R S Infra Vs. R P Infraventure Pvt. Ltd - We are also inclined to agree with the Corporate Debtor that TDS deduction does not imply acknowledgment of any liability as outstanding qua the Operational Creditor.

NCLAT (18.12.2023) in R S Infra  Vs. R P Infraventure Pvt. Ltd  [Company Appeal (AT) (Insolvency) No. 80 of 2023 & I.A. No.331 of 2023] held that;

• It is clear that the existence of dispute and its communication to the Operational Creditor is therefore statutorily provided for in Section 8. Post issue of demand notice by the Operational Creditor, if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute, he may file an Application under Section 9(1) of the Code.

• We are also inclined to agree with the Corporate Debtor that TDS deduction does not imply acknowledgment of any liability as outstanding qua the Operational Creditor.

• When the plea of pre-existing dispute is raised in the background of a pending suit or arbitration proceeding, the same should be related to the dispute.

• A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability.

• Where operational creditor seeks to initiate insolvency process against a Corporate Debtor, it can only be done in clear cases where no real dispute exists between the two which is not so borne out given the facts of the present case. 

• It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt.

Excerpts of the order;

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code, 2016 (“IBC” in short) by the Appellant arises out of the Order dated 16.11.2022 (hereinafter referred to as “Impugned Order”) passed by the Adjudicating Authority (National Company Law Tribunal, Court-V, New Delhi) in CP (IB) No.263 (ND)/2021. By the impugned order, the Adjudicating Authority has dismissed the Section 9 application filed by M/s R S Infra, present Appellant seeking initiation of Corporate Insolvency Resolution Process (“CIRP” in short) against the Corporate Debtor-M/s R P Infraventure Pvt. Ltd. Aggrieved by the impugned order, the present appeal has been filed by the Appellant.

# 2. The Learned Counsel for the Appellant/Operational Creditor submitted that the Agra Development Authority had awarded a contract to HG Infra Engineering Private Limited as the main contractor which in turn further awarded a sub-contract to the Corporate Debtor-M/s R P Infraventure Pvt. Ltd., which is the present Respondent. For further execution of the said sub-contract, the Corporate Debtor had engaged R S Infra, the present Operational Creditor for the purpose of excavation, loading, transportation, unloading of soil and issued a work order dated 01.08.2014. The work assigned to it by the Corporate Debtor had been completed and no objections on the quality of services rendered was raised by the Corporate Debtor. Payments were made by the Corporate Debtor to the Operational Creditor by way of running account. The Appellant has claimed that the Corporate Debtor had stopped making payments after 18.04.2018. Since an outstanding amount of Rs.1.58 crore had become due from the Corporate Debtor, the latter was requested to discharge their liability. However, the Corporate Debtor failed to liquidate the debt following which a Section 8 demand notice was served upon them on 30.07.2020. However, the Corporate Debtor did not reply to the demand notice or send a notice of dispute. Neither was the outstanding amount received from the Corporate Debtor. Hence, the Operational Creditor thereafter filed a Section 9 application on 09.04.2021 which was erroneously rejected by the Adjudicating Authority on 16.11.2022.

# 3. Refuting the submission made by the Appellant, it was submitted by the Learned Counsel for the Respondent that no payment was due and payable by the Corporate Debtor. It was pointed out that a Work Order Agreement had been signed between the Corporate Debtor and the Operational Creditor on 01.08.2014 in the context of a work order relating to construction of a road under the Agra Development Authority. In terms of the Clause 17 of the Agreement, payment was to be made to the Operational Creditor within 10 days from corresponding payment having been received by the Corporate Debtor from HG Infra. Since no payment had been received from HG Infra, no payment had become due to the Operational Creditor.

# 4. Besides asserting that no debt was due and payable to the Operational Creditor, it was also pressed that there was a dispute regarding the quality of work done by the Operational Creditor which had resulted into nonpayment by the Agra Development Authority to HG Infra which in turn led to non-payment by HG Infra to the Corporate Debtor. It was further pointed out that because of the poor quality of services rendered by the Operational Creditor, debit notes had been issued by the Corporate Debtor amounting to Rs.1.24 crore as on 31.03.2020. It was, therefore, contended that there was a pre-existing dispute between the parties and hence the Adjudicating Authority had rightly rejected the Section 9 application.

# 5. We have duly considered the arguments advanced by the Learned Counsel for the parties and perused the records carefully.

# 6. The basic issue which needs consideration is whether operational debt, as claimed by the Operational Creditor, had become due and payable, and if so, whether there has been any default in respect of such payment on the part of the Corporate Debtor and whether the debt has been disputed.

# 7. Before dwelling on the facts of the present case, a quick glance at the relevant statutory construct of IBC would be useful. Section 8 of the IBC requires the Operational Creditor, on occurrence of a default by the Corporate Debtor, to deliver a Demand Notice in respect of the outstanding Operational Debt. Section 8(2) lays down that the Corporate Debtor within a period of 10 days of the receipt of the Demand Notice would have to bring to the notice of the Operational Creditor, the existence of dispute, if any. From a plain reading of the above provisions, it is clear that the existence of dispute and its communication to the Operational Creditor is therefore statutorily provided for in Section 8. Post issue of demand notice by the Operational Creditor, if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute, he may file an Application under Section 9(1) of the Code.

# 8. In the present case, Section 8 demand notice was admittedly issued on 30.07.2020 which however the Corporate Debtor did not reply to. It is also an undisputed fact that in the present matter, the Operational Creditor did not receive any payment from the Corporate Debtor after the issue of demand notice, and, thereafter proceeded to file an application under Section 9 of IBC on 20.05.2021. It is however noticed that in response to the Section 9 application, the Corporate Debtor filed reply affidavit thereon.

# 9. The Adjudicating Authority having considered the matter rejected the Section 9 application. At this stage, it may be useful to reproduce para 13 of the Impugned Order wherein the Adjudicating Authority has dismissed the Section 9 application and held as follows:

“13. We have perused the averments and heard the arguments made by the applicant and the Corporate Debtor. The corporate debtor has raised objection as regards the default and claimed that no default has occurred and no amount is due and payable. Moreover, the corporate debtor has issued a debit note dated 20.07.2020 on grounds of defect in quality of services provided due to which it had to incur major losses and in terms of which an arbitration proceeding as regards the quality of services provided by the applicant due to which the payment has been withheld by the main contractor, is pending before the Hon’ble Delhi High Court. The Corporate debtor is mainly relying on the argument upon the work order dated 01.08.2016 wherein as per clause 18 it is specifically stated that the payment shall be released by the Respondent Company within 10 (ten) days after receiving corresponding payment from the employer. Another, objection raised by the corporate debtor is with regards to the incomplete demand notice being defective and incomplete. The said objection does not sustain as the applicant has filed the relevant invoices, subsequently, as per the directions of the Bench and cured the defects. Hence, we are of the view that there is a pre-existing dispute as has been contended by the corporate debtor. It is clear that without going into the merits of the dispute, the corporate debtor has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed. In the given facts and circumstances, the applicant has failed to establish default on part of the corporate debtor in payment of operational debt. Therefore, this bench is not inclined to admit the present application. Accordingly, the present application is rejected.”

# 10. It is the case of the Appellant/Operational Creditor that the work assigned to it by the Corporate Debtor had been completed without any complaints from the Corporate Debtor and payments released till 18.04.2018. Thereafter an outstanding amount of Rs.1.58 crore had become due from the Corporate Debtor which remained unpaid. It is also the contention of the Appellant that the Corporate Debtor had deducted TDS which is an acknowledgment of the debt on the part of the Corporate Debtor. No dispute was ever raised by the Corporate Debtor with regard to their performance of work in spite of receiving a notice under Section 8 of the IBC.

# 11. Making rival submissions it has been the contention of the Respondent that no payment was due and payable by the Corporate Debtor. It was pointed out that payments to the Operational Creditor was guided in terms of the Work Order Agreement signed between the Corporate Debtor and the Operational Creditor on 01.08.2014 and no due had arisen in terms of Clause 17 of the Agreement. It is also pointed out that the Operational Creditor has included security amount while claiming outstanding dues at a time when security amount is not due and payable as per Clause 16 of the work order agreement as placed at page 81-88 of Appeal Paper Book (“APB” in short). The Learned Counsel for the Corporate Debtor has also contended that merely on the basis of TDS deduction, no operational debt liability can be fastened on the Corporate Debtor.

# 12. For proper appreciation of the facts at hand, we may have a look at Clauses 17 and 18 of the Work order Agreement which is as extracted below:

“17. PAYMENT

Eligible payment will be released to the PRW (Piece Rate Worker) by the Company within 10 (ten) days after receiving corresponding payment from the Employer subject to any statutory and other deductions and monies owed by the PRW to the Company including recoveries if any; cash retention, deduction of monies due to the Company towards any plant, mandatory, materials or services arranged by the Company on behalf of the PRW and damages/costs levied by the Company/ the Employer, if any.

Notwithstanding any other provision contained herein to the contrary or otherwise, no payment shall be made to the PRW unless corresponding payment has been received by the Company from the Employer.

Any Payment by the Company to the PRW shall be ‘on Account payment and no payment made by the Company, hereunder shall be deemed to constitute acceptance by the Company of the Works or any part thereof.

The Company reserves its right to withhold payments due to the PRW, if the PRW has failed to perform in accordance with this Work Order and/or has failed to remedy, rectify the defects, deficiencies to the satisfaction of the Company. The Final Payment shall be subject to the Taking over Certificate for the Works.

18. CLAIMS

Notice for Claims, if any, shall be submitted by the PRW within 14 (Fourteen) days of the date of occurrence of the event in accordance with Clause 3. All claims shall be substantiated with supporting documents along with the statement which shall state the amount due and payable to the PRW under this Work Order.

If the PRW does not submit its claim(s) for whatsoever reason within the above mentioned stipulated time as above, the same shall be deemed to be waived. Notwithstanding any other provision contained herein to the contrary or otherwise, no claims of the PRW shall be admitted (nor deemed to be payable) unless the Employer admits and pays the corresponding claims of the Company.

Notwithstanding any other provision contained herein to the contrary or otherwise, the PRW shall not be paid any idling charges whatsoever under whatever nomenclature called.

Should the Client cancel the Company’s Contract in whole or in part for any reason whatsoever, the Company shall have the right likewise to cancel this Work Order and shall only pay the PRW for the actual work done up to the date of cancellation and no compensation whatsoever shall be payable to the PRW in respect of the cancelled portion of this Work Order.”

# 13. A plain reading of the Clause 17 clearly shows that in terms of Clause 17 of the Agreement, payment was to be made to the Operational Creditor only after corresponding payment was received by the Corporate Debtor from HG Infra. There is nothing shown by the Operational Creditor to substantiate that payments had been received by the Corporate Debtor and had therefore become due for payment to them. Further, the Operational Creditor was required to raise a notice for claims within 14 days of the date of occurrence of event and since no such notice had been raised, it is clear that no payment was claimed by the Operational Creditor in terms of Clause 18 of the Agreement. Further the final payment to the Operational Creditor was subject to a “Taking Over Certificate” for the work which certificate is also not placed on record. We are also inclined to agree with the Corporate Debtor that TDS deduction does not imply acknowledgment of any liability as outstanding qua the Operational Creditor. We therefore hold that the Adjudicating Authority committed no error in relying on these clauses of the Work Order Agreement to come to the conclusion that the Operational Creditor has failed to establish default on part of the Corporate Debtor in payment of the operational debt.

# 14. This now brings us to the issue of the pre-existing disputes which has been pressed hard by the Learned Counsel for the Corporate Debtor in the context of debit notes issued by them. It was submitted that these debit notes had been duly communicated to the Operational Creditor through WhatsApp message on 20.07.2020 which was prior to issue of demand notice under Section 8. Explaining the genesis of these debit notes it was submitted that the payment from the Agra Development Authority to the main contractor, HG Infra was withheld on account of quality dispute, which dispute had been referred to a sole arbitrator against which an award had been obtained on 09.11.2019 which is under challenge and pending before the Hon’ble Delhi High Court. The quality dispute had arisen, according to the Corporate Debtor because of the poor services rendered by the Operational Creditor in respect of the same work.

# 15. It has however been countered by the Learned Counsel for the Appellant that no debit note was ever issued by the Corporate Debtor and that these debit notes were never placed on record. It was clarified that only a WhatsApp communication was sent by the Corporate Debtor in respect of the debit notes. Hence, in the absence of placing on record debit notes issued in compliance of law, the contention of the Corporate Debtor that there was a pre-existing dispute does not stand to reason. It is also been contended that no correspondence/material has been placed on record which shows that the Corporate Debtor had invoked Clause 17 of the work order agreement to deny payment to the Operational Creditor on account of quality of work. It has also been pointed out by the Appellant that the pendency of arbitration proceedings was between the Agra Development Authority and the HG Infra. It does not establish that the pending litigation had any direct correlation with the quality of work done by the Operational Creditor. Further at no point of time, either prior to or after the issue of demand notice, the Corporate Debtor had ever informed the Operational Creditor about the pendency of such litigation or the quality of work done by them. In support of their contention, reliance has been placed on the decision of this Tribunal in the matter of Aroon Kumar Aggarwal v. M/s ABC Consultants Pvt. Ltd. in CA (AT) (Ins.) No.409 of 2020 wherein it has been held that when the plea of pre-existing dispute is raised in the background of a pending suit or arbitration proceeding, the same should be related to the dispute.

# 16. On perusal of records, we find that the WhatsApp message of 20.07.2020 relating to debit notes from the Corporate Debtor to the Operational Creditor has been placed at page 133 of APB. That this message was received by them from the Corporate Debtor has not been controverted by the Operational Creditor. Further at page 134 of APB, we find that the Operational Creditor has sent a response to the above WhatsApp message holding the debit note to be false and even threatened the Corporate Debtor of legal action. This shows that they were aware of debit notes before the issue of the Section 8 demand notice. Under such circumstances, the Adjudicating Authority committed no error in concluding that the debit notes issued on grounds of defect in quality of services testifies the existence of a dispute. We must add here that reliance placed by the Learned Counsel for the Appellant on the judgment of this Tribunal in KB Polychem (India) Ltd. v. Rapt Industries Pvt. Ltd. in CA (AT) (Ins.) No. 396 of 2020 to show that debit notes sent by emails are not in order is misplaced since in that case the emails containing the debit notes were internal emails of the Corporate Debtor which were not sent to the Operational Creditor thereby making the facts in that case distinguishable from the present.

# 17. It is relevant at this juncture to refer to the guiding principles laid down by the Hon’ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) 1 SCC 353 (hereinafter referred to as ‘Mobilox’). Para 56 of the Mobilox judgment which is extracted as hereunder reads as follows:

• “56. Going by the aforesaid test of “existence of a dispute”, it is clear that without going into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability.”

# 18. On going through the submissions made by the parties and keeping in mind the provisions of law laid down in the IBC and the Mobilox judgment cited supra, it is amply clear that there exists a pre-existing dispute with respect to the quality of services provided by the Operational Creditor to the Corporate Debtor. Present is a case where it cannot be said that defence taken by the Corporate Debtor in their reply affidavit is a moonshine defence unsupported by any evidence. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor. Where operational creditor seeks to initiate insolvency process against a Corporate Debtor, it can only be done in clear cases where no real dispute exists between the two which is not so borne out given the facts of the present case. It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt.

# 19. Given this backdrop, we have no reasons to disagree with the findings of the Adjudicating Authority. Considering the overall facts and circumstance of the present case, and in view of the foregoing discussion, we are satisfied that the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant on the ground of pre-existing dispute. There is no merit in the Appeal. Appeal is dismissed. We however make it clear that it will remain open to the Appellant to resort to other remedies that may be available to it under any other law. No order as to costs.

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IDBI Bank Limited, & Ors. Vs. Mr. Sumit Binani, Resolution Professional - To conclude therefore, u/s 25(1), the Resolution Professional can reject the CoC’s proposal for renewal of Bank Guarantees provided by the Corporate Debtor prior to the initiation of CIRP proceedings, as renewing these do not in any way protect and preserve the assets of the Corporate Debtor or support its operations as a going concern.

 NCLT Hyderabad (04.09.2023) in  IDBI Bank Limited, & Ors.  Vs. Mr. Sumit Binani, Resolution Professional  [IA No.1471 of 2022 in CP(IB) No.492/7/HDB/2019 ] held that;

• Moreover, the 'commercial wisdom' of the CoC concerning the Corporate Debtor's welfare is not discernible in this context, as the extension or renewal of Bank Guarantees does not inherently contribute to the ongoing operations of the Corporate Debtor.

• At most, this scenario could affect the Customs Department's capacity to enforce their claim against the Corporate Debtor, potentially requiring them to pursue their claim through the CIRP process, which they have already undertaken.

• To conclude therefore, u/s 25(1), the Resolution Professional can reject the CoC’s proposal for renewal of Bank Guarantees provided by the Corporate Debtor prior to the initiation of CIRP proceedings, as renewing these do not in any way protect and preserve the assets of the Corporate Debtor or support its operations as a going concern. 

Excerpts of the order;

# 1. The central issue raised in this Interlocutory Application (IA) revolves around whether the Respondent Resolution Professional (RP) has the authority to reject the CoC's proposal for the renewal of Bank Guarantees, which were initially provided by KSK Mahanadi Power Company Ltd (KMPCL) to the Customs Department prior to the commencement of insolvency proceedings. This determination hinges on the significance of these Bank Guarantees in protecting & preserving the value of the property of the Corporate Debtor and in managing its operations as a going concern. 

# 2. It is noted that the CIRP (Corporate Insolvency Resolution Process) has been halted by an order from this Adjudicating Authority (AA) on June 7, 2022, in IA 374 & 403/2022. 

Facts of the Case: 

# 3. KMPCL, an electricity generation company, had envisaged to install six operational units within its power plant. To realize this, it entered into an Engineering, Procurement, and Construction (EPC) contract with SEPCO a Chinese corporation. The construction of these units necessitated import of various goods from China by SEPCO to be utilized in constructing the different power plant units operated by KMPCL. 

# 4. By the time of the Insolvency Commencement Date, three out of the six units (Units 2, 3, and 4) had been commissioned, while the other three (Units 1, 5, and 6) were yet to become operational. Among the operational units, only Units 3 and 4 achieved the Mega Power Plant (‘MPP’) status, with Unit 2 attaining partial MPP status. This MPP status was crucial for custom duty exemption. 

# 5. Given that not all units reached MPP status, KMPCL submitted Bank Guarantees totaling around Rs 680 crores (approximately) to the Customs Department to cover potential customs duty payments. Specifically, the Bank Guarantees given to the Customs, pertained to the certain goods imported (by SEPCO) for the purpose of construction and operationalization of Unit 5. These goods lying at the Paradip Port in Odisha could not be evacuated due to the commencement of insolvency proceedings against KMPCL. 

# 6. The Bank Guarantees were periodically renewed prior to the Insolvency Commencement Date; however, most have now expired, with only a few totaling around Rs 81 crores (approximately) still active. 

# 7. In the meantime, the Customs Department made an assessment of approximately Rs 719 crores without allowing exemptions for Units 2 and 5, which were incomplete and lacked MPP status. Despite communicating about the renewal of Bank Guarantees, the Customs Department has not enforced any of these Guarantees. 

# 8. The Applicants, who hold the position of financial creditors, have proposed to the Respondent RP that the Customs-related Bank Guarantees be extended, with the Applicants receiving a 1% commission for their role in arranging these Guarantees. Applicants’ Case: 

# 9. It is argued by the Applicants that the BGs provided by KMPCL to Customs “have always been either for maintaining the asset or for the value of addition asset” and that these “BGs have a prominent role in value maximization”. It is further claimed that, “the MPP status has its inherent value proposition for the CD and the non-award of MPP status tantamount to surrendering the duty benefit already claimed, which will add to cost of acquisition of asset itself without the underlying value proposition”, which it is claimed that it could “potentially effect economies of operation of the plant.” 

# 10. According to the Applicants, RP cannot challenge their “commercial wisdom” by denying to renew Customs-related Bank Guarantees. It is submitted that the Resolution Professional “has failed to look at the broader picture, which is the revival of Corporate Debtor and value maximization of the Corporate Debtor which would be only possible by extension of Bank Guarantee as the said extension would help and support the Corporate Debtor in obtaining MPP status.” The Applicants also state that as “KMPCL has availed benefit under custom duty, hence RP cannot deny payment of commission to custom BGs” and “cannot now turn back from keeping alive the said Bank Guarantee.” 

Respondent’s Case: 

# 11. It is the case of the Respondent RP that “the renewal of the Custom BGs is not essential/critical for ensuring the going concern nature of KMPCL”. It is argued that he as Resolution Professional “can determine if certain actions can lead to the detriment of KMPCL and accordingly decide on whether the going concern nature of KMPCL would be affected or not.” 

# 12. It is further submitted by the Respondent RP that in his assessment, “maintenance and renewal of the Customs BGs is not necessary for the operations of KMPCL and non-renewal would not affect its going concern status” and that “his decision to not renew the Customs BGs is only to protect KMPCL from any additional liability” as payment of commission on these Bank Guarantees would add to CIRP costs. 

Decision on the Application: 

13. First of all, it is essential to recognize that a Bank Guarantee inherently serves as a mechanism to protect the interests of its recipient. The party providing the Guarantee assures the recipient of their financial stability and credibility. From the standpoint of banks or financial institutions issuing the guarantee, their primary interest lies in earning a commission for this service. If, for any reason, the Guarantee is invoked by the recipient, the banks or financial institutions pass on the resulting debt to the Guarantee provider. 

# 14. In the present case, it is evident that the Applicants' primary concern is not centered around safeguarding the Corporate Debtor's property value, but rather revolves around the commission they would lose if the Bank Guarantees are not renewed or extended. Moreover, the 'commercial wisdom' of the CoC concerning the Corporate Debtor's welfare is not discernible in this context, as the extension or renewal of Bank Guarantees does not inherently contribute to the ongoing operations of the Corporate Debtor. 

# 15. The Applicants have failed to present any evidence indicating that discontinuing the Bank Guarantees would impede the Corporate Debtor's ability to continue functioning. At most, this scenario could affect the Customs Department's capacity to enforce their claim against the Corporate Debtor, potentially requiring them to pursue their claim through the CIRP process, which they have already undertaken. 

# 16. To conclude therefore, u/s 25(1), the Resolution Professional can reject the CoC’s proposal for renewal of Bank Guarantees provided by the Corporate Debtor prior to the initiation of CIRP proceedings, as renewing these do not in any way protect and preserve the assets of the Corporate Debtor or support its operations as a going concern. 

17. The prayers in the application are therefore denied and the application dismissed. 

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NCLAT (2023.12.21) in  IDBI Bank Limited & Ors.  Vs. Mr. Sumit Binani, Resolution Professional (Company AppealL (AT) (CH) (INS.) No. 385 / 2023) held that; 

Excerpts of the Order;

# 1. Aggrieved by the Impugned Order dated 23.08.2023, passed in I.A. No. 1471/2022 in CP (IB) No. 492/7/HDB/2019, the Appellant Banks preferred this Appeal, by which Impugned Order, the Adjudicating Authority has, while dismissing the Application, observed as follows: Decision on the Application: First of all, it is essential to recognize that a Bank Guarantee inherently serves as a mechanism to protect the interests of its recipient. The party providing the Guarantee assures the recipient of their financial stability and credibility. From the standpoint of banks or financial institutions issuing the guarantee, their primary interest lies in earning a commission for this service. If, for any reason, the Guarantee is invoked by the recipient, the banks or financial institutions pass on the resulting debt to the Guarantee provider. In the present case, it is evident that the Applicants' primary concern is not centered around safeguarding the Corporate Debtor's property value, but rather revolves around the commission they would lose if the Bank Guarantees are not renewed or extended. Moreover, the 'commercial wisdom' of the CoC concerning the Corporate Debtor's welfare is not discernible in this context, as the extension or renewal of Bank Guarantees does not inherently contribute to the ongoing operations of the Corporate Debtor. The Applicants have failed to present any evidence indicating that discontinuing the Bank Guarantees would impede the Corporate Debtor's ability to continue functioning. At most, this scenario could affect the Customs Department's capacity to enforce their claim against the Corporate Debtor, potentially requiring them to pursue their claim through the CIRP process, which they have already undertaken. To conclude therefore, u/s 25(1), the Resolution Professional can reject the CoC's proposal for renewal of Bank Guarantees provided by the Corporate Debtor prior to the initiation of CIRP proceedings, as renewing these do not in any way protect and preserve the assets of the Corporate Debtor or support its operations as a going concern. 

# 2. Learned Senior Counsel Mr. P.L. Narayanan appearing for the Appellants submitted that the First Appellant, IDBI Bank, representing the other banks submits that the renewal of the Bank Guarantees is essential to avoid invocation of liability and would also be useful for the Resolution Applicants who acquire the Corporate Debtor as a ‘Going Concern’ together with all the rights, and after obtaining MPP status, they would get total exemption from payment of Customs Duty, thereby, improving the turnaround chances of the Corporate Debtor Company (KMPCL). Therefore, appropriate directions for renewal of Bank Guarantees are required to be issued to the Resolution Professional to safeguard the interests of the Stakeholders as well as the Corporate Debtor. The commission payable to the Banks for renewal of the Bank Guarantees would fall under the CIRP Costs to be borne by the prospective Resolution Applicants and there would be no prejudice caused to any Party. It is submitted that at the time of CIRP, three out of the six units had been commissioned while the other three were yet to be operational. Amongst the Operational Units, two units achieved the Mega Power Plant (hereinafter referred to as ‘MPP’) status, with two units attaining partial MPP status. This MPP status is crucial for eligibility of clearing Custom Duty Exemption. It was proposed that the Bank Guarantees can be renewed at a commission of 1% to be paid at the time of the renewal of the Bank Guarantee from the cash flows of the Corporate Debtor and the difference commission amount be treated as the part of the CIRP cost. 

# 3. It is submitted by the Counsel for the Appellant that the moratorium imposed under Section 14 of the Code does not come in the way of invocation of the Bank Guarantees. The Members of the CoC in their commercial wisdom proposed renewal of the Bank Guarantees in favour of the Customs Department, but the RP did not take this into consideration. It is contended that the RP is duty bound to make every endeavour to protect and preserve the value of the property of the Corporate Debtor as a ‘Going Concern’ and this aspect was ignored by the RP. 

# 4. It is submitted that balancing the two components by a fine scale viz whether it is advantage to the Corporate Debtor to have the Bank Guarantee renewed and continued, as opposed to discontinuing the Bank Guarantees which will nullify not only the current Custom duty exemption but also pull back the earlier custom duty exemption resulting in enormous loss to the Corporate Debtor, the scales will tilt in favour of continuing the Bank Guarantees so as to avoid the imposition of penalty and withdrawal of custom duty exemption. It is further submitted that the Respondent failed to consider the fact that the present custom Bank Guarantee liability (- Rs.6,00,00,00,000) for KSK Mahanadi Power Company Ltd., is contingent liability, in case these custom Bank Guarantee are not renewed by lenders, the Custom Department may invoke these Bank Guarantee's, which will convert to Fund Based liability for the lenders and Corporate Debtor's liability will increase to that extent and will affect the Corporate Debtor as a going concern and as well as for obtaining MPP status. 

# 5. Learned Counsel appearing for the Respondent / RP of the Corporate Debtor Company submitted that since only partial MPP status was achieved with respect to Unit Nos. 2 and 5, KMPCL sought for exemption of customs duty for the goods imported with respect to Unit Nos. 2 and 5. This was rejected by the Deputy Commissioner, Paradip Customs Division and an assessment order was passed, making KMPCL liable to pay an amount of INR 7,19,98,660/-. In this regard, the Deputy Commissioner, Paradip Customs Division filed a claim on 04.11.2019 with the IRP/RP of KMPCL. On 14.10.2020, in the Minutes of the Meetings of the CoC of KMPCL, wherein the issue regarding whether the Customs Bank Guarantees should be renewed or not, was discussed and in the CoC meeting held on 19.09.2022, the Respondent reiterated that the issue of renewal of the customs Bank Guarantees was discussed at length in previous CoC meetings and the Respondent had concluded that it is the discretion of the Appellant Banks to renew the customs Bank Guarantees from their end. However, it was stated that KMPCL will not be obligated to pay any commission on such Bank Guarantees due for renewal as per the request received from the Customs Department, as nonrenewal of these Bank Guarantees will not affect the ‘Going Concern’ nature of KMPCL. 

# 6. It is strenuously argued by the Learned Counsel for the Respondent that the Second unit is fully commissioned but is not eligible for complete MPP status as per the guidelines of the Ministry of Power. Unit 5 is not operational and the goods pertaining to Unit 5 are still lying with Paradip Port Authority for the last 6 years since 2017. Unit No. 5 received only partial MPP status and cannot be changed to confirm the MPP status during the CIRP of KMPCL in view of the present circumstances. It is also submitted that as the Customs Department has filed a claim before the RP with respect to financial liability on Customs Duty incurred by KMPCL. The CoC has discussed all the details and only subsequent to these meetings, the RP informed the Appellants that the renewal of the Customs Bank Guarantee will not affect the ‘Going Concern’ status of KMPCL. 

# 7. Assessment: The brief point which falls for consideration in this Appeal is whether the Adjudicating Authority was justified in concluding that the Customs Bank Guarantees are not essential for the ‘Going Concern’ nature of the Corporate Debtor Company. 

# 8. It is an admitted fact that the requirement of MPP status for the Operational Units of KMPCL was only for the purpose of seeking exemptions on paying of the Customs Duty, on importation of any goods with respect to the Company. Prior to CIRP, initiated on 03.10.2019, KMPCL imported goods from China for utilising in the construction of KMPCL’s Power Plant. The Customs Bank Guarantees were issued by the Appellants prior to the CIRP initiation of KMPCL, with a condition that the said Bank Guarantee shall be kept alive until Unit Nos. 2 & 5 achieve confirmed MPP status. Upon expiry of the Customs Bank Guarantees, the Appellants requested for renewal of the same pending the grant of MPP status of Unit Nos. 2 & 5. For ready reference, the MPP status of the subject units are detailed as hereunder: 

Unit No.	Status of operationalisation	Whether MPP status has been granted
1.	Not operational	Partial MPP status
2.	Operational	Partial MPP status
3..	Operational	Confirmed MPP status
4.	Operational	Confirmed MPP status
5.	Not operational	Partial MPP status
6.	Not operational	Partial MPP status

# 9. From the aforenoted table, it is clear that Units 1, 2, 5 & 6 are only having partial MPP status. It is an admitted fact that the MPP status is important since it provides an exemption of Customs Duty. We find force in the contention of the Learned Counsel for the Respondent that since there are no goods being imported by KMPCL or its contractor, being SEPCO, from China during the CIRP of KMPCL, for the operationalisation of the units of KMPCL, there is no exemption which KMPCL can claim for customs duty liability and therefore, the Respondent has intimated the CoC that these renewals are not necessary for the ‘Going Concern’ nature of KMPCL. 

# 10. A perusal of the Minutes of the Meetings dated 14.10.2020, 22.10.2020 and 19.09.2022 of the CoC evidence that the Respondent had informed the Appellants that the renewal of the Customs Bank Guarantees would only increase the financial burden of KMPCL which would have to bear the commission charges and renewal charges which are exorbitant amounts. It is also significant to mention that the Deputy Commissioner, Paradip Customs Division filed a claim dated 04.11.2019 with the IRP / RP of KMPCL stating that an amount of Rs. 7,19,98,48,660.49/- was payable by KMPCL as per the assessment Order. 

# 11. Now we address to the role of the RP as per Sections 25(1), 20(1) read with Section 23(2) of the Code, whereby and whereunder the RP is duty bound to make every effort to preserve the assets and value of the property of the Corporate Debtor Company and manage it effectively as a ‘Going Concern’. Section 15(3) of the Code provides that any costs incurred by the RP in running the business of the Corporate Debtor as a ‘Going Concern’ forms part of the CIRP costs. We are of the considered view that when there is no guarantee with respect to the MPP status of the Non-Operational Units and since there are no goods being imported by the Corporate Debtor Company as it is undergoing CIRP, there is no exemption which the Company can claim for Customs Duty liability and we are of the earnest view that the Corporate Debtor Company need not be burdened with the Commission and renewal charges approximately amounting to Rs. 70 Crores which would only increase the financial burden of the Corporate Debtor Company with no positive benefits accruing. Under Section 25(1), the RP is empowered to reject the CoC proposal for renewal of the Bank Guarantees provided by the Corporate Debtor Company, prior to the initiation of the CIRP as renewing those would not consequently lead to any advantage or any valuable gains. 

# 12. Therefore, for all the foregoing reasons and taking into consideration the facts and circumstances of the attendant case on hand, we do not see any substantial grounds to interfere with the well-considered order of the Adjudicating Authority. Hence, this Appeal is dismissed accordingly at the threshold. No Order as to costs. 

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