless is it is free from the trust. In this case, the bank guarantee being given to Government authority, 100% margin money is deposited in the form of FDRs. In the event the margin money is free from the Bank Guarantee either by discharge or by efflux of time, then the corporate debtor is entitled for release of FDRs."

50. The aforesaid order was challenged before Hon'ble NCLAT in the matter

of Monitoring Agency of Anush Finlease & Constructions Private Limited

vs. State Bank of India & Ors. [Company Appeal (AT) (Insolvency) No. 902

of 2020], and Hon'ble NCLAT confirmed the aforesaid order and held that:

"35. We are of the considered view that there is no illegality in the impugned order and we hereby affirm the order dated 04.08.2020 passed by the Ld. Adjudicating Authority (National Company Law Tribunal), New Delhi, Principal Bench and Ld. Adjudicating Authority has rightly dismissed the IA-2057(PB)/2020 in (IB)-1705 (PB)/2018. There is no merit in the instant Appeal, the Appeal is hereby dismissed. No order as to costs."

51. The aforesaid BG was given by the Corporate Debtor against the

exemption of custom duties to paid on imported goods availed by the

Corporate Debtor and Corporate Debtor undertook the export obligation as

specified in different notifications issued by Government of India in Ministry

of Finance (Department of Revenue) and the same is evident from the demand

notice dated 02.01.2025 sent by the Appellant to the Corporate Debtor. (page

137 of the reply by RI) As per the EPCG Bond, in event of failure in performing

the export obligation till expiry of the period, the Corporate Debtor was liable

Company Appeal (AT) (Insolvency) No. 745 of 2025 21 of 31 to pay the custom duty along with interest. The relevant clause of the EPCG

as follows:

"4. In the event of failure to fullfill full or part of the export obligations as specified in the said notification and the licence, I/ We the obligor(s) hereby undertake to pay the custom duty but for the exemption and also interest as per applicable rate for per annum thereon forthwith and without any demur of the government"

52. The export obligation discharge period expired in the year 2020 & 2021

and thus the import duty to the tune of ₹ 1,81,27,632/- became outstanding

amount against the CD. The relevant para of the Reply of Appellant is as

follows:

"13. It is further submitted that the export obligation discharge period of the said licenses ended in the year 2020 & 2021. Thus, it is clear that the importer has made no attempt to fulfil their commitment to the Respondent. Due to this, a staggering amount of Rs. 1,81,27,632/-along with applicable interest to the Respondent as Government dues."

53. The Appellant did not claim the BGs, since, 2020, as all the BGs had

expired, the Appellant could not encash the BGs. Also, the Appellant had

failed to send any notice to the bank for the renewal of BGs. Therefore, the

amount against the BGs revert back to the Corporate Debtor and became

asset of the Corporate Debtor before the insolvency commencement date."

54. Further, the judgment Punjab National Bank (supra), and Monitoring

Agency of Anush Finlease & Construction Pvt. Ltd. (supra) relied by the

Appellant is related to Bank Guarantee against the margin money and not

related to the performance of obligations. Further, Ansal Engineering

Company Appeal (AT) (Insolvency) No. 745 of 2025 22 of 31 Projects Ltd. (supra) is pertaining to Arbitration Act and not under this IB

Code. The FDs lying with the Respondent No. 2 does not akin to margin

money. Margin money is a different case altogether which is related to the

performance and non-performance of certain obligation under the contract.

However, in the present case, the Bank Guarantee was given to secure the

payment of the Appellant against custom duty and it is not the performance

guarantee. Also, Bank of India versus Nagina Construction does not support

the issues of the Appellant as the BGs in that case was not expired but stayed

by Ld. District Court.

55. The Respondent No. 1 has already admitted the claim of the Appellant

and the Appellant did not intimate the Respondent No.1 regarding non

relinquishment of security interest in terms of Regulation 21A of the

Liquidation Regulations. Thus, the amount underlying in form of BGs in the

Respondent No. 2 Bank is an asset of the Corporate Debtor and part of the

liquidation estate and Respondent No. 2 could not have refuse to release the

expired BGs.

56. In light of the above facts and circumstances, the Respondent No. 1

humbly prays that the Appellant is without any merit and may be dismissed

and order dated 19.12.2024 passed by Ld. NCLT may be uphold.

Analysis and findings

57. We have heard the submissions of both sides and also perused the

material on record.

Company Appeal (AT) (Insolvency) No. 745 of 2025 23 of 31

58. The issue which arise for our consideration is whether the Adjudicating

Authority can direct for return of Original Bonds pertaining to Bank

Guarantees and direct the Bank to remit the amount of FDRs to the

Liquidation Account so that it can become part of Liquidation Estate.

59. To begin with we try to find out as to when the appellant filed the

relinquishment of its security under the liquidation process regulations. The

liquidation proceeding against the Corporate Debtor was initiated on

21.11.2023 and the Appellant filed its claim on 30.01.2024 - which is beyond

30 days of liquidation commencement date. We observe that Section 21A of

IBBI (Liquidation Process) Regulation, 2016 (hereinafter referred as

"Liquidation Regulation") provides that if a creditor does not take a call on

relinquishment/non-relinquishment of security, then after expiry of 30 days,

the security shall be deemed to be relinquished by the creditor. The relevant

provision of the Liquidation Regulation is as follows:

"Regulation 21A: Presumption of security interest.

(1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II:

Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate.

(2) Where a secured creditor proceeds to realise its security interest, it shall pay -

(a) as much towards the amount payable under clause (a) and sub-

clause (i) of clause (b) of sub-section (1) of section 53, as it would have shared in case it had relinquished the security interest, to the liquidator within ninety days from the liquidation commencement date; and

Company Appeal (AT) (Insolvency) No. 745 of 2025 24 of 31

(b) the excess of the realised value of the asset, which is subject to security interest, over the amount of his claims admitted, to the liquidator within one hundred and eighty days from the liquidation commencement date:

Provided that where the amount payable under this sub-regulation is not certain by the date the amount is payable under this sub- regulation, the secured creditor shall pay the amount, as estimated by the liquidator:

Provided further that any difference between the amount payable under this sub-regulation and the amount paid under the first proviso shall be made good by the secured creditor or the liquidator, as the case may be, as soon as the amount payable under this sub-regulation is certain and so informed by the liquidator.

(3) Where a secured creditor fails to comply with sub-regulation (2), the asset, which is subject to security interest, shall become part of the liquidation estate.

Explanation- It is hereby clarified that the requirements of this regulation shall apply to the liquidation processes commencing on or after the date of the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019.

60. Thus, even though the Appellant in its claim form, chose not to

relinquish security, the law forced the Appellant to relinquish its security

against the Corporate Debtor. As the creditor did not give its choice of non-

relinquishment of security within 30 days, it is presumed that the creditor

relinquished its security against the Corporate Debtor.

61. Thus, the security created by the Appellant in the form of BGs stands

relinquished by virtue of law.

62. It is noted that all the EPCG Bonds were executed by the Corporate

Debtor in favour of the Appellant between 2014 to 2015. The relevant terms

of the EPCG Bonds are as follows:

Company Appeal (AT) (Insolvency) No. 745 of 2025 25 of 31 "Whereas I/We the obligor(s), have imported goods listed in Annexure-I availing customs duty exemption in the terms of the notifications of the Government of India in the Ministry of Finance (Department of revenue) No.102/2009, dated 11/09/2009 (hereinafter referred to as the said notification) against the Advance License No. 0510394397 dated 2.6.2015 (Hereinafter referred to as the said notification) for the import of the goods mentioned therein on the terms and conditions specified in the said notification and license.

Whereas I/We the obligor(s) has / have undertaken to fulfill the export obligation as specified in the said notification and the license and to produce evidence of having so fulfilled the export obligation within 30 days from the expiry of the specified export Obligation period to the satisfaction of the Government.

4. In the event of failure to fulfil full or part of the export obligations as specified in the said notification and the license I/ We the obligor(s) hereby undertake to pay the customs duly but for the exemption and also interest as per applicable rate for per annum thereon forthwith and without any demur of the government."

63. Liquidator brings to our notice that as per the terms of the Bond

executed by the Corporate Debtor, if the Corporate Debtor failed to fulfil the

export obligations, then the Corporate Debtor is liable to pay the custom duty

along with penal interest. It was also brought to our notice by the liquidator

that as per the notification no. 102/2009-CUSTOM, 96/2009 - CUSTOMS

both dated 11.09.2009 and 22/2013 - CUSTOMS dated 18.04.2013 the EPCG

Bond executed by the Corporate Debtor was valid only for a period of six years

from the date of execution of the aforesaid Bond. Thus, the EPCG Bond had

Company Appeal (AT) (Insolvency) No. 745 of 2025 26 of 31 already expired in the year 2020 and 2021 that is before initiation of CIRP

against the Corporate Debtor. We also note that after expiry of the EPCG

Bond, the Appellant did not take any action against the Corporate Debtor in

order to realise the amount outstanding against the Corporate Debtor. Also,

the Appellant did not take any action for renewal of BGs or encash the BGs.

64. We also observe that the Bank Guarantees executed by the Respondent

No. 2/BoB in favour of the Appellant were never renewed by the Bank. The

Respondent No. 2/BoB executed eight different Bank Guarantees in favour of

the Appellant alleged to be auto renewed by the Respondent No. 2 itself. The

relevant clauses of one of the Bank Guarantees bearing no. 6017IBGIS140064

are as follows:

"We, Vijaya Bank, further agree that the guarantee herein contained shall remain in full force and effect during the period that would be taken for performance of the said bond and remain shall continue to be enforceable till all the dues of the Dy. Commissioner/Asst. Commissioner of custom, ICD TKD, New Delhi under or by virtue of the said executed bond have been fully paid or the terms and condition of the bond have been fulfilled to the satisfaction of the Dy. Commissioner/Asst. Commissioner of custom, ICD TKD, New Delhi till dt. 30.06.2022 whichever is earlier.

2. We, Vijaya Bank, further declare that this Bank Guarantee will be valid up to dt. 30.06.2022 and we undertake to renew this guarantee on its own till the matter is settled and fully discharged by the Dy. Commissioner/Asst. Commissioner of Customs, ICD TKD, New Delhi on receipt of this letter.

3. That if this Guarantee is not renewed for the reason whatsoever on or before the expiry of this Guarantee the entire amount become forthwith due and payable to Government and the bank of its own shall pay to the government without any demur."

65. The perusal of the above terms of the bank guarantee indicates that

that the Respondent No. 2/BoB shall, by its own motion, renew the Bank

Company Appeal (AT) (Insolvency) No. 745 of 2025 27 of 31 Guarantee and if it fails to do so then the Respondent No. 2 is liable to pay

the whole by its own. We also note that the bank guarantees were valid up to

30-06-2022 and were not renewed thereafter. Since the Bank Guarantees

were never renewed by the Respondent No. 2 after expiry therefore the

guarantee expired after the term.

66. We further observe that as per the EPCG Bond, in event of failure in

performing the export obligation till expiry of the period, the Corporate Debtor

was liable to pay the custom duty along with interest. The export obligation

discharge period expired in the year 2020 & 2021 and thus the import duty

to the tune of ₹ 1,81,27,632/- became outstanding amount against the

Corporate Debtor. We further find that the appellant never claimed the bank

guarantee for non-performance of the export obligations of the Corporate

Debtor.

67. We observe that the liquidation proceedings were initiated against the

CD (Corporate Debtor) vide order dated 21.11.2023; the Appellant filed its

claim on 15.12.2023 in form 'B' (₹ 1,81,27,632/- became outstanding amount

against the Corporate Debtor) for non-fulfilment of export obligation and in a

way chose to relinquish its security interest by filing of claim in Form 'B'. The

Appellant's claim against import duty and non-fulfilment of export obligation

was admitted also by the Respondent No. I in full.

68. However subsequently, the Appellant on 30.01.2024 filed its claim

under Form 'C' amounting to ₹1,81,27,632/-, which was beyond 30 days.

Company Appeal (AT) (Insolvency) No. 745 of 2025 28 of 31 However, as noted by us herein earlier as per Section 21A of the Liquidation

Regulation, relinquishment/non relinquishment of security interest must be

informed within 30 days of Liquidation Commencement Date which the

Appellant failed to do so. While submitting the aforesaid claim against the

import duty, the Appellant chose not to relinquish the security interest (Bank

Guarantee) given by the Corporate Debtor. Thus, relinquishment of the charge

happens as per law, as Appellant did not intimate regarding non-

relinquishment of security interest in terms of Regulation 21A of the

Liquidation Regulations within 30 days. Thus the Appellant has to be treated

as per waterfall mechanism under Section 53 of the IB Code. Thus, BGs

became part of liquidation estate. Thus, in such circumstances wherein the

Appellant has not availed of the opportunity of non-relinquishment of its

charge and also when such bank guarantee has not been renewed and is lying

with respondent No. 2, it has to be released to the Corporate Debtor.

69. It is the stand of Respondent No. 2/Bank of Baroda that "in case the

Bank Guarantees have expired, the margin money becomes free and is liable

to be refunded. However, in case Bank Guarantees have not expired, margin

money remains as margin money and continues to remain outside the

liquidation estate." Respondent No. 2/Bank of Baroda further states that "the

moot question before this Hon'ble Tribunal is whether the Bank Guarantees

have expired or not." It further contends that the wording of Bank Guarantees

coupled with the fact that that the Appellant has not invoked them ought to

be considered for deciding whether they have expired or not. However, in the

Company Appeal (AT) (Insolvency) No. 745 of 2025 29 of 31 facts and circumstances of this case we find that this is not the relevant

question which we need to answer. Rather the relevant question before us is

whether the Appellant had given the option of non-relinquishment, which in

this case it had not - irrespective of the fact whether the guarantees are still

subsisting or not. We also note that in the facts and circumstances of the

case, the bank guarantees have not been invoked either by the Appellant or

auto renewed by the bank itself. Therefore, they have to be released to the

account of the company prior to the initiation of the CIRP. The terms and

conditions of the guarantee as noted herein earlier indicates that the bank

should have auto-renewed it but due to the fact that the Appellant has not

opted for non-relinquishment, even if it was auto-renewed by the bank, it

would still be part of the liquidation estate under these conditions. Thus, the

amount underlying in the form of BGs with the Respondent No. 2 Bank is an

asset of the Corporate Debtor and part of the liquidation estate and

Respondent No. 2 could not have refused to release the expired BGs.

70. The Appellant has relied on various judgments which are not directly

relevant to the present facts and circumstances. The case of Punjab National

Bank versus Supriyo Kumar Chaudhuri & Ors. and Monitoring Agency of

Anush Finlease & Construction Pvt. Ltd. Vs State Bank of India (supra)

is related to Bank Guarantee against the margin money and not related to the

performance of obligations. The case of Ansal Engineering Projects Ltd.

(supra) is pertaining to Arbitration Act and not under this IB Code.

Company Appeal (AT) (Insolvency) No. 745 of 2025 30 of 31

71. In the above facts and circumstances, we don't find any infirmity in the

orders of the adjudicating authority by which it directed the Respondent

No.1/ Assistant Commissioner to return the original bonds pertaining to the

Bank Guarantees and also further direction to the Respondent

No.2/Manager, Bank of Baroda, to immediately remit the amount of the FDRs

to the Liquidation Account so that the same could form part of the Liquidation

Estate of the Corporate Debtor.

72. Thus, we dismiss the appeal and all related IAs are also disposed of. No

orders as to cost.

[Justice Sharad Kumar Sharma] Member (Judicial)

[Arun Baroka] Member (Technical)

[Indevar Pandey] Member (Technical) New Delhi.

September 25, 2026.

pawan

Company Appeal (AT) (Insolvency) No. 745 of 2025 31 of 31