Bank Cannot Retain Margin Money After Bank Guarantees Expire Without Invocation: NCLT Mumbai

The National Company Law Tribunal's Mumbai bench has observed that margin money deposited for Bank Guarantees can be retained by a bank only to the extent necessary for live guarantees and must be released where the guarantees have expired without invocation.

The ICICI Bank had retained Rs.1.32 crore deposited by the corporate debtor, DK Infrastructure Pvt Ltd as margin money though only two Bank Guarantees remained live.

A coram of Judicial Member Vinay Goel and Technical Member Charanjeet Singh Gulati directed ICICI Bank to remit Rs.1.22 crore after accounting for the margin required for the two live bank guarantees, to the account of the corporate debtor, DK Infrastructure Pvt. Ltd maintained by the Resolution Professional. The amount is to be deposited within 30 days of receipt of the order.

"Thus, the margin money can be retained by the Bank only to the extent necessary during the subsistence of the live Bank Guarantee and, upon expiry of the Bank Guarantee without invocation, the corresponding margin money is required to be released to the Corporate Debtor. . The Bank cannot exercise its lien over such amount except in respect of the live Bank Guarantees."

The application was filed by RP Jayanti Lal Jain after DK Infrastructure Pvt. Ltd. was admitted into CIRP on April 17, 2023. The company had availed Rs.26 crore working-capital facilities from ICICI Bank since 2009.

The RP said the Bank retained Rs.1.32 crore as margin money despite only two Bank Guarantees remaining live, while ICICI Bank contended that the margin money was outside the moratorium and could be adjusted towards its liabilities. The Bank also relied on a Rs.2.12 crore VAT Department lien over the account.

The Tribunal accepted the resolution's professional contentions.

It said that the margin money was deposited as a condition for sanctioning the Bank Guarantees and remained under lien while the guarantees were alive.

It further held that once the Bank Guarantees had lapsed, the Bank had no right to retain any such amount lying as margin money or to adjust the same towards any other liability and could exercise its lien only in respect of the live guarantees.

The Tribunal also noted that although the Bank was entitled to 35% margin as per banking requirements, the RP had permitted it to retain 100% margin for the live guarantees.

On the issue of the VAT Department's lien, the Tribunal said that it could file its claim before the RP but any attachment or enforcement against the Corporate Debtor's property during the moratorium would be barred by Section 14 of the Insolvency and Bankruptcy Code.

"In view of the above, this Adjudicating Authority is of the considered view that the VAT Department can exercise its rights in accordance with law by filing its claim before the Resolution Professional. However, any attachment or enforcement of such claim against the property of the Corporate Debtor during the subsistence of the moratorium would be hit by the provisions of Section 14 of the Insolvency and Bankruptcy Code, 2016, and we find no merit in the defence taken by the bank."

The application was accordingly allowed with ICICI Bank directed to remit the amount to the CIRP account within 30 days.

For the Applicant: Advocates Ayush Rajani a/w Anurag Mishra, Khushboo Rajani i/b AKR Legal

For Respondent: Advocate Aditi Biswas i/b Vidhii Partners