Gail (India) Limited vs Rajeev Manaadiar & Ors

GAIL (India) Limited ...Appellant

Vs.

Rajeev Manaadiar & Ors. ...Respondents

Present: For Appellant: - Mr. Vikas Mehta, Advocate.

For Respondents:- Mr. P.V. Dinesh with Mr. Sunil Tripathi, Advocate for R-1.

ORDER

24.07.2018─ The Appellant- 'GAIL (India) Ltd.' intended to invoke

the 'Performance Bank Guarantee' against the 'Corporate Debtor'- 'M/s.

Petron Engineering Construction Limited'. The 'Resolution Professional'

moved before the Adjudicating Authority (National Company Law

Tribunal), Mumbai Bench, Mumbai, to stay the invocation of the

'Performance Bank Guarantee'. The Adjudicating Authority by impugned

order dated 15th September, 2016 prohibited the Appellant-'GAIL (India)

Ltd.' from invoking the 'Performance Bank Guarantee' on the ground that

it cannot be revoked during the period of 'Moratorium'.

2. Learned counsel appearing on behalf of the Appellant submitted

that the Appellant intended to invoke part of the 'Performance Bank

Guarantee' and not the whole of it.

Company Appeal (AT) (Insolvency) No. 319 of 2018 2

3. The stand of the 'Resolution Professional' is that the 'Performance

Bank Guarantee' cannot be invoked during the 'Moratorium'.

4. Section 14 of the Insolvency and Bankruptcy Code, 2016 (for short

"I&B Code') relates to 'Moratorium'. Clause (c) of sub-section (1) of Section

14 empowers the Adjudicating Authority to declare 'Moratorium' for

prohibiting any action to foreclose, recover or enforce any security interest

created by the 'Corporate Debtor' in respect of its property etc., which

reads as follows:

"14. Moratorium. ─ (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: --

Xxx xxx xxx

(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"

5. The expression 'security interest' has been defined in sub-section

(31) of Section 3 of the 'I&B Code', which reads as follows:

Company Appeal (AT) (Insolvency) No. 319 of 2018 3

"3. Definitions.─ xxx xxx xxx

(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"

6. From sub-section (31) of Section 3, it is clear that the 'security

interest' do not include the 'Performance Bank Guarantee', therefore, we

hold that the 'security interest' mentioned in clause (c) of Section 14(1)

do not include the 'Performance Bank Guarantee'. Thereby the

'Performance Bank Guarantee' given by the 'Corporate Debtor' in favour

of the Appellant- 'GAIL (India) Ltd.' is not covered by Section 14. The

Appellant- 'GAIL (India) Ltd.' is entitled to invoke its 'Performance Bank

Guarantee' in full or in part.

7. If it is invoked, the Appellant will inform it to the 'Interim

Resolution Professional' who will maintain the record and make it clear

Company Appeal (AT) (Insolvency) No. 319 of 2018 4

that the 'Performance Bank Guarantee' in full or part has been invoked

by the Appellant which should also be brought to the notice of the

'Resolution Applicant(s)'.

8. Learned Adjudicating Authority having failed to consider the

relevant provisions as discussed above, we set aside the order dated 12th

June, 2018 passed in MA No. 521/2018 in CP

1374/I&BC/MNCLT/MB/MAH/2017. Concerned persons will allow the

Appellant to extend the period of 'Bank Guarantee' for another six months

to ensure completion of the period of 'Moratorium'. The Appeal is allowed

with the aforesaid observations and direction.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) Ar/uk

Company Appeal (AT) (Insolvency) No. 319 of 2018