Indian Overseas Bank Vs. Arvind Kumar RP - Liquidator Ms - Richa industries NCLAT New Delhi

Indian Overseas Bank Vs. Arvind Kumar RP - Liquidator Ms - Richa industries NCLAT New Delhi

Indian Overseas Bank Vs. Arvind Kumar RP | Liquidator Ms | Richa industries NCLAT New Delhi

“The Corporate Debtor had no right to claim the margin money after the invocation of Bank Guarantee during the Moratorium under Section 14 of IBC”


The Appellant is one of the Financial Creditors of the CD from whom the CD had availed various loans including an irrevocable Bank Guarantee. The CD deposited margin money of Rs.40,50,000/- in the form of FDR to secure the said Bank Guarantee. The Bank Guarantee in question was issued in favor of M/s Tata Steel Processing & Distribution Limited. 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 and the Bank Guarantee was invoked Moratorium declared under Section 14 of the IBC. During the CIRP, the Respondent demanded the aforementioned margin money from the Bank and the Appellant Bank adjusted the margin money.

Then an application was filed by the Resolution Professional seeking direction against the Appellant Bank to release all funds of the CD which were retained by the Appellant bank in violation of the IBC. National Company Law Tribunal, Chandigarh (NCLT) passed the impugned order ordering the Appellant Bank to release the margin money amount. The appellant then filed the instant appeal.

Court held: 

Section 14(1)(c) read with 3(31) clearly specifies that “security interest” does not include ‘performance bank guarantee’, reading the decision in Gail (India) Limited Vs. Rajeev Manaadiar & Others [2018] of NCLAT along for the purpose of Moratorium. NCLAT held that invocation of the guarantee during moratorium under Sec. 14 could not be stopped by the Bank. The Performance Bank Guarantee is not covered by Section 14 of the Code.

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. 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.-


1(2020) 285 NCLAT


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