The Kerala High Court has held that the Customs Department cannot invoke expired Bank Guarantees.
The bench of Justice A.K.Jayasankaran Nambiar and Justice Easwaran S. has observed that the invocation of the Bank Guarantees cannot be made, except on fraud or irretrievable injury or loss caused to the person who has furnished the Bank Guarantee.
The appellant/writ petitioner was under Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 initiated by the National Company Law Tribunal, Kochi.
The petitioner had for the purpose of running a hotel, imported various capital goods from abroad under the Export Promotion Capital Goods Scheme announced by the Central Government, during the period between April, 2011 to March, 2014.
At the time of the imports, the petitioner had furnished 45 Bank Guarantees for various amounts covering the amount of duty against the EPCG authorisations totalling to an amount of Rs.4,14,72,500.
Since the petitioner was having financial constraints and in view of initiation of the insolvency proceedings, the project never took off and the imported goods were still available at the petitioner’s premises in the packaged condition itself. While so, show cause notices under Sections 28(1) read with 124 of the Customs Act, 1962, were issued to the petitioner.
According to the petitioner, since the amounts were due to the financial creditor, the 3rd respondent – State bank of India, an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was moved before the Kochi Bench of the National Company Law Tribunal. While admitting the said application by order dated 31.12.2021, the NCLT, Kochi appointed an Interim Resolution Professional to carry out the resolution process of the petitioner as per the Code.
In pursuance to the order, a resolution plan was submitted, which was approved by the committee of creditors, and accordingly, the NCLT approved the same. The Customs Department, in the meantime, filed their claim before the resolution professional, who rejected the same.
The dues of the Customs Department did not find a place in the resolution plan and finally the resolution plan was approved, and thereby the resolution applicant took charge of the affairs of the petitioner. After the rejection of the claim of the Customs Department by the resolution professional, the Customs Department issued a letter to the Bank to encash the Bank Guarantees which were given by State Bank of India on account of the writ petitioner.
The Single Judge, who considered the writ petition, found that the challenge to the invocation of the Bank Guarantees cannot be made, except on fraud or irretrievable injury or loss caused to the person who has furnished the Bank Guarantee. Since none of the grounds were available in the writ petition, the challenge was repelled.
The petitioner raised twofold contentions.
Firstly, the Bank Guarantees executed by the erstwhile State Bank of Travancore are no longer in force and have since expired and, therefore, the Customs Department cannot invoke expired Bank Guarantees.
Secondly, the claim of the Customs Department was agitated before the resolution professional, who had rejected the claim. Against the dismissal of the claim by the resolution professional, the Customs Department, though had a remedy before the National Company Law Tribunal, did not avail the same and the Department is not entitled to invoke the Bank Guarantee.
The department contended that in the nature of the Bank Guarantees, it is not possible for the appellant to contend that they have expired. With reference to the clauses in the Bank Guarantees, a specimen of which is produced, the learned counsel contends that the Bank had agreed to make the Bank Guarantees alive until otherwise requested by the Customs Department.
The court allowed the writ petition.
Case Details
Case Title: M/S. Itma Hotels India Private Limited Versus The Additional Commissioner Of Customs
Case No.: WA NO. 2183 OF 2023
Date: 20/03/2025
Counsel For Petitioner: K. Sreekumar
Counsel For Respondent: Adv Suvin R Menon
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