Case Law Details
IDBI Bank Limited Vs Sumit Binani (NCLAT Delhi)
Introduction: The National Company Law Appellate Tribunal (NCLAT) Delhi recently delivered a crucial judgment in the case of IDBI Bank Limited Vs. Sumit Binani. The focus of the case was the power vested in the Resolution Professional (RP) under Section 25(1) of the Insolvency and Bankruptcy Code (IBC) to reject the Committee of Creditors’ (CoC) proposal for the renewal of bank guarantees issued by the Corporate Debtor (CD).
Detailed Analysis: The central argument in this case revolves around the necessity of renewing bank guarantees and its impact on the ‘Going Concern’ status of the Corporate Debtor. The judgment emphasizes that the primary purpose of a bank guarantee is to protect the interests of the recipient. However, the Applicants, in this case, failed to demonstrate how the renewal of bank guarantees contributes to safeguarding the CD’s property value or supporting its ongoing operations.
The judgment delves into the commercial aspect, highlighting that the CoC’s proposal for renewal is more centered around the commission loss for the banks rather than ensuring the CD’s welfare. The RP, under Section 25(1) of the IBC, is deemed empowered to reject such proposals if they do not contribute to the CD’s asset protection or operational support.
The article further discusses the arguments presented by both parties, with the Appellants contending that bank guarantees’ renewal is essential to prevent liability invocation and improve the CD’s turnaround chances. On the other hand, the Respondent, representing the RP, stresses that such renewal would impose a significant financial burden on the CD with no tangible benefits.
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