NCLAT decides on the invocation of a Bank Guarantee during the Moratorium Period

In the recent case of IDBI Bank vs. Indian Oil Corporation Limited, the Hon’ble National Company Law Appellate Tribunal (NCLAT) decided on the issue of whether bank guarantees (BG) may be invoked during a moratorium.

In the said case, IDBI had approached the Hon’ble NCLAT after being aggrieved by the decision of the subordinate Tribunal, wherein the latter had dismissed the application filed by the Resolution Professional of Punj Lloyd seeking a restraint on the encashment of the bank guarantees issued by the Petitioner and Central Bank of India. It was alleged by the Petitioner that there being a difference between BGs and performance guarantees, the former cannot be invoked during the moratorium. It was also alleged that the advance on the bank guarantee was misused by IOCL.

However, the NCLAT, after examining the various judgments on the issue, as well as the Report of the Insolvency Law Committee held that “an irrevocable, unconditional bank guarantee can be invoked even during the moratorium period in view of the amended provision of Section 14 (3) (b) of the Insolvency & Bankruptcy Code, 2016.

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