Power vested on RP u/s 25(1) of IBC to Reject CoC's Proposal for Renewal of Bank Guarantees by CD: NCLAT
Power vested on RP u/s 25(1) of IBC to Reject CoC's Proposal for Renewal of Bank Guarantees by CD:, rules NCLAT
Corporate Debtor – NCLAT – Renewal of Bank Guarantees – NCLAT Case Law – taxscan
Corporate Debtor – NCLAT – Renewal of Bank Guarantees – NCLAT Case Law – taxscan
The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) observed that power is vested on Resolution Professional under Section 25(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) to reject Committee of Creditors (CoC's) Proposal for Renewal of Bank Guarantees by Corporate Debtor.
The point which falls for consideration in the 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.
It was 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 was 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.
The counsel for the respondent 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.
A Two-Member Bench comprising [Justice Rakesh Kumar Jain, Member (Judicial) and Shreesha Merla, Member (Technical) observed that “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” the Bench noted.
To Read the full text of the Order CLICK HERE
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
