Flsmidth Pvt. Ltd vs The Liquidator, Savan Godiawala Lanco ...

[Arising out of order dated 15th October, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad in I.A. No. 206 of 2018 in C.P. (IB) No. 111/7/HBD/2017]

IN THE MATTER OF:

M/s FLSmidth Pvt. Ltd. FLSmidth House 34, Egatoor, Kelambakkam, Rajiv Gandhi Salai (OMR) Chennai - 603 103. Tamilnadu represented by its Head Legal & Director Mr. Sivasubramanian Natarajan ....Appellant

Vs

The Liquidator, Savan Godiawala Lanco Infratech Ltd. Lanco House, EPC Division, Plot No. 397, Udyog Vihar, Phase 3, Gurgaon - 122 016. ....Respondent

Present: For Appellant: Mr. K. V. Balakrishnan, Advocate.

For Respondent: Ms. Vaijayanti Paliwal, Advocate. -2-

BANSI LAL BHAT, J.

Appellant - Operational Creditor is aggrieved of the impugned order

dated 15th October, 2019 passed in I.A. No. 206 of 2018 in CP (IB) No.

111/7/HDB/2017 by the Adjudicating Authority (National Company Law

Tribunal), Hyderabad Bench by virtue whereof the Appellant's application

assailing the action on the part of Respondent - Resolution Professional

regarding invocation of Bank Guarantee came to be dismissed. The

impugned order is primarily assailed on the ground that there was no

breach on the part of Appellant in performance of its part of the contract

and the Corporate Debtor through Resolution Professional could have

invoked the Bank Guarantee only in the event of there being non-

performance on the part of Appellant.

2. Heard learned counsel for the parties. It emerges from record that

initially on an application filed by the Financial Creditor under Section 7 of

the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B

Code') Corporate Insolvency Resolution Process was initiated against the

Corporate Debtor - 'M/s Lanco Infratech Ltd.' wherein Respondent herein

came to be appointed as the Resolution Professional. Appellant, which is an

engineering company claimed to have supplied pipe conveyer and other

materials under purchase order issued by the Corporate Debtor which

Company Appeal (AT) (Insolvency) No. 1287 of 2019 -3-

included design engineering manufacture, delivery on site, etc. Corporate

Debtor is also said to have issued work order on the Appellant for CHP

Services for erection, supervision and commissioning etc. of pipe conveyer

and its allied equipments. 10% of basic contract price was paid by the

Corporate Debtor against submission of advance bank guarantee of

equivalent amount. According to Appellant, the Corporate Debtor failed to

perform its part under the contract and failed to open letter of credit prior to

1st dispatch of materials in terms of the contract causing monetary loss to

the Appellant who had commenced various activities under the contract.

This led to a controversy in regard to reimbursement of charges of opening

of letter of credit. Corporate Debtor is also alleged to have failed to take

delivery of the fabricated panels, etc. prepared at the Appellant's facilities

and thus failed to issue material dispatch clearance certificate to the

Appellant in terms of the purchase order. Appellant also claims to have

provided contract performance bank guarantees in favour of Corporate

Debtor for 10% of the contract value. This, according to Appellant was to

make payment to the Company in the event of contractor failing in its

contractual obligations. Thus, it is contended that the Operational Creditor

has not committed any breach in performance of contractual obligations and

on the other hand, it is the Corporate Debtor who caused enormous delay

and committed breach of contract resulting in the end user TANGEDCO

terminating the contract with the Corporate Debtor. This happened after

Company Appeal (AT) (Insolvency) No. 1287 of 2019 -4-

the Appellant - Operational Creditor submitted its claim before the Interim

Resolution Professional.

3. The Adjudicating Authority, while rejecting the application for

declaring the invocation of Bank Guarantee by the Resolution Professional

as illegal, observed that the Bank Guarantee has been invoked by the

Resolution Professional to recover the amount of Rs.1,50,85,516/- based on

books of accounts of the Corporate Debtor. The Adjudicating Authority was

of the view that the Resolution Professional was duty bound to act on the

information available in the books of the Corporate Debtor, both for securing

the interest of the Corporate Debtor as also for maximizing the value of its

assets.

4. The factual position emerging from the books of accounts of Corporate

Debtor, as noticed by the Adjudicating Authority, has not been controverted

and having regard to the duties of Interim Resolution Professional and the

Resolution Professional, respectively across the ambit of Sections 18 and 25

of the I&B Code, no fault can be found with the action on the part of

Resolution Professional in invoking the Bank Guarantee to secure the

interests of the stakeholders and also to maximize the assets of the

Corporate Debtor. That apart, it is not disputed that the Corporate Debtor

has gone into liquidation and a Liquidator has been appointed. This clearly

implies that the claim of Operational Creditor, whether based on breach of

contractual terms or performance guarantee stands rejected. It is poignant

Company Appeal (AT) (Insolvency) No. 1287 of 2019 -5-

that the Appellant - Operational Creditor has glossed over the matter and

even not placed on record objections filed by the Resolution Professional

before the Adjudicating Authority, though, same are shown to have been

forming annexure to the appeal. This would indicate nothing but

suppression of material facts. Once the claim of the Operational Creditor

stands rejected by the Liquidator under Section 40 of the I&B Code, the

remedy provided is under Section 42 of the I&B Code, which provides for

filing of an appeal against such rejection of claim before the Adjudicating

Authority within the prescribed time. Admittedly, legal remedy

contemplated under Section 42 of I&B Code has not been availed by the

Appellant - Operational Creditor. It being so, this appeal in respect of

invocation of Bank Guarantee and not Performance Guarantee would not be

maintainable. The Bank Guarantee being distinct from Performance

Guarantee and having been furnished in favour of Corporate Debtor for 10%

of the basic contract value in lieu of advance payment of 10% of basic

contract price paid by the Corporate Debtor bears no nexus with the

Performance Guarantee and is independent of the obligations arising out of

performance or breach in performance of the terms of contract. Appellant

cannot be permitted to harp on the tune of non-performance of contractual

obligations on the part of Corporate Debtor to resist invocation of the Bank

Guarantee inspite of pecuniary benefit derived from Corporate Debtor in the

form of 10% of the basic contract price. This would amount to paying

Company Appeal (AT) (Insolvency) No. 1287 of 2019 -6-

premium on dishonesty. Embarking on such course needs to be decried

with the contempt that it deserves.

5. While we find this appeal devoid of merit, we have no doubt that it is

frivolous. It is accordingly dismissed. However, there shall be no orders as

to costs.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

[Justice Venugopal M.] Member (Judicial)

NEW DELHI 4th December, 2019

AM

Company Appeal (AT) (Insolvency) No. 1287 of 2019