NCLAT (28.09.2020) in Indian Overseas Bank Vs. Arvind Kumar RP/Liquidator M/s Richa Industries Ltd [Company Appeal (AT)(Insolvency) No. 558 of 2020] held that;
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 with the financial institutions, which can be reversed to the Corporate Debtor.
In this case, Bank Guarantee was invoked on 27th December 2018 by the beneficiary M/s Tata Steel Processing & Distribution Limited, and the margin money amount was used towards the payment of the Bank Guarantee. Once this margin money was used to honour the bank guarantee, nothing remained with the Bank, and as such, the Respondent Resolution Professional cannot demand that amount.
Excerpts of the order;
# 2. These brief facts of the case are as follows:
The Appellant, Indian Overseas Bank, is one of the Financial Creditors of the Corporate Debtor M/s Richa Industries Limited from whom the Corporate Debtor had availed various loan facilities including an irrevocable Bank Guarantee. The Corporate Debtor deposited margin money of Rs.40,50,000/- in the form of FDR to secure the said Bank Guarantee. One of the Operational Creditor M/s Tata Blue Steel Limited initiated the CIRP against the Corporate Debtor. The Application was admitted by order of the Adjudicating Authority dated 17th December 2018 and Moratorium declared under Section 14 of the I&B Code, 2016. The IRP was appointed on 21st December 2018.
# 3. The Bank Guarantee in question, which was issued in favour of M/s Tata Steel Processing & Distribution Limited was invoked, given the request, received vide letter dated 24th December 2018 and 26th December 2018 and the payment was made to the beneficiary to the tune of Rs.4,01,94,954/-. The margin money of the Corporate Debtor M/s Richa Industries Limited amounting to Rs. 40,50,000/- accrued interest of Rs.10,77,591/-, and as such the total margin lying with the Appellant bank was Rs.51,27,591/- During CIRP, the Resolution Professional / Respondent demanded the aforesaid margin money from the Bank. The Appellant Bank, after the invocation of the Bank Guarantee by M/s Tata Steel Processing & Distribution Limited, adjusted the margin money amount in honouring the bank guarantee.
# 4. Since the bank guarantee was invoked during the moratorium period and FDR relating to margin money was broken, and margin money was adjusted in making payment of Bank Guarantee amount; thus the Interim Resolution Professional objected to this. Given the demand raised by the IRP, the margin money amount was kept by Appellant Bank in fresh FDR issued on 14th January 2019.
# 5. After that an Application by the Resolution Professional of M/s Richa Industries Limited, bearing CA No. 95 of 2019 in CP (IB) No. 80/CHD/HRY/2018, filed under Section 60 (5) read with Section 74(2) of the Code, seeking direction against the Appellant, i.e. Indian Overseas Bank to release all the funds of the Corporate Debtor, which were retained by the Appellant bank in violation of the Code. The Adjudicating Authority /NCLT Chandigarh Bench passed the impugned order dated 29th April 2020 and ordered the Appellant Bank to release of the margin money amount, which is under challenge before us.
# 9. Admittedly, Rs.51,27,591/- was the margin money, while was deposited by the Corporate Debtor to secure Bank Guarantee in favour of M/s Tata Steel Processing & Distribution Limited for an amount of Rs.4,01,94,954/-. The said Bank Guarantee was invoked during the moratorium period, i.e. on 27th December 2018. Given Section 14(3) of the I&B Code, 2016 invocation of the said guarantee could not be stopped by the Bank.
# 12. It is pertinent to mention that the ‘margin money’ is not a security as has been argued by the Respondent and does not require any registration of charge. Only the assets gave by the Company as securities are required to be registered under Section 77 of the Companies Act, 2013.
# 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 with the financial institutions, which can be reversed to the Corporate Debtor.
# 14. In this case, Bank Guarantee was invoked on 27th December 2018 by the beneficiary M/s Tata Steel Processing & Distribution Limited, and the margin money amount was used towards the payment of the Bank Guarantee. Once this margin money was used to honour the bank guarantee, nothing remained with the Bank, and as such, the Respondent Resolution Professional cannot demand that amount.
# 16. In the circumstances, as stated above, we are the considered opinion that Appeal deserves to be partly allowed and the direction of the Adjudicating Authority ‘to release the margin money, i.e. Rs.51,27,591/-kept in fixed deposit for issuance of Bank Guarantee, which was utilized by the invocation of bank guarantee on 27th December 2018 by the beneficiary’ is set aside. No order as to costs.
------------------------------------------------------------
Author's comments; Now the question arises, in which form the margin for bank guarantee was provided by the CD, which could have been done by way of;
i). In the form of straight transfer of margin money amount to the bank, to be kept by the bank as margin for the bank guarantee.
ii). In the form of some financial assets (FD, Corporate Bonds, Govt. Securities etc) on which the bank exercises it’s lien towards margin for the bank guarantee.
In the present case margin for the bank guarantee was kept with the bank in the shape of FD under lien as per contract. Obviously the FD would have been in the name of the CD.
In an alternate scenario, what would have been the position if the FD in question was issued by some other bank.
Charge has been defined in IBC as under;
# Section 3 (4) “charge” means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as security and includes a mortgage;
--------------------------------------------------------
No comments:
Post a Comment