2021 (5) TMI 712 - Tri - Insolvency and Bankruptcy

Withdrawal of Resolution Plan after approval of the plan by CoC and pending approval by this Tribunal - Whether the EMD and the Performance Bank Guarantee deposited by the Resolution Applicant to participate in the resolution process of the Corporate Debtor, be returned to the Resolution Applicant or forfeited due to loss caused for withdrawing from the process at this juncture? - HELD THAT - It is seen in the case at hand that the Resolution Applicant proposed a resolution plan on an understanding that the land required for generating 20 million saleable units annually was as mentioned in the IM. However, he was informed by the erstwhile Promoters that there was an additional 4th parcel of land, covering 42 acres, in use for the project and which was essential for generating 20 million saleable units. He was informed that 100 acres of land was required for this level of production and 58 acres was not sufficient. The erstwhile CD demanded ₹ 7.50 crore to hand over the 4th parcel of land. This was not brought to his notice earlier in the IM or otherwise. The Resolution plan being based on the details made available to the Applicant under the Information Memorandum, any new discovery that would affect the interests of the Applicant adversely, and entitles the Applicant to decide his participation afresh, bearing in mind the changed situation and the possibility of future losses. The Resolution Applicant cannot be compelled to participate in resolution plan jeopardising its own interest. Even if the information provided by the erstwhile Promoter is incorrect, as mentioned by the RP in his objections, if a doubt is created in the mind of the Applicant with regard to the possibility of losses from the project, backed by an independent consultant's report, we are of the view that he would justifiably not be inclined to carry on as a Resolution Applicant. 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 - Application allowed.

Summary

Issues Involved:
1. Whether the Resolution Applicant can be allowed to withdraw the resolution plan after approval by the CoC and pending approval by the Tribunal.
2. Whether the EMD and the Performance Bank Guarantee deposited by the Resolution Applicant should be returned or forfeited due to withdrawal from the process.

Issue-wise Detailed Analysis:

1. Withdrawal of the Resolution Plan:
The primary issue revolves around whether the Resolution Applicant can withdraw the resolution plan after it has been approved by the Committee of Creditors (CoC) but before the Tribunal's approval. The Tribunal noted that the Resolution Applicant prepares a plan based on the information provided in the Information Memorandum (IM) prepared by the Resolution Professional (RP). The IM must be accurate and up-to-date to enable the Applicant to prepare a commercially viable plan. In this case, the Applicant discovered post-approval that the IM omitted critical information about an additional 42-acre land parcel essential for generating the projected power units. This discovery led to a reassessment of the project's viability. The Tribunal referenced the decision in *Committee of Creditors of Metalyst Forgings Ltd. v. Deccan Value Investors LP & Ors.*, where it was held that an Applicant cannot be compelled to perform a plan based on misleading information. The Tribunal concluded that the Applicant could withdraw the plan due to significant discrepancies in the IM, which affected the project's commercial viability.

2. Return or Forfeiture of EMD and Performance Bank Guarantee:
The second issue concerns whether the Earnest Money Deposit (EMD) and Performance Bank Guarantee should be returned to the Applicant or forfeited. The Tribunal acknowledged that the withdrawal of the plan resulted in the entire Corporate Insolvency Resolution Process (CIRP) coming to naught, causing financial implications. While the Applicant argued that the liquidation value of the Corporate Debtor was close to the plan's value, the Tribunal decided that the Applicant should bear part of the CIRP expenses. Consequently, the Tribunal ordered the forfeiture of ?75,00,000 from the total guarantees and directed the refund of the balance amount of ?2,76,32,780 to the Applicant.

Conclusion:
The Tribunal allowed the withdrawal of the resolution plan due to significant misrepresentations in the IM, which rendered the plan commercially unviable. It also ordered partial forfeiture of the guarantees to cover CIRP expenses, balancing the interests of justice. The application for plan approval was dismissed as infructuous, and the withdrawal application was allowed with the specified conditions.