C And C Construction Ltd vs Power Grid Corporation Of India Ltd

Company Appeal (AT) (Insolvency) No. 781 of 2019 & I.A No. 746, 951 & 952 of 2021

IN THE MATTER OF: C & C Construction Ltd. Through Navneet Kumar Gupta, (RP) 361, Sunview, Pocket 4, Sector 11, Dwarka, New Delhi- 75 ...Appellant

Vs.

Power Grid Corporation of India Ltd. B-9, Qutab Institutional Area Katwaria Sarai New Delhi - 110 016 ...Respondent

Present:

For Appellant: Mr. Siddhartha Bhatnagar, Sr. Advocate Mr. PulkitDeora, Advocate.

For Respondent: Mr. Krishnendu Datta, Sr. Advocate, Ms. Riya Kalra, Mr. Apoorv P Tripathi, Advocates.

Mr. Abir Phukan, Mr. Surya Prakash, Mr. Ashkrit Tiwari (for impleadment, Ministry of External Affairs)

Mr. Aayush Agarwal (Applicant for Axis Bank).

JUDGMENT

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The present appeal has been filed by Mr. Navneet Kumar Gupta

'Resolution Professional' (RP) of the 'Corporate Debtor' - 'C&C

Construction Limited' under Section 61 of the 'Insolvency and

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 1 Bankruptcy Code, 2016' (in short 'Code') against the order dated

22.07.2019 passed by the 'Adjudicating Authority' (National Company

Law Tribunal), Principal Bench New Delhi, in C.A No. 1248/2019 in C.P

No. (IB) 1367(PB)/2018. The RP is aggrieved by the Adjudicating

Authority order as it has vacated an 'ad-interim' injunction which it has

previously granted against encashment of bank guarantee issued on

behalf of Appellant to its various customers including the Respondent

herein.

2. An 'Interlocutory Application' (IA ) No. 746/ 2021 in Company Appeal

(AT) (Ins) no. 781 of 2019 has been filed by Axis Bank Ltd., seeking

clarifications / directions from this Tribunal regarding encashment of

bank guarantee issued by 'Axis Bank Ltd' on behalf of the joint venture

of the 'Corporate Debtor'. The joint venture named M/s. EPI - C&C JV,

is an unincorporated joint venture between 'C&C Construction Ltd.,

and 'Engineering Projects India Ltd'. The 'Axis Bank' has issued bank

guarantees in favour of the 'Ministry of External Affairs' for this joint

venture projects based on the request of the Corporate Debtor for the

project.

3. The 'Ministry of External Affairs' (MEA) has filed IA No. 951 of 2021 in

the above stated appeal seeking a direction from this Tribunal to the

'Axis Bank Limited' to release the amount payable towards the

encashment of the bank guarantee. They have also stated the

Government of India (GoI) and Government of Myanmar had entered

into a framework agreement to develop specific model transit projects

in Myanmar and the 'Ministry of External Affairs' Government of India

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 2 is the nodal agency for this. They have also stated that on 31.03.2017

an EPC Contract was executed between the 'Ministry of External Affairs'

GoI and M/s. EPI C& C JV, a joint venture of the Corporate Debtor

where the Corporate Debtor is holding 60% and 'Engineering Projects

India Limited', a Government of India enterprise is holding 40% shares.

The 'Ministry of External Affairs', GoI has given 5(five) bank guarantees

total amounting to Rs. 111.118 Crore to secure the repayment of

mobilisation advance. They have also filed I.A No. 952 of 2021 for

impleadment. They have also stated that the Applicant has disbursed

the mobilisation advance of approximately Rs.151 Crore.

4. The 'Adjudicating Authority' has elaborately explained briefly the

material facts of the case, the position of the 'Corporate Debtor' and the

provision of the Code particular Section 3(31) and Section 14 of the

Code and also considered the certain citations and, thereafter, has

allowed the C.A No.1248(PB)/2019 wherein the petitioner - M/s. ICICI

Bank Ltd. vide order of the Adjudicating Authority has allowed the

petition to invoke/encash bank guarantee issued in its favour by the

Corporate Debtor without seeking leave of the Tribunal. The

Adjudicating Authority has also stated that the 'Performance Bank

Guarantee' may not be invoked / encashed before 01.08.2019. The

CIRP of the Corporate Debtor has been initiated vide order dated

14.02.2019 in CP (IB) NO.1367(PB)/2018.

5. The Appellant/ RP has submitted that the present case concerns not

only the bank guarantee issued to the Respondent but to 20 others

agencies of the Appellant. All are beneficiaries of bank guarantee which

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 3 has been issued by its banker against mobilisation advance, defect

liability, retention money, machine advance, performance guarantee

etc. The Appellant has also submitted that the application was preferred

pursuant to powers vested in the RP u/s 20(2)(e) of the Code, and the

jurisdiction vested with the Adjudicating Authority pursuant to Section

60(5), R/w Section 238. The Appellant has submitted that it is settled

law that in the presence of mounting inequities a court may interfere in

encashment of bank guarantees and grant an interim injunction such

as that which has been sought herein. He has also submitted that the

Interim injunction had been sought in view of special inequities that

would befall the Appellant, in the event that such an order should be

denied, which in effect would set the CIRP to naught. The Appellant has

submitted that vacating the present injunction would tantamount to a

liquidation of the Corporate Debtor which would be contrary to the aim

and intent of CIRP and settled law which requires the Resolution

Professional, the 'Committee of Creditors' (CoC) and the Adjudicating

Authority to do every possible, during the CIRP, to maintain the

corporate debtor as a going concern in order to give it a fighting chance

for insolvency resolution. The Appellant has also submitted that the

primary focus of the legislation is to ensure revival and continuation of

the Corporate Debtor by protecting the corporate debtor from its own

management and from a corporate death by liquidation. The Code is

thus a beneficial legislation which puts the corporate debtor back on its

feet, not being a mere recovery legislation for creditors.

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 4

6. The Appellant is critical that the CIRP is in progress and law has

provided a "calm period" where creditors stay their hands, the purpose

is that the moratorium while in operation provides impetus for rival

proposal and make up what has to be done. He has also submitted a

good realisation can generally be obtained if the firm is sold as a going

concern.

7. The Respondent is a GoI Enterprise and a Central Transmission Utility

under 'Ministry of Power'. As a national transmitter of Electricity the

Respondent engages several contractors to set up electricity powers and

conductors / wires where the Appellant is one such contractor. The

Appellant and the Respondent has entered into 4(four) such

contract/agreements dated 24.12.2010, 31.01.2012, 11.04.2016 &

27.09.2016. The Appellant has either completed the contract with

much delay or has failed to return the material or has consumed excess

material. All this has lead only under performance of the Respondent.

As per the terms of the Contract, the Appellant has provided the various

bank guarantee to the Respondent including in respect of work

entrusted to the joint ventures. Such joint venture is not a separate

legal entity. The Respondent has also stated that the Bank Guarantee

is not an asset of the Corporate Debtor but the money will go from the

account of the issuing bank and not from the Corporate Debtor, the

Corporate Debtor will lose only margin money when the bank

guarantee is encashed. They have also stated that bank guarantee can

only be injuncted, if it is affected by fraud or encashment of bank

guarantee will create special inequity that will cause 'irretrievable

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 5 injustice'. The Appellant has failed to establish both the ingredients.

They have also stated that, if appeal is allowed the Respondent will

suffer a major injury as it will affect their completion of various

contracts.

8. The learned counsel for the 'Axis Bank Ltd' has stated that 'Ministry of

External Affairs', GoI is asking them to invoke such bank guarantee.

However, such bank guarantee is covered by an 'omnibus counter

guarantee' from corporate debtor. This bank has issued number of

guarantees in favour of various beneficiaries. In any case finally they

sought the direction / clarification in respect of encashment of such

bank guarantee issued by 'Axis bank Ltd' in favour of 'Ministry of

External Affairs'.

9. The learned counsel for the 'Ministry of External Affairs' submitted that

the bank guarantee provided against the mobilisation advance were

unconditional and irrevocable. The 'MEA' was constrained to approach

the Axis Bank Ltd to forfeit the bank guarantee but they have refused

to do so unless they get a clarification/direction from the Tribunal. The

learned counsel has also submitted that the strategic importance of the

project to the country. They have also stated that these bank

guarantees involves bilateral relations with neighbouring country and

delay in encashing the bank guarantee would result in further delaying

the project of immense national and strategic importance.

10. The parties have submitted various citations to supplement and

advance their arguments in their own format. They have cited

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 6 judgments both in relating to the Code and also relating to other laws

to supplement their views.

11. We have gone through the elaborate submissions made by the

parties and provisions of the Code. Section 3(31) and Section 14 of the

Code are enumerated hereunder:

Section 3(31) - "Security Interest" means right, title or

interest or a claim to property, created in favour of, or

provided for a secured creditor by a transaction which

secures payment or performance of an obligation and

includes mortgage, charge, hypothecation, assignment

and encumbrance or any other agreement or arrangement

securing payment or performance of any obligation of any

person;

Provided that security interest shall not include a

performance guarantee;"

Section 14 - (1) Subject to provisions of sub-sections (2) and

(3), on the insolvency commencement date, the Adjudicating

Authority shall by order declare moratorium for prohibiting all of

the following, namely:--

(a) the institution of suits or continuation of pending suits or

proceedings against the corporate debtor including execution of

any judgment, decree or order in any court of law, tribunal,

arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the

corporate debtor any of its assets or any legal right or beneficial

interest therein;

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 7

(c) any action to foreclose, recover or enforce any security

interest created by the corporate debtor in respect of its property

including any action under the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where

such property is occupied by or in the possession of the

corporate debtor.

(2) The supply of essential goods or services to the corporate

debtor as may be specified shall not be terminated or

suspended or interrupted during moratorium period.

(3) The provisions of sub-section (1) shall not apply to

a.such transactions as may be notified by the Central

Government in consultation with any financial sector regulator

or any other authority;

b. a surety in a contract of guarantee to a corporate debtor.

(4) The order of moratorium shall have effect from the date of

such order till the completion of the corporate insolvency

resolution process:

Provided that where at any time during the corporate insolvency

resolution process period, if the Adjudicating Authority approves

the resolution plan under sub-section (1) of section 31 or passes

an order for liquidation of corporate debtor under section 33, the

moratorium shall cease to have effect from the date of such

approval or liquidation order, as the case may be.

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 8

12. The Hon'ble Supreme Court in SBI Vs. Rama Krishnan (2018) 17

SCC 394 at para 30-33 has elaborately discussed the subject of surety

and also the status of surety in a contract of guarantee for corporate

debtor. Section 14 (3) (b) of the Code, states that the provisions of this

section shall not apply to a surety in a contract of guarantee to a

corporate debtor. The Insolvency Law Committee appointed by Ministry

of Corporate Affairs through its report dated 26.03.2018 has also

clarified this subject vide para 5.10 that the assets of the surety are

separate from those of the Corporate Debtor and proceedings against

the corporate debtor may not be seriously impacted by the actions

against assets of the third party like surety. Section 14 (1) (c) makes

amply clear that any security interest created by the Corporate Debtor

in respect of its property is covered under moratorium. It is now amply

clear that the bank guarantee issued by the bankers are also the

responsibility of the bankers and the fund will go out of the fund of the

banks and not directly the fund from the corporate debtor. However, in

order to keep the corporate debtor alive during moratorium, keeping in

minds the provisions of Section 14 (1) (C) r/w Section 14 (3) (b), if any,

such bank guarantee is liquidated, it can be restricted to the full value

of the guarantee minus margin money provided by corporate debtor to

the banker for taking that bank guarantee and accordingly, banks

can release the fund to the extent of full value of the bank guarantee

minus margin money provided by the corporate debtor to the banker

for the bank guarantee.

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 9

13. Accordingly, we are slightly modifying the Adjudicating Authority

order dated 22.07.2019 and for brevity and clarity we are setting aside

the Adjudicating Authority order with above observations and

directions. Interim order, if any, issued by this Tribunal stands vacated.

Pending IAs, if any, stands disposed of. No order as to costs.

[Justice Jarat Kumar Jain] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical)

19th July, 2021

New Delhi

Raushan.k

Company Appeal (AT) (Ins) No. 781 of 2019 In I.A No. 746, 951 & 952 of 2021 10