Petition U/S 7 Of IBC Not Maintainable For Non-Return Of Expired, Uninvoked Bank Guarantee Under Settlement Agreement: NCLT Mumbai
The National Company Law Tribunal (NCLT), Mumbai Bench of Shri Sushil Mahadeorao Kochey (Judicial Member) and Shri Charanjeet Singh Gulati (Technical Member) has held that failure to return one of the bank guarantees, as per the settlement terms agreed upon between the parties, cannot form the basis for filing a petition under Section 7 of the IBC when such guarantee was neither renewed...
The National Company Law Tribunal (NCLT), Mumbai Bench of Shri Sushil Mahadeorao Kochey (Judicial Member) and Shri Charanjeet Singh Gulati (Technical Member) has held that failure to return one of the bank guarantees, as per the settlement terms agreed upon between the parties, cannot form the basis for filing a petition under Section 7 of the IBC when such guarantee was neither renewed nor invoked before its expiry. In the present, the Respondent had paid the full payment as per the Settlement Agreement but failed to return one of the Bank Guarantees which expired without being invoked or renewed.
The present petition has been filed under section 7 of the Insolvency and Bankruptcy Code, 2016 to initiate Corporate Insolvency Resolution Process (CIRP) against the Gannon Dunkerley & Co. Ltd. for the alleged default of Rs. 43.26 crores.
The Petitioner submitted that the Respondent failed to comply with the conditions of the Settlement Agreement under which it had to return the Bank Guarantees and create a 100% cash margin. Upon this non-compliance, the OTS proposal was automatically withdrawn and the Respondent was informed of the same via letter dated 06.06.2025
Per contra, the Respondent submitted that the Respondent has made payment of the entire OTS amount of Rs. 22 Crores in accordance with the prescribed timelines. Respondent submits that, the continuance of the present petition is nothing but an abuse of the process by the Petitioner and it is barred by section 65 of the IBC.
It was further contended that no liability was fastened upon the petition and only pending step is to return the Original Bank Guarantee from the beneficiary i.e., the Project Director, Kolkata Environmental Improvement Investment Program, back to the Petitioner.
The Tribunal noted that although the original petition was filed under section 7 of the IBC for a default of Rs. 43.26 crores but the parties agreed to a one time settlement of Rs. 22 crores during the pendency of the said petition. The agreed amount under the OTS had to be paid within 90 days. This settlement effectively cured the default. The amount as per the OTS has been paid by the Respondent with the final installment made on 12.03.2025.
It further observed that additionally, one of the Bank Guarantees which had to be returned to the financial creditor was extended with the consent of the Financial Creditor and during this extended period, the Guarantee was neither invoked nor renewed after its expiry. Therefore, under such circumstances, no grievances can be raised with respect to the settlement terms on the part of the Financial Creditor.
It further observed that despite the full payment as per the OTS terms, the petition remained pending which should have been disposed of as there was no default on the part of the Respondent after the settlement agreement. As per OTS terms, one of the Bank Guarantees was returned to the Applicant and the second one expired without being renewed or invoked after its expiry. Had the original petition been disposed of after the OTS, the application to seek its revival based on the unrenewed or uninvoked guarantee would not have been maintainable.
It concluded that when no debt or default is established on the part of a company and when it is working as a going concern, dragging it into the rigor of the CIRP would be against the intent of the IBC. In the present case, the intent of the petition was not to seek resolution of the Corporate Debtor instead it wanted to drag the corporate debtor into insolvency on ground of non-returning of one of the Bank Guarantees which was never renewed or invoked.
Accordingly, the present petition was disposed of.
Case Title:Canara Bank Vs Gannon Dunkerley & Co. Ltd.
Case Number: RCP(IB)/26(MB)2024 (Old CP(IB)/615(MB)2021)
Judgment Date: 02/07/2025