Bikki Raveendra Babu, Member - (1.) This Application is filed by Insolvency Resolution Professional against Madhya Gujarat Vij Company Limited, UCO Bank and Indian Overseas Bank praying for the relief to stay the coercive actions, namely invoking the Guarantees, terminating the contract and issuing notices to 'Stop Deal' to the Corporate Debtor, M/s. Diamond Power Transformers Limited and thereby blacklisting the Company till the moratorium period is in operation, and further to direct the Madhya Gujarat Vid Company Limited to restart power supply to the Company.
(2.) The facts, that are necessary for disposal of this Application, are as follows; 2.1. M/s. M/s. Diamond Power Transformers Limited [hereinafter referred to as the "Corporate Debtor"], through its Director, triggered Corporate Insolvency Resolution Process under Section 10 of the Insolvency and Bankruptcy Code, 2016 ["Code" for short]. This Adjudicating Authority by order dated 6th June, 2017 made in CP (IB) No. 28 of 2017 admitted the Petition filed by the Corporate Applicant and imposed moratorium under Section 14 of the Code. This Adjudicating Authority had appointed Mr. Arvind Gaudana as Interim Insolvency Resolution Professional. Thereafter, Mr. Nitin H. Parikh was appointed as 'Resolution Professional' for the purpose of conducting Corporate Insolvency Resolution Process in respect of the Corporate Debtor Company. 2.2. It is stated in this Application that Madhya Gujarat Vij Company Limited [hereinafter referred to as "MGVCL"] is the customer of the Corporate Debtor since last 8 to 10 years. MGVCL used to purchase various types of transformers from the Corporate Debtor. 2.3. The transaction in this Application relates to Eight Acceptance of Tenders (ATs) issued between the years 2011 to 2014 for purchase of various types of Transformers. 2.4. As per the terms and conditions of the Acceptance of Tenders, Corporate Debtor was required to give Bank Guarantees towards Security Deposit and Performance Guarantee. The period allowed for supply is also stated in Acceptance of Tenders. MGVCL filed Special Civil Application No. 14185 of 2017 seeking prayer against UCO Bank for directions to permit to invoke Performance Guarantee. 2.5. It is stated in the Application, that UCO Bank and IOB have not paid the guarantee amount and sought clarification from the Resolution Professional regarding encashment of Bank Guarantee mainly on the ground of moratorium order passed by this Adjudicating Authority under Section 14 of the Code.
(3.) Section 3, sub-section (31) of the Code defines "Security Interest" as follows; (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: 4 Provided that security interest shall not include a performance guarantee;" In the above Section, It is clearly laid down that 'Security Interest' shall not include 'Performance Guarantee'. 3.1. It is stated by the Applicant that Performance Guarantees are excluded from the purview of Section 14 of the Code. There are 8 Bank Guarantees, out of them two are given towards Security Deposit of Rs. 95 Lakhs and the remaining Bank Guarantees of Rs. 64 Lakhs are towards Performance Guarantees. 3.2. It is stated by the Applicant that in view of the moratorium granted by this Authority, Security Guarantees cannot be encashed. 3.3. Coming to Performance Guarantee, it is stated by the Applicant that the question of invoking Performance Bank Guarantees comes only when the Transformer supplied to the MGVCL is not functioning at the site and when the Corporate Debtor refuses to repair it. It is stated that MGVCL used to send the transformers from time to time for repair and the Corporate Debtor used to send back after repair. A total of 33 transformers were sent for repairs and out of it 7 transformers have been repaired and the rest could not be despatched because the final testing was yet to be performed. 3.4. In the month of June 2017, MGVCL has taken a drastic decision for discontinuing power supply to the Company and on account of the same Corporate Debtor could not repair the remaining transformers even though they are willing to repair the transformers. The Company also wrote a letter on 27th July, 2017 indicating its willingness to repair the transformers by 27th August, 2017. The Company could not honour the commitment because of discontinuation of power supply from 28th July, 2017. Out of 6 ATs, in case of 4 ATs not a single transformer is given by MGVCL to the Corporate Debtor for repair and therefore all the 4 Performance Guarantees are required to be kept alive and cannot be encashed or invoked. In case of remaining 2 ATs, 3 3 transformers were given for repairs which the Company could not repair because of the reasons stated above. The Applicant denied the allegation that Company failed to supply 799 transformers. It is the case of Applicant that Company supplied 4298 transformers. On 5.8.2017 MGVCL informed the Corporate Debtor stating that against the outstanding dues of the Corporate Debtor for Rs. 1,16,82,235/-, MGVCL has adjusted an amount of Rs. 71,40,434.40 ps. On 4.7.2017, MGVCL addressed letters to UCO Bank and IOB seeking encashment of Bank Guarantee towards Security Deposit/Performance Guarantees issued by Corporate Debtor. The UCO Bank addressed a letter dated 20th June, 2017 to Interim Resolution Professional regarding encashment of Bank Guarantee. MGVCL by letter dated 5.8.2017 informed the Corporate Debtor to Stop Deal all kinds of business with the Corporate Debtor, to recover from the Corporate Debtor the total amount due totalling Rs. 1,16,82,235/-, to encash and forfeit the Bank Guarantees against Security Deposit and Performance Guarantees. In view of the proposed action of the MGVCL the possibility of obtaining a Resolution Plan and placing it before the Committee of Creditors gets nullified.;