NCLAT rejects Siemens' plea against encashment of guarantee in Meenakshi Energy

26 Sept 2022 , 08:18 AM

The National Company Law Appellate Tribunal (NCLAT) has rejected an appeal by Siemens Ltd. challenging Meenakshi Energy's use of its bank guarantees. Siemens served as a subcontractor on the project for Meenakshi Energy Ltd. (MEL), which is currently facing insolvency procedures. Siemens was building a 700 MW thermal plant.

The National Company Law Tribunal (NCLT) Hyderabad bench's earlier ruling in this matter has been maintained by the appeal tribunal, which also observed that MEL had cited the bank guarantees as support for its claim that Siemens had breached the agreements.

A two-member NCLAT bench stated, "We do not find any illegality or infirmity in the order of the Impugned Order (of NCLT), also having in mind that we do not find any material on record with respect to any fraud."

In order to keep MEL's plant operating, the Resolution Professional of MEL had requested authorization for the release of Rs2.50 crore and allowed it to be used towards the total outstanding sum of Rs13.06 crore.

According to NCLAT, the money can be used to keep the "Corporate Debtor" (MEL) operating as a going concern, taking into account all the aforementioned factors.

On December 11, 2020, NCLT had already rejected Siemens' argument and permitted the Resolution Professional to proceed with the process of invoking and enforcing the "Performance Bank Guarantees given in favour of MEL."

Siemens contested this before the appellate panel NCLAT, claiming that MEL had improperly invoked the assurances.

On November 7, 2019, MEL was subject to the corporate insolvency resolution process (CIRP), which was started after NCLT accepted the State Bank of India's plea.

The company had signed two contracts with EDAC Engineering Ltd. for the supply and construction of a 700 MW thermal plant before the CIRP against MEL was started.

A group of lenders, including Rural Electrification Corporation, approved the project's term-loan facility on December 26.

A Common Loan Agreement (CLA) that set forth the terms and conditions of these facilities also allowed for the assignment of a performance guarantee as security.

Siemens was chosen by EDAC Engineering to complete the 700 MW project as a subcontractor, and Siemens gave two bank guarantees totalling Rs9.41 crore and Rs10.90 crore.

Later, on October 18, 2019, and January 9, 2020, MEL gave HDFC Bank two notices for the invocation, each of which was credited to the Trust Retention Account.

For feedback and suggestions, write to us at [e-mail]