Challenge against invoke and encashing Bank Guarantee during Period of moratorium u/s 14 of IBC: Chhattisgarh HC dismisses petition citing pending Arbitration Proceedings [Read Order]

The Chhattisgarh High Court dismissed the petition that challenged the invocation of encashing a Bank guarantee during the period of moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016. The dismissal was on finding pending active arbitration proceedings before the competent forum.

M/s Educomp Solutions Limited , the petitioner submits that the impugned email communication dated 11.07.2022, issued by Respondent No. 2, SBI , whereby Respondent No. 1 has sought to invoke and encash the Bank Guarantee bearing reference

No.5079411BG0002240 dated 15.07.2011 for an amount of ₹3,03,60,030/-, is wholly illegal, arbitrary, malafide and without jurisdiction.

It is submitted that the validity of the said Bank Guarantee had expired on 15.11.2016 and, in terms of its express stipulations, any claim arising thereunder could have been made only up to 15.12.2016. Therefore, the invocation made nearly six years later is not only barred by limitation but is also in contravention of the terms of the Bank Guarantee itself. It is further submitted that the Petitioner has been undergoing Corporate Insolvency Resolution Process (‘CIRP’) pursuant to an order dated 30.05.2017 passed by the National Company Law Tribunal (‘NCLT’), Principal Bench.

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As a consequence of the said order, a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) has been imposed, which prohibits the institution or continuation of any proceedings or enforcement actions against the corporate debtor during the subsistence of the CIRP.

Counsel submitted that the act of Respondent No. 1 in attempting to invoke and encash the Bank Guarantee during the period of moratorium is in blatant violation of Section 14 of the IBC, which has overriding effect under Section 238 of the said Code. Such an attempt is legally untenable and amounts to an abuse of process of law.

It is also submitted that the action of the Respondents is tainted with malafides and is an attempt to unjustly enrich themselves at the cost of the corporate debtor in defiance of legal provisions and contractual limitations. In light of the above, the counsel prayed that the impugned communication dated 11.07.2022 be quashed and the Respondents be restrained from taking any coercive steps for invocation or encashment of the said Bank Guarantee.

On the other hand, State counsel opposed the submission and submitted that the Co-ordinate Bench while disposing of the arbitration appeal, was pleased to grant liberty to the appellant to seek appointment of an arbitrator afresh de novo, as permissible under the governing statutory provisions.

Pursuant to the liberty so granted vide order dated 05.03.2025, fresh arbitration proceedings have already been initiated before the learned Sole Arbitrator. It is further submitted that the dispute forming the subject matter of the present writ petition is also under active adjudication in the said Arbitral proceedings between the same parties.

It has been contended that in light of the aforesaid developments, particularly, the fact that fresh arbitration proceedings are already underway and pending consideration before the learned Arbitrator, no cause of action now survives for adjudication in the present writ petition. Accordingly, it is submitted that the present petition has been rendered infructuous and may kindly be dismissed as such.

A division bench of Shri Ramesh Sinha, Chief Justice and Justice Shri Bibhu Datta Guru observed that taking into consideration the fact that fresh arbitration proceedings have already been initiated in pursuance to the order dated 05.03.2025 passed by the Co-ordinate Bench of this Court in ARBA No.67/2021 and the said arbitration proceedings are currently pending and are under active consideration before the competent Arbitral forum, no fruitful purpose would be served in continuing with the present petition. The court dismsised the petition.

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