The High Court of Karnataka dismissed an appeal against the rejection of a plaint seeking damages for illegal invocation of a bank guarantee. The Court held that the moratorium under the Insolvency and Bankruptcy Code does not apply to actions against a surety in a contract of guarantee.
The appeal was dismissed with no order as to costs.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 25TH DAY OF JANUARY, 2022
PRESENT
THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR
AND
THE HON’BLE MR. JUSTICE RAJENDRA BADAMIKAR
COMAP NO.254 OF 2021
BETWEEN :
MR. HARRY INDER DHAUL S/O LATE MAJOR INDER MOHAN DHAUL (RETD.) AGED ABOUT 66 YEARS RESIDENT OF NO.22, RAKHI MAHAL DINSHWA WACHA ROAD MUMBAI-400 020 …APPELLANT
(BY SHRI. SAJJAN POOVAYYA, SENIOR ADVOCATE OFR SHRI. C. MOHANA, ADVOCATE)
AND :
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(BY SHRI. B.N. HARISH FOR SMT. POORNIMA HATTI, ADVOCATES FO R1)
THIS APPEAL IS FILED U/S 13(1A) OF THE COMMERCIAL COURTS ACT, 2015 READ WITH ORDER 41 AND SECTION 96 OF THE CPC PRAYING TO I) CALL FOR RECORDS ON THE FILE OF LXXXV ADDITIONAL CITY CIVIL AND SESSIONS JUDGE (COMMERCIAL COURT, CCH-86) AT BEGALURU IN COM.O.S. NO.421/2021 II) REJECT THE INTERLOCUTORY APPLICATION (I.A. NO.4) FILED BY THE DEFENDANT NO.1/RESPONDENT NO.1 UNDER ORDER 7 RULE 11 READ WITH SECTION 151 OF CPC SEEKING FOR REJECTION OF PLAINT AS PER ANNEXURE-D IN COM.O.S. NO.421/2021 BY ALLOW THE INSTANT APPEAL.
THIS APPEAL COMING ON FOR ADMISSION THIS DAY, P.S. DINESH KUMAR J , DELIVERED THE FOLLOWING:-
JUDGMENT
Appellant has challenged Judgment and Decree dated October 18, 2021 in Company O.S. No.421/2021, rejecting the plaint with costs.
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1 First respondent
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61,26,62,262/towards supply of electricity payable at contractual rates at 4.85 ps. per unit and charges towards withdrawal at `12.82 ps. per unit. BESCOM did not honour the Invoices. Global Energy had given Bank Guarantees and BESCOM illegally invoked the Bank Guarantees and the Bank has made the payment. Insolvency proceedings are pending against Global Energy and the same was brought to the notice of the Bank vide letter dated March 30, 2021. Even then, the Bank has made the payment. The illegal and5
arbitrary actions on the part of BESCOM and the Bank has caused adverse effects on plaintiff's credit rating and also that of the third defendant. As a consequence, plaintiff is likely to face severe legal challenges giving raise to civil and commercial liabilities which will affect his reputation and goodwill.
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Plaintiff had no cause of action; and the Commercial Court has rightly dismissed the suit.
contentions and perused the records.
"24. It is submitted that the plaintiff is inclined to seek damages from the Defendant No.1 & 2 on account of deliberate, illegal and arbitrary actions done by it which has hampered and severally prejudiced the Plaintiff and his company i.e. GEPL and on account of the same, being the promoter of the company, his personal stakes have been questioned and burdened. The plaintiff and his company's reputation have been severally hampered and also it has caused the hindrance in the functioning of the company.
25. As stated above, it is further submitted that the unilateral and arbitral conduct of the Defendant No.1 &
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2 has caused severe hit on the credit ratings of the Plaintiff herein and also the GEPL Company. It is submitted that the Defendant No.1 Yes Bank has allowed the illegal invocation of Bank Guarantee by the Defendant No.2 BESCOM despite knowing that the said Bank Guarantees were not supposed to be invoked but extended as had been agreed by the bank and called upon at that point of time, on which Bank Guarantees were invoked and encashed. Given the same, the Plaintiff is likely to face severe legal challenges against him and possible consequences giving rise to other civil and commercial liabilities which will affect his reputation and goodwill and have an adverse effect on his credit rating, thereby resulting in effecting his credit worthiness and reputation in the financial market."
10. The cause of action is described as follows
in the plaint:
"26. The cause of action for the above suit arose on 30.03.2021 when the Defendant No.1 requested not to honour the Bank Guarantee for Rs.6 Crores. The cause of action also arose on 31.03.2021 when the Defendant No.1 honored the Bank Guarantee in favour of the Defendant No.2. The cause of action also arose on various dates wherein the actions of the Defendant No.1 & 2 have caused financial loss and damage to the reputation and goodwill of the plaintiff. The cause of action also arose on all such other dates as described above. The suit is well within the period of limitation."
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Section 14(3)(b). Section 14 reads as follows:
" 14. Moratorium. - (1) Subject to provisions of subsections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of
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such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.
(3) The provisions of sub-section (1) shall not apply
to -
(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority
(b) a surety in a contract of guarantee to a corporate debtor.
(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be."
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of the Code as, a Corporate person who owes a debt to any person. According to Shri. Poovayya, Insolvency proceedings were in progress against the Global Energy. Admittedly, the Bank has given surety of payment to the BESCOM on behalf of the Company.
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challenged the invocation of the Bank Guarantee. Hence, plaintiff is not entitled for the first prayer. Consequently, other prayers pale into insignificance.
this appeal and it is accordingly dismissed .
No costs.
Sd/ -
JUDGE
Sd/ - JUDGE
SPS
2 issues framed by the court
Whether Section 14(3)(b) of the Insolvency and Bankruptcy Code, 2016 applies to a suit for damages arising from the illegal invocation of a bank guarantee by a surety.
Whether the appellant is entitled to challenge the rejection of the plaint filed under Section 14(3)(b) of the Code.
2 provisions across 2 enactments
MR. HARRY INDER DHAUL
YES BANK LTD
BANGALORE ELECTRICITY SUPPLY COMPANY LIMITED
GLOBAL ENERGY PRIVATE LIMITED
P.S. DINESH KUMAR
RAJENDRA BADAMIKAR
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court