Sanjeev Gupta, executive chairman of Liberty House Group, poses for a photograph in Sydney, Australia. (Photographer: Brendon Thorne/Bloomberg)

Delhi High Court Asks Liberty House To Pay Rs 50 Lakh To SBI

The Delhi High Court, in an order on Friday, asked U.K.-based Liberty House Group to pay Rs 50 lakh to State Bank of India within four weeks, as penalty for forcing the bank to engage in legal proceedings with respect to two insolvent subsidiaries of Amtek Auto Ltd.

Liberty House approached the high court, seeking that SBI be barred from encashing the bid bond guarantees provided by the U.K.-based investor when bidding for Castex Technologies Ltd. and ARGL Ltd. In 2017, both these companies entered insolvency resolution proceedings, and in each case the Committee of Creditors approved Liberty House as the winning bidder. However, the bidder eventually changed its mind. It did the same in the case of parent company Amtek Auto.

According to the details available in the court order, Liberty House had provided bid bond guarantees worth Rs 40 crore when bidding for Castex Technologies and Rs 10 crore for ARGL. These were issued by Barclays Bank and Bank of Baroda, respectively.

On being approved as the winning bidder, the resolution professional of each company asked Liberty House to also submit performance bank guarantees—Rs 100 crore in the case of Castex Technologies and Rs 60 crore for ARGL. The performance guarantees were to be submitted within 10 days of the bidder receiving the letter of intent from the CoCs, failing which its resolution plan would be considered non-responsive and the CoC would be free to invoke the bid bond guarantees submitted earlier.

Liberty House asked the creditors to offset the bid bond guarantees towards the amounts owed as performance guarantees and open escrow accounts for the remaining. The creditors, however, rejected the proposal and asked for performance guarantees to be submitted in full.

Liberty House did not submitted the performance bank guarantees, thereby SBI, the lead lender for both Castex Technologies and ARGL, invoked the bid bond guarantees, and received Rs 50 crore from Barclays Bank and Bank of Baroda.

In November 2018, Liberty House approached the Delhi High Court and sought that:

  • SBI be barred from invoking the bid bond guarantees
  • Barclays Bank and Bank of Baroda be barred from paying the amounts to SBI

Double Whammy

Liberty House’s arguments didn’t succeed at the high court. The court upheld the invocation of the guarantees, admonished Liberty House for wasting time and fined it a total Rs 50 lakh for doing so.

...what emerges on going through all the documents is that the plaintiff, after submitting the resolution plans and after the same were approved by the CoC, has had second thought and/or was not in a position to furnish Performance Bank Guarantee and started making counteroffer, of conversion of Bid Bond Guarantee into Performance Bank Guarantee and opening of an escrow account for the balance amount of the PBG and which was not acceptable to the RP/CoC who, after giving sufficient latitude to the plaintiff have invoked the BGs.
Delhi High Court Order

Agreeing with the argument SBI made—that the high court does not have jurisdiction in cases involving the Insolvency and Bankruptcy Code, 2016—the Delhi High Court noted that there was no proof that the invocation of the bank guarantees was a case of fraud and therefore, there was no civil dispute in the matter, where the court could intervene. It left it up to the National Company Law Tribunal to determine the use of the guarantee funds.

The court also noted that Liberty House’s actions had resulted in wastage of time in an otherwise time-bound insolvency resolution process. This could likely result in both these companies being liquidated. It also pointed out that this litigation has caused a three-month delay in payment to SBI after the bank invoked the guarantees..

“The loss caused by such conduct of the plaintiff is thus mammoth, having adverse consequences on all the creditors and shareholders of the said two companies and also on the economy of the country and to remedy which, the code was enacted,” said the high court.