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2023 (12) TMI 1149 - AT - Insolvency and BankruptcyWithdrawal of the application for approval of the Resolution Plan - breach of addendum dated 18.06.2021 and the conditions of LoI - Issuance of fresh Form G - forfeiture of performance guarantee - exclusion of the period in the CIRP. Whether after approval of the Resolution Plan by the CoC, the Appellant- Successful Resolution Applicant has committed breach of addendum dated 18.06.2021 and the conditions of LoI? - HELD THAT - The Resolution Applicant who was permitted to participate in the Resolution Process was on account of its net worth, its background and experience. It is on record that while examining the eligibility of the Resolution Applicant, its net worth was examined with reference to Shoora Capital and in the net worth of Resolution Applicant s, group was claimed in the Resolution Plan - it is clear that the Resolution Applicant has undertaken in the addendum to the Resolution Plan dated 18.06.2021 as well as by LoI dated 28.07.2021 that it shall not change its shareholding in directorship and constitutional pattern of the Resolution Applicant for a period of 5 years from the effective date and for changes if any. Approval of two leading Financial Creditors shall be obtained. Replies to emails received from the Resolution Applicant indicate that no approval was taken from the Financial Creditor for effecting any change in constitutional pattern of the Resolution Applicant and directorship - Adjudicating Authority after considering the submissions has rightly come to the conclusion that the breach was committed by the Resolution Applicant of the addendum dated 18.06.2021 and the conditions as included in the LoI dated 28.07.2021. Whether in the facts of the present case, CoC was precluded from taking any decision to issue fresh Form G and to withdraw the Resolution Plan which was earlier approved? - HELD THAT - Present is a case where in essence we may say it is a case of sale of Resolution Plan approved by the CoC to third party. CoC approves the Resolution Plan looking to the credentials of the Resolution Applicant and its credibility and finances. When very basis of Resolution Applicant is knocked out and it changes its constitution substantially the CoC cannot be faulted in view of breach of the conditions by the Resolution Applicant, application for approval of the Resolution Plan be withdrawn - it is concluded that the Resolution Applicant has violated the addendum of the Resolution Plan as well as undertaking as given in the LoI and the Adjudicating Authority has rightly returned the finding. Whether the decision of the CoC dated 21.12.2022 forfeiting the performance guarantee of Rs.20 Crores given by the Appellant is not in accordance with law? - HELD THAT - Regulation 36B (4A) provides that performance security shall stand forfeited if the Resolution Applicant of such plan, after its approval by the Adjudicating Authority, fails to implement or contributes to the failure of implementation of that plan. Regulation (4-A) comes in operation after approval of the Resolution Plan and it provides that performance security shall stand forfeited - Present is not a case where CoC has passed Resolution dated 21.12.2022 in reference to Regulation 36B (4-A). The minutes of the meeting specifically refers to clause 13.2 of the RFRP. The action of the CoC is fully covered by clause 13.2 of the RFRP and there is no occasion to resort to Regulation 36B (4-A) of the Regulation. Regulation 36B (4F) only contemplate one contingency that where performance security shall stand forfeited but the said provision does not exclude forfeiture of performance security in other conditions as contemplated in RFRP. We, thus, are of the view that the decision of the CoC for forfeiting the performance security is in accordance with RFRP. It is to be noted that at no point of time, any provision of the RFRP was challenged and Resolution Applicant has undertaken to abide by all terms and conditions of the RFRP. Whether the Adjudicating Authority was not entitled to grant exclusion of the period in the CIRP? - HELD THAT - The exclusion of the time granted by the Adjudicating Authority was consequent to decision taken to allow the application for withdrawal of the Resolution Plan. The order passed by the Adjudicating Authority granting exclusion of time is consequential to the order passed in IA No.985 of 2023. The Adjudicating Authority in its impugned order has made observations in paragraph 32(ix) and (x) as extracted above that the Corporate Debtor Company is a going concern and there is buoyancy in the market for its products of non-ferrous metals. It is well settled that the object and purpose of the IBC is to revive the Corporate Debtor and when the Adjudicating Authority has taken decision to issue fresh Form G by excluded the period from 05.02.2021 till passing of the order, no exception can be taken to said direction - there are no error in the order of the Adjudicating Authority excluding the period from 05.02.2021 till passing of the order in the CIRP and issuing direction to issue fresh Form-G. Appeal dismissed.
Issues Involved:
1. Breach of Addendum and Conditions of LoI by Successful Resolution Applicant. 2. CoC's Authority to Withdraw Approved Resolution Plan. 3. Legality of Forfeiture of Performance Guarantee. 4. Adjudicating Authority's Power to Grant Exclusion of Time in CIRP. Summary: Issue 1: Breach of Addendum and Conditions of LoI by Successful Resolution Applicant The Tribunal affirmed the Adjudicating Authority's finding that the Successful Resolution Applicant (SRA) breached the addendum dated 18.06.2021 and the conditions of the Letter of Intent (LoI) dated 28.07.2021. The SRA had undertaken not to change its shareholding or directorship without the consent of top two financial creditors for five years from the effective date. However, Mr. Gaurav Gupta, who controlled 100% shareholding in 'Shoora Capital', exited by transferring his shareholding to Mr. Sandeep Parwal, thereby altering the constitution of the SRA without obtaining the required consent. This breach justified the CoC's decision to withdraw the plan approval application and invite fresh resolution plans. Issue 2: CoC's Authority to Withdraw Approved Resolution Plan The Tribunal held that while a resolution plan approved by the CoC is binding, the CoC can withdraw the plan if the SRA breaches its terms and conditions. The Tribunal referenced the Supreme Court's judgment in "Ebix Singapore Pvt. Ltd. vs. CoC of Educomp Solutions," which emphasized that the Adjudicating Authority cannot direct an unwilling CoC to renegotiate or allow withdrawal of a resolution plan at the behest of the SRA. However, in this case, the breach by the SRA justified the CoC's decision to withdraw the plan and issue fresh Form G. Issue 3: Legality of Forfeiture of Performance Guarantee The Tribunal upheld the CoC's decision to forfeit the performance guarantee of Rs. 20 Crores deposited by the SRA. The decision was based on Clause 13.2 of the Request for Resolution Plan (RFRP), which allows forfeiture if any conditions under the LoI or Resolution Plan are breached. The Tribunal noted that Regulation 36B (4A) of the IBBI (CIRP) Regulations, 2016, which provides for forfeiture of performance security after plan approval by the Adjudicating Authority, does not exclude forfeiture under other conditions as contemplated in the RFRP. Issue 4: Adjudicating Authority's Power to Grant Exclusion of Time in CIRP The Tribunal found no error in the Adjudicating Authority's decision to exclude the period from 05.02.2021 till the passing of the order in the CIRP and to issue fresh Form G. The exclusion of time was consequential to the decision to allow the application for withdrawal of the Resolution Plan. The Tribunal emphasized that the Corporate Debtor being a going concern and the buoyancy in the market for its products justified the exclusion of time to facilitate the revival of the Corporate Debtor. Conclusion: The Tribunal dismissed all appeals, upholding the Adjudicating Authority's order dated 21.11.2023, which allowed the withdrawal of the plan approval application, directed the issuance of fresh Form G, and granted exclusion of time in the CIRP.
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