Whether a Performance Bank Guarantee (PBG) and/or Mobilisation Advance Bank Guarantee be invoked or encashed after Moratorium has been imposed under Section 14 of the IBC and whether these Guarantees fall within the ambit of the definition of an asset which belongs to the Corporate Debtor under IBC – Engineering Projects (India) Ltd. Vs. Mr. Ram Ratan Kanoongo, RP of D. Thakker Construction Pvt. Ltd. – NCLAT New Delhi

NCLAT held that the intent of the Code was not to terminate Agreements that have created legal rights in favour of third parties without adhering to due process of Law. Such a termination of legally binding Agreements would be in violation of the provisions of Section 30(2)(e). Mobilisation Advance is an advance meant for ensuring/performing a contract and does not construe a debt except in the case of home allottees where there is consideration for Time Value of Money. An advance for a contract work which is still to be completed, there is no Time Value for Money. The amount involved in a Performance Bank Guarantee and Mobilisation Advance Bank Guarantee is not an Asset of the Corporate Debtor. A Security Interest does not include Performance Bank Guarantee and therefore is not covered under Section 14(1) and the Appellant is entitled to invoke its Performance Bank Guarantee in full.

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