Supreme Court upholds NCLAT order against encashing IL&FS’ guarantees

NEW DELHI: The Supreme Court has upheld the National Company Law Appellate Tribunal’s October 15, 2018 order disallowing encashing of bank guarantees furnished by IL&FS Group companies, offering relief to banks that have stood guarantors to the infrastructure conglomerate’s projects.
State Bank of India alone has given bank guarantees worth around Rs 700 crore on behalf of IL&FS companies.

Maharashtra Metro Rail Corp had approached the top court seeking to encash bank guarantees after IL&FS Engineering & Construction Co failed to fulfil its contracts. The corporation claimed that the tribunal’s order would apply only to guarantees where IL&FS and its subsidiaries had stood as guarantors and not where third-party banks had given the guarantees.

“The failure on the part of banks to acknowledge their solemn guarantees have led to a severe financial crunch because of which even wages of workers have become difficult to be paid. It has led to various protests and demonstrations by workers,” it had claimed. “Any such precedent in cases of guarantees has potential to severely damage the economy.”

On Tuesday, a bench led by Justice RF Nariman refused to interfere with the appellate tribunal’s order, which had placed a complete moratorium on payments to allow the government time to revive the company.