Bank Of Maharashtra vs Manjeet Cotton Pvt. Ltd. And Anr

IN THE MATTER OF: Bank of Maharashtra Stressed Asset Management Branch, 4th Floor, Janamangal, Samachar Marg, Fort, Mumbai-400001 ...Appellant

Versus

1. Manjeet Cotton Pvt. Ltd. & Anr. Having its registered address at 318, N-3, CIDCO, Jalna Road, Near Punjab National Bank, Aurangabad, Maharashtra-431003 ...Respondent No. 1 2. Parason Machinery (India) Pvt. Ltd. Having its registered address at Anukrupa 28, Venkatash Nagar Jalna Road, Aurangabad, Maharashtra - 431003. ...Respondent No. 2

Present: For Appellant : Ms. Pinky Anand, Sr. Advocate with Mr. Subir Kumar, Mr. Vardhman Kaushik, Mr. Nishant Gautam, Ms. Saudamini Sharma, Ms. Asees Kaur Chawla, Mr. Syed Ahmed, Ms. Ayushi, Mr. Prafful Saini, Ms. Eesha Sharma and Mr. Dhruv Joshi, Advocates.

For Respondents : Mr. Ramji Srinivasan, Sr. Advocate with Mr. Abhijeet Sinha, Mr. Chitranshul A. Sinha, Ms. Namrata Mohapatra and Mr. Jaskaran S. Bhatia, Advocates for R-1& R-2.

Company Appeal (AT) (Insolvency) No. 581 of 2022

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(Date:14.11.2022)

[Per.: Dr. Alok Srivastava, Member (Technical)]

This appeal has been filed by the Appellant- Bank of Maharashtra,

under Section 61 of the Insolvency & Bankruptcy Code, 2016 (hereinafter

called as 'IBC') assailing the order dated 20.04.2021 passed by the

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) in

I.A. No. 534 of 2022 in I.A. No. 607 of 2021 in CP No. (IB) 1222/(MB) 2019

(hereinafter called the 'Impugned Order').

2. In brief, the facts of the case are that the Corporate Insolvency

Resolution Process (in short 'CIRP') was initiated on an application filed under

Section 7 of the IBC filed by the Bank of Maharashtra (in short 'BOM'), acting

for and behalf of itself, State Bank of India and Vijaya Bank (which is now

Bank of Baroda). Subsequently a Resolution Plan for insolvency resolution of

the Corporate Debtor Fabtech Projects and Engineers Ltd. was submitted

jointly by Manjeet Cotton Pvt. Ltd. and Parason Machinery (India) Pvt. Ltd.

(in short 'Successful Resolution Applicant') which was approved by the

Committee of Creditors (in short 'CoC') by a voting share of 85.18% and the

Resolution Plan was approved by the Adjudicating Authority vide its order

dated 16.11.2021.

Company Appeal (AT) (Insolvency) No. 581 of 2022

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3. It is the Appellant's case that under the terms of the Resolution Plan,

the Successful Resolution Applicant- SRA undertook to pay 52.50% i.e. Rs.

29.30 crores to BOM/ SBI/ BOB in case the live bank guarantees are invoked

by the beneficiaries.

4. It is further stated by the Appellant that the bank guarantee provided

by the Bank of Maharashtra was invoked after the approval of the Resolution

Plan by CoC but before the Resolution Plan's approval by the Adjudicating

Authority took place. The request for paying the invocation amount of Rs.

29.30 crores were sent by Bank of Maharashtra to the Successful Resolution

Applicants vide letter dated 18.10.2021. Accordingly, other bank guarantees

were also invoked by the consortium member banks through various letters,

the BOM, SBI and BOB informed the SRA that the bank guarantees had been

invoked by the beneficiaries who had asked for payment of the invoked bank

guarantees as per the terms of the approved resolution plan. Responding to

these letters, the SRA informed the respondent banks that the invocation of

the bank guarantees took place before the management and control of the

corporate debtor was handed over to the SRA and therefore, the SRA cannot

be held responsible for events taking place prior to the 'Transfer Date' and

further denied its liability to pay the invocation amount of the bank

guarantees to the respective banks.

Company Appeal (AT) (Insolvency) No. 581 of 2022

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5. The Appellant has stated that thereafter Bank of Maharashtra filed an

IA No. 530 of 2022 in CP No. (IB) 1222/(MB) 2019 before the Adjudicating

Authority seeking direction to the SRA for paying 52.50% of the invoked bank

guarantees, and subsequently the SRA also filed an I.A. No. 534 of 2022 in

CP No. (IB) 1222/(MB) 2019 requesting for direction that the financial

creditors are not entitled to reimbursement of the invoked amount of the

bank guarantees which were invoked prior to 'Transfer Date' i.e. 04.01.2022.

6. We heard the arguments of the Learned Senior Counsels for the

Appellant and Respondent No. 1 & 2 and perused the record.

7. The Learned Senior Counsel for the Appellant has argued that the bank

guarantees for large projects given by the members of the banking

consortium, namely, BOM, SBI and BOB on behalf of the corporate debtor

Fabtech Projects and Engineers Ltd. were live bank guarantees at the time of

submission of the proposed Resolution Plan by the SRA, and this plan was

eventually approved by the CoC and later by the Adjudicating Authority with

the provision that the SRA would pay 52.50% (totalling to Rs. 29.38 crores)

in relation to the bank guarantees provided by the banks once they are

invoked by the respective banks. She has further argued that the Resolution

Plan was approved by the CoC with a majority of 85.18% voting share, and

thereafter approved by the Adjudicating Authority on 16.11.2021. She has

Company Appeal (AT) (Insolvency) No. 581 of 2022

4 further claimed that the said bank guarantees were invoked by the

beneficiaries Indian Oil Corporation and Oil India Ltd. vide letters dated

18.10.2021 addressed to the Bank of Baroda and Bank of Maharashtra

asking for payment of proceeds of the bank guarantee of Rs. 7 crores and Rs.

6.86 crores to the BOB and BOM. Another bank guarantee was invoked

through another letter dated 18.10.2021 addressed to the Bank of

Maharashtra which was for an amount of Rs. 5.65 crores. She has claimed

that these invocations of the bank guarantees took place before the

Resolution Plan was approved by the Adjudicating Authority on 16.11.2021

but after the Resolution Plan had been approved by the Committee of

Creditors. And hence the SRA which has committed itself to pay the

invocation amounts to the extent of 52.20% in the resolution plan should

honour its commitment.

8. The Learned Senior Counsel for the Appellant has taken us through

the terms of the approved resolution plan, specifically clause 3.5 relating to

'Source of Funds' and its 'Utilisation' which shows the maximum payment

guarantees towards invocation of live bank guarantees. She has further

submitted that in the Section "Summary of Utilisation of Fund's", specifically

at Serial No. 2 which reads "Payment to Secured Financial Creditors" totalling

to Rs. 192.24 crores the double asterisk (**) appearing in the footnote of the

table quite categorically states that the amount of Rs. 192.24 crores is

Company Appeal (AT) (Insolvency) No. 581 of 2022

5 included in which equivalent to 52.50% of invoked bank guarantees issued

by secured financial creditors pertaining to large projects.

9. In connection with the terms of payment to Secured Financial Creditors

after invocation, the Learned Senior Counsel for the Appellant has adverted

to Para 3.7 (2) (c) in the Resolution Plan to claim that the SRA/ corporate

debtor is obliged to make payment to the secured financial creditors under

the Resolution Plan which is in accordance with the treatment provided in

the Resolution Plan upon invocation.

10. The Learned Senior Counsel for Appellant has relied on the following

judgments in support of her contentions:-

• Andhra Bank v. F.M. Hammerle Textile Ltd. (2018) SCC OnLine

NCLAT 883.

• Export Import Bank of India v. Resolution Professional JEKPL

Private Ltd. (2018) SCC OnLine NCLAT 465.

• Canara Bank v. IVRCL Limited (2019) SCC OnLine NCLT 5327.

11. The Learned Senior Counsel for the Appellant has also argued that a

purposive interpretation of contractual terms should be made to support the

commercial wisdom of the parties when the payment to the beneficiaries is

to be made after invocation of the bank guarantees. In this connection she

Company Appeal (AT) (Insolvency) No. 581 of 2022

6 has referred to the judgments of the Hon'ble Supreme Court in the matter of

Enercon (India) Ltd. and Ors. V. Enercon GMBH and Anr. (2014) 5 SCC

1 and in the matter of Union of India v. D.N. Revri and Co. and Ors. (1976)

4 SCC 147.

12. The Learned Senior Counsel for the Appellant has submitted that the

bank guarantees constitute independent contracts and don't come within the

purview of Section 14 of the IBC and the interpretation of the SRA that only

in the event of invocation post 'Transfer Date', liability would arise affects the

right of the third party which has the right to invoke the bank guarantee at

any point of time and claim money under the said bank guarantees from the

banks. She has referred to the judgment of Hon'ble Supreme Court in the

matter of Phoenix ARC Pvt. Ltd. v. Anush Finleash & Construction Pvt.

Ltd. (IB) 1705 (PB)/ 2018 and Pragdas Mathuradas v. Jeewanlal (1929),

Limited (1948) SCC OnLine PC 46 in this regard to claim that these

judgments are support of her contention.

13. She has further claimed that the Adjudicating Authority while

disallowing the claim of the appellant bank has relied on two Supreme

Court's Judgements, namely, Ghanashyam Mishra and Sons Pvt. Ltd. v.

Edelweiss Asset Reconstruction Company Ltd. (2021 SCC OnLine SC

313) and Committee of Creditors of Essar Steel India Ltd. v. Satish

Company Appeal (AT) (Insolvency) No. 581 of 2022

7 Kumar Gupta & Ors. (2020 (8) SCC 531). In this connection she has

claimed that in both these judgements, the Hon'ble Supreme Court was

considering the issue of new and surprise claim post the approval of the

Resolution Plan whereas in the present case it is clear that the claim against

the invoked bank guarantees were not surprise claims but the CoC and the

financial creditors as well as the SRA were quite aware of these claims that

could arise in the future and therefore took case to include payment towards

secured financial debt including bank guarantees. She has also claimed that

on the one hand, the SRA wishes to distance itself from making any payment

towards invoked bank guarantee, but on the other hand has sought return

of margin money from Bank of Baroda used in issue of bank guarantees.

14. The Learned Senior Counsel for Respondents No. 1 & 2 has argued that

the Resolution Plan was approved by the CoC on 27.02.2021 and finally

approved by the Adjudicating Authority on 16.11.2021. He has strongly

argued that the 'Closing Date' of 31.12.2021 and 'Transfer Date' of

04.01.2021 which are defined in the Resolution Plan and not disputed by the

Appellant very clearly establish that the management/ control of the

corporate debtor would continue in the hands of Resolution Professional till

the "Transfer Date" and will be handed over to the boards constituted by the

Resolution Applicant on "Transfer Date" which would be within 15 days from

the "Closing Date". He has further submitted that the invocation of the bank

Company Appeal (AT) (Insolvency) No. 581 of 2022

8 guarantees took place vide letters dated 18.10.2021, sent by the beneficiaries

Indian Oil Corporation and Oil India Limited to the respective banks and

which was prior to the "Transfer Date" of 04.01.2022.

15. The Learned Senior Counsel for Respondent No. 1 & 2 has adverted to

Para 3.7 which is regarding "Treatment under the Resolution Plan for the

Financial Creditors" wherein in Para 3.7(2)(c) payment to be made to the

Secured Financial Creditors of the EPC Division is mandated within 60 days

for invocation of bank guarantees is included, and in the operative part

under the head "Non-Fund Based Facility i.e. EPC - Live Bank Guarantee- 2

Large Projects" it is very clearly stated that the Resolution Applicants shall

make payments to respective financial creditors to the extend of 52.50% of

the invocation amount within 60 days of invocation of such Bank

Guarantees, that are currently live, in the event of and with respect to

invocation of such bank guarantees subsequent to the "Transfer Date". He

has emphasised that the actual payment after invocation of bank guarantee

post the transfer date would be as per clause 3.7(2)(c) and any other mention

in the resolution plan in Para 3.5 regarding the bank guarantees appears

only to state the source of funds and how these funds may be utilised, which

is to only show that the Successful Resolution Applicants possesses sufficient

funds for an effective resolution of the corporate debtor.

Company Appeal (AT) (Insolvency) No. 581 of 2022

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16. The Learned Senior Counsel for the Respondents No. 1 & 2 has referred

to Hon'ble Supreme Court's Judgment in the matter of Kanataru Rajeevaru

v. Indian Young Lawyers Association (through its General Secretary

Bhakti Pasrua and Ors.) [2020 9 SCC 121] wherein it is held that "when a

statute is carefully punctuated and there is doubt about its meaning, weight

should undoubtedly be given to the punctuation" to emphasise that the

specific condition regarding "Transfer Date" in clause 3.7(2)(c) of the

Resolution Plan was carefully inserted based on discussions in the

Committee of Creditors and thus the argument of Appellant is not acceptable

in view of the actual Para 3.7(2)(c) and its formulation. He has clarified that

the Respondents never intended to make payments towards Bank

Guarantees invoked prior to the "Transfer Date". He has also submitted that

the SRA have made due payments to State Bank of India for a Bank

Guarantee that was invoked subsequent to the "Transfer Date".

17. In support of his contention that any claim that is explicitly not covered

in the payment schedule in the approved resolution plan for Successful

Resolution Applicant, would be extinguished as is held by Hon'ble Supreme

Court in the matters of Ghanashyam Mishra and Sons Pvt. Ltd. v.

Edelweiss Asset Reconstruction Company Ltd. (2021 SCC OnLine SC

313) and also in the matter of Committee of Creditors of Essar Steel India

Ltd. v. Satish Kumar Gupta & Ors. (2020 (8) SCC 531).

Company Appeal (AT) (Insolvency) No. 581 of 2022

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18. We find that the issue for consideration in the present appeal is limited

to whether the Appellant and other member banks of consortium were

entitled to payment towards live Bank Guarantees related to large projects

under Resolution Plan invoked prior to the "Transfer Date" by the Successful

Resolution Applicant. In this regard reference is made to Para 3.7(2)(c) of the

Resolution Plan which states as herein:-

"Non-Fund based Facility i.e. EPC- Live Bank Guarantee- 2 Large Projects The Resolution Applicants shall make payment to the respective Financial Creditors to the extent of 52.50% of the invocation amount within 60 days of invocation of such Bank Guarantee, that are currently live, as mentioned below, in the event of and with respect to, the invocation of such Bank Guarantees subsequent to the Transfer Date."

(emphasis supplied)

19. We note that Para 3.5 of the Resolution Plan (at Page 91 of the Appeal

Paper Book Volume-I) shows the following :-

"3.5 Source of Funds and its Utilization

a. Source of Funds

Company Appeal (AT) (Insolvency) No. 581 of 2022

11 Sr. Particulars Rs. Crore No

6. Maximum payment guarantee towards 62.09 invocation of the live Bank Guarantee provided by respective Financial Creditors.

b. Summary of Utilisation of Funds

Sr. Application of Funds Rs. Crore No

2. Payment of Secured Financial Creditors**$ 192.24

20. The 'Closing Date' and the 'Transfer Date' are defined in the Resolution

Plan (at Page 66 and 67 of the Appeal Paper Book, Volume-I):-

"C. DEFINITIONS

"Adjudicating The National Company Law Tribunal Authority"/"NCLT" (Mumbai bench) "Closing Date" The date on which the entire Upfront Payments to the Financial Creditors are affected in terms of this Resolution Plan and payments as envisaged under this Resolution Plan are affected to Operational Creditors and CIRP Costs.

"Transfer Date" The date on which Resolution Professional hand over the management/ control of the Corporate Debtor to the Board constituted by Resolution Applicants within 15 days from Closing Date.

21. A perusal of Para 3.5(a) and (b) makes it clear that these paras only

show the "Source of Funds" and "Summary of Utilisation of Funds" by the

SRA. It is noteworthy that the two asterisks (**) that appear below the table

of "Summary of Utilisation of Funds" states that the utilisation of funds will

Company Appeal (AT) (Insolvency) No. 581 of 2022

12 be in the manner as provided under this Resolution Plan. Further in the note

that in the footnote with $ sign it is stated that this amount also includes the

amount equivalent to 52.50% of the invoked bank guarantees issued by the

secured financial creditors pertaining to large projects, to be paid to such

respective Secured Financial Creditors whose bank guarantees are invoked.

22. It becomes clear from perusal of the definitions of "Closing Date" and

"Transfer Date" that the management and control of the corporate debtor will

devolve to the board constituted by the Resolution Applicant on the "Transfer

Date" which will be within 15 days of the "Closing Date".

23. It becomes lucidly clear on a close reading of Paras 3.5 and 3.7 of the

resolution plan that payment of live bank guarantee for two large projects will

be made in the event of and with respect to the invocation of such bank

guarantee subsequent to the "Transfer Date". We have earlier noted that the

"Transfer Date" relates to the date when the management/ corporate debtor

goes in the hands of the board of the Successful Resolution Applicant. It is

not disputed that the said bank guarantees were invoked vide letters dated

18.10.2021 (attached at Page- 169- 173 of the Appeal Paper Book) and the

SRA replied to these invocation letters stating that it was not liable to pay

any amount post such invocation, as the Bank Guarantees were invoked

prior to "Transfer Date" i.e 04.01.2022. We follow the judgment of the Hon'ble

Company Appeal (AT) (Insolvency) No. 581 of 2022

13 Supreme Court in the matter of Kanataru Rajeevaru v. Indian Young

Lawyers Association (Supra) wherein it is held that in case a certain

provision is carefully punctuated, weightage should be given to punctuation.

24. We also follow the judgment of Hon'ble Supreme Court in the matter of

Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset

Reconstruction Company Ltd. and Committee of Creditors of Essar Steel

India Ltd. v. Satish Kumar Gupta & Ors. (Supra) wherein it is clearly held

that Successful Resolution Applicant cannot be subjected to surprise claims

which are not part of Resolution Plan.

25. In view of detailed discussion in the aforementioned paragraphs and

the terms included in the approved Resolution Plan, we are of the clear view

that any purported liability falling on the Successful Resolution Applicant

prior to "Transfer Date" in respect of invocation of bank guarantees shall not

be payable by the SRA. We, therefore find that the appeal is devoid of merit

and it is accordingly dismissed.

Company Appeal (AT) (Insolvency) No. 581 of 2022

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26. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

[Barun Mitra] Member (Technical)

New Delhi 14th November, 2022

Sim/nn

Company Appeal (AT) (Insolvency) No. 581 of 2022

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