2021 (3) TMI 1047 - Tri - Insolvency and Bankruptcy

Seeking to withdraw resolution plan after approval - EMD and the Performance Bank Guarantee deposited by the Resolution Applicant to participate in the resolution process of the Corporate Debtor, to be returned or to be forfeited - HELD THAT - The Resolution Applicant prepares a plan mainly based on the information provided in the information memorandum prepared by the Resolution Professional. The Resolution Professional is required to prepare the Information Memorandum very diligently ensuring that all the information necessary for the Resolution Applicant to prepare a commercially viable and feasible resolution plan suitable to the corporate Debtor be made available in the information memorandum. Therefore, although due diligence is also conducted by the Applicant on its own and the plan prepared is on an as is where is basis, unless the information provided in the IM is accurate and up to date, a true and fair evaluation of the status of the Corporate Debtor cannot be made by the Resolution Applicant and he cannot prepare a commercially viable Resolution plan. For this reason the Applicant has kept an option to exit in the Plan itself at sl. No. 5.1.1, reserving a right to withdraw from the Plan. The Resolution Professional admits in his objections that the erstwhile Promoter had not provided accurate information, as mentioned in the IM and had refused to cooperate, and that he was interested in blocking his efforts to complete the CIRP. In fact it is seen from his objections that in all parcels of land, the information provided is at variance, though he contests the contentions of the erstwhile Promoter. Whatever may have been the reason, either lacuna in estimating the requirement as well as availability of land for generation of power in a manner that is beneficial to the Applicant, or the lack of full and correct information provided by the erstwhile Promoters to the RP, the fact remains that there was a considerable disparity in what was represented to the Applicant regarding the area of land required for generating 20 million saleable units of power, which is required to maintain the Corporate Debtor as a going concern and what is actually required/made available. The Resolution Applicant cannot be compelled to perform and execute the Resolution Plan when he apprehends huge losses, and should be permitted to withdraw the Plan submitted by him for approval of this Adjudicating Authority. EMD in the form of Bank Guarantee and the Performance Bank Guarantee - HELD THAT - With the withdrawal of the Plan by the Applicant and the entire CIRP coming to nought, the Applicant should bear a part of the burden of expenses incurred during the CIRP. Also some amount may be lost as the liquidation value of the project may be very low, though however the Applicant has submitted that there is a small gap between what was offered in the Plan and the estimated liquidation value, ie of about ₹ 13 lakh only. - it would meet the interests of justice if an amount of ₹ 75,00,000/- is forfeited in total and the balance amount of ₹ 2,76,32,780/-, is refunded to the Resolution Applicant. Application allowed in part.

Summary

Issues Involved:
1. Withdrawal of the Resolution Plan after CoC approval and pending Tribunal approval.
2. Return or forfeiture of the Earnest Money Deposit (EMD) and Performance Bank Guarantee.

Issue-wise Detailed Analysis:

1. Withdrawal of the Resolution Plan after CoC approval and pending Tribunal approval:
The Tribunal examined whether the Resolution Applicant can withdraw the resolution plan after it has been approved by the Committee of Creditors (CoC) but is pending approval by the Tribunal. The Resolution Applicant argued that the Information Memorandum (IM) provided by the Resolution Professional contained erroneous, misleading, and incomplete statements regarding the total project lands and the average annual generation capacity of the project. The Applicant discovered that the actual land required for the project was 100 acres, not the 58 acres mentioned in the IM, and that an additional 42-acre parcel of land, essential for the project, was not disclosed. This new information rendered the plan commercially unviable. The Tribunal noted that the Resolution Applicant had reserved the right to withdraw the plan in case of any change in the information provided in the IM or if new information became available. The Tribunal held that the Resolution Applicant cannot be compelled to participate in a resolution plan that jeopardizes its own interests, especially when there is a significant discrepancy in the information provided. The Tribunal cited the decision of the Hon'ble NCLAT in Committee of Creditors of Metalyst Forgings Ltd. v. Deccan Value Investors LP. & Ors, which upheld that the Applicant cannot be forced to perform its obligations under a misleading plan. Therefore, the Tribunal allowed the withdrawal of the Resolution Plan.

2. Return or forfeiture of the Earnest Money Deposit (EMD) and Performance Bank Guarantee:
The Tribunal considered whether the EMD and the Performance Bank Guarantee deposited by the Resolution Applicant should be returned or forfeited due to the withdrawal of the plan. The Resolution Professional argued that the withdrawal caused a loss to the CoC/CD and that there is no provision for withdrawal after CoC approval. The Tribunal noted that the Resolution Applicant should bear part of the burden of expenses incurred during the Corporate Insolvency Resolution Process (CIRP) and that some amount may be lost due to the low liquidation value of the project. Balancing the interests of justice, the Tribunal ordered the forfeiture of ?75,00,000/- and the refund of the balance amount of ?2,76,32,780/- to the Resolution Applicant.

Conclusion:
The Tribunal allowed the withdrawal of the Resolution Plan due to significant discrepancies in the information provided in the IM and ordered the partial forfeiture of the EMD and Performance Bank Guarantee to cover the expenses incurred during the CIRP. The I.A No.439/2020 was dismissed as infructuous, and I.A No. 500/2020 was allowed.