national company law appellate tribunal

National Company Law Appellate Tribunal: A Division bench comprising of M. Venugopal, J., and Dr. Alok Srivastava* (Technical Member), dismissed the appeal and affirmed the authority of customs authorities to invoke Bank Guarantees during the moratorium period under IBC. The NCLAT held that the invocation of Bank Guarantees during the moratorium was deemed permissible under Section 14(3)(b) of the Insolvency and Bankruptcy Code, 2016 (IBC), and the return of FDRs was not granted based on the lack of explicit order in the impugned order.

Factual Matrix

In the instant matter, the Corporate Debtor (Lance Vidarbha Thermal Power Limited) was setting up a power project in Maharashtra and had imported materials from China for the project, including equipment such as Boiler, Turbine, Generator. The Corporate Debtor was accorded Provisional Mega Power Project status and allowed to import equipment at zero import duty. Security was required in the form of Fixed Deposit Receipts (FDR) and Bank Guarantees equal to the customs/excise duty payable. The Bank Guarantees and FDRs were issued to customs authorities to secure the payment of customs duties. Some materials were also released from Customs Private Bonded Warehouse using Bank Guarantees .

The customs authorities filed claims for unpaid duties and Liquidation proceedings were initiated, and the appellant (Liquidator of Lance Vidarbha Thermal Power Limited) sought the return of Bank Guarantees and FDRs. The Adjudicating Authority, vide order dated 15-06-2023, allowed the sale of materials in the Customs Private Bonded Warehouse but did not address the return of Bank Guarantees and FDRs. The appellant preferred an appeal under Section 61 of the IBC against the impugned order.

Moot Point

  1. Whether Bank Guarantees and FDRs provided by the Corporate Debtor to secure customs duties should be returned to the appellant?

  2. Whether Bank Guarantees and FDRs can be invoked by customs authorities during the moratorium period under IBC?

Parties' Contentions

The appellant contended that the objective of IBC is value maximization for the Corporate Debtor’s stakeholders, and returning Bank Guarantees and FDRs would contribute to this by aiding in paying off debts. It was contended that claims by customs authorities should be considered in the liquidation process.

The appellant referred to the amendment in Section 14(3)(b) of IBC, which exempts Bank Guarantees from the moratorium. It was further contended that the Corporate Debtor provided FDRs and Bank Guarantees as assets, and these should be returned for distribution among creditors.

Court's Observation

The NCLAT noted the applicability of section 14(3)(b) of IBC that allows for BG invocation during the moratorium period. The NCLAT referred to State Bank of India v. V. Ramakrishnan, (2018) 17 SCC 394, which clarified that Bank Guarantees issued by sureties are separate assets from those of the corporate debtor and can be invoked during moratorium.

The NCLAT distinguished the ABG Shipyard v. Central Board of Indirect Taxes and Customs, (2023) 1 SCC 472, stating that it pertains to customs claims, whereas in this case, the issue is about BG and FDR invocation. The NCLAT rejected the appellant's argument for the return of FDRs, as the impugned order did not explicitly order the return of FDRs, implying that the appellant's prayer regarding FDRs was not acceded to.

NCLAT's Verdict

The NCLAT dismissed the present appeal and upheld the impugned order and held that the invocation of Bank Guarantees and FDRs is allowed during moratorium as per the amended Section 14(3)(b) of the IBC. The NCLAT also noted that FDRs should not be returned as per the impugned order.

[Vijay Kumar Garg v. Deputy Commissioner of Customs, 2023 SCC OnLine NCLAT 490, order dated 18-08-2023]

*Judgment by Dr. Alok Srivastava (Technical Member)

Advocates who appeared in this case :

Mr. A. Abdul Hameed, Sr. Advocate Ms. Anbarasi Rajendran, Counsel for the Appellant

Mr. Chiranjeet Singh, (Party-in-Person), Counsel for the Respondent No. 3

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