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2024 (11) TMI 410 - SC - IBCAdjustment of Performance Bank Guarantee (PBG) towards the first tranche payment - Non-payment of Airport dues - Non-payment of Workmen and Employees dues - Achievement of Effective Date - Non-fulfilment of Conditions Precedent. Whether the Conditions Precedent were fulfilled by Respondent No.1/SRA and the Effective Date was fixed at 20.05.2022? - HELD THAT - The order of the NCLT dated 22.06.2021 approving the Resolution Plan had fixed the Effective Date as the 90th day from the Approval date, which was subject to a maximum extension of another 180 days. It consciously removed the ambiguity that plagued Clauses 7.6.2 and 7.6.4 respectively for the precise reason with the idea that the Effective Date should not be endlessly postponed. Agreeing to such an erroneous proposition would mean that the Effective Date would never be achieved as long as the parties are litigating before the Courts and the SRA would be absolved of taking the implementation under the Resolution Plan further. The NCLAT had declined to stay the order of the NCLT dated 13.01.2023 which held that all the Conditions Precedent were fulfilled. Further, on a perusal of the impugned order, it is evident that the NCLT and NCLAT rendered concurrent findings of fact that the SRA had fulfilled all the Conditions Precedent. In other words, it was repeatedly declared by different fora that the Effective Date was frozen on 20.05.2022 and the obligation of the SRA to implement the Resolution Plan was absolute. To contend that its hands were tied since the Conditions Precedent were still being challenged before this Court is nothing but a reflection of its mala fide intention on the part of the SRA to not fulfil its obligations in accordance with the Resolution Plan under the garb of pendency of litigation. Such an undue delay cannot be permitted, especially in light of the intention of the IBC, 2016 to ensure a successful and time-bound revival of the Corporate Debtor. This places a higher obligation on the SRA to act in an expeditious manner. Whether the NCLAT could have directed the Performance Bank Guarantee (PBG) to be adjusted against the first tranche payment which was to be made within 180 days of the Effective Date? - HELD THAT - The NCLAT proceeded on an incorrect understanding of Regulation 36B(4A) and its First Explanation. Regulation 36B(4A) does not state that if the Resolution Applicant, after approval, fails to implement the PBG, then it shall stand forfeited. Instead, what the Regulation actually states is that the performance security shall stand forfeited, if the resolution applicant of such a plan, after its approval by the Adjudicating Authority, fails to implement or contributes to the failure of implementation of that plan in accordance with the terms of the plan and its implementation schedule . It is not the failure to implement the performance security i.e., the PBG, that is dealt with in this Regulation but the consequence of the failure to implement the Plan by the SRA. The duration of the performance security that has been specified in the RFRP is given under Clauses 3.13.2 and 3.13.8 of the RFRP which categorically states that the PBG shall be kept alive until the Resolution Plan has been completely implemented. This is the duration which is referred to in Explanation I to Regulation 36B(4A) - irrespective of whether Clause 6.4.4 expressly or impliedly provided for the PBG to be adjusted, such a provision would create a dissonance with Clause 3.13.9 of the RFRP which has also been made binding on the SRA through Clauses 7.3 and 9.4 respectively of the Resolution Plan. Therefore, such an adjustment should not be allowed in the facts of the present case. The existing insolvency framework does not provide any scope for effecting further modifications or withdrawals of the Resolution Plan approved by the CoC, at the behest of the successful resolution applicant, once the plan has been submitted to the adjudicating authority. The submitted Resolution Plan is binding and irrevocable as between the CoC and the successful resolution applicant in terms of the provisions of the IBC, 2016 and the 2016 Regulations as well - there is absolutely no scope for modification of the terms of a Resolution Plan which has received the imprimatur of the Adjudicating Authority, be it by the Adjudicating Authority itself, the CoC or the SRA. The conditions imposed on the SRA under the Lender s Affidavit and the Resolution Plan were one and the same, the only difference being that the Appellants had offered not to press issues relating to the compliance of the Conditions Precedent and grant of extensions/exclusions along with offering to withdraw the Company Appeal and the Appeals pending before this Court. The PBG of Rs. 150 Crore could not have been allowed to be adjusted with the first tranche payment of Rs. 350 Crore. Non-compliance of the SRA with the order of this Court has led to a dereliction of its obligations to implement the Resolution Plan. Whether the non-implementation of the Resolution Plan by the SRA necessarily leads to the consequence of liquidation as under Section 33(3) of the IBC, 2016? - HELD THAT - The impugned order of the NCLAT nowhere caps the Airport Dues to a maximum of Rs. 25 Crore. Moreover, such a mention of Rs. 25 Crore is plainly absent in its observations regarding Airport Dues. All that is mentioned is that The payment of Airport Charges has to be made as per the Resolution Plan when the implementation of the plan commences as per the Resolution Plan . It is in this regard that Clause 6.4.1(j) provides that if the CIRP costs exceed the current estimates, then they will be paid as per actuals in compliance with the provisions of the IBC and as a consequence, the pay-outs towards the other creditors would be reduced proportionately to account for such additional CIRP costs. This would be subject to a minimum payment of liquidation value to the Operational Creditors and Dissenting Financial Creditors of the Corporate Debtor and subject to a maximum of Rs. 475 Crore. Therefore, the Resolution Plan, too, does not contemplate the CIRP costs to be strictly subject to a maximum of Rs. 25 Crore. To accept such a contention of the Appellants would be to misinterpret the observations made in the impugned order. The SRA not having infused the first tranche payment of Rs. 350 Crore as per Clause 6.3.1(g) and S. No. 11 of the Implementation Schedule under Clause 7.7 within a period of 180 days from the Effective Date and within the multiple extensions granted therefrom, has defaulted on its obligation towards the payment of CIRP costs (which include airport dues) under Clause 6.4.1 as well - by not infusing the first tranche payment of Rs. 350 Crore as per the Implementation Schedule of the Resolution Plan, the SRA has breached the terms of the Resolution Plan which required a minimum liquidation value of Rs. 113 Crore to be paid towards the Workmen and Employees Dues as well. Moreover, both the Provident Fund and Gratuity Dues amounting to Rs. 226 Crore should also have been paid by the SRA as per the order dated 21.10.2022 of the NCLAT in fulfillment of its obligations, which it failed to do. Whether there were sufficient grounds before the NCLAT to hold that Respondent No.1/SRA had contravened the terms of the approved Resolution Plan and that the Corporate Debtor must be directed to be liquidated under Section 33(3) of the IBC, 2016? - HELD THAT - At this stage of the implementation of the Resolution Plan, it is no longer viable for the SRA to submit that the Resolution Plan shall automatically stand withdrawn according to Clause 7.6.4 of the Resolution Plan and upon, such withdrawal, the members of the SRA in the MC shall resign, the remaining members of the MC shall assume absolute control of the Corporate Debtor and all the amounts infused by the SRA would be refunded. This is especially so, since the Conditions Precedent were declared to be fulfilled and the Effective Date was achieved on 20.05.2022. The consequence of the failure to implement the Resolution Plan in terms of Clause 9.4 of the Resolution Plan and Clause 3.13.7(iii) of the RFRP is that the Appellants are entitled to invoke the PBG automatically without any reference to the SRA. Therefore, it is directed that the PBG may be invoked by the Appellants in accordance with the terms of the Resolution Plan. Whether the timely implementation of the Resolution Plan is also one of the objectives of the IBC, 2016? - HELD THAT - Rule 15 of the NCLT and NCLAT Rules, 2016 grants power to the NCLT and NCLAT respectively, to extend the time limits for doing any act which have been fixed, either by the rules or by an order, as the justice of the case may require. However, such power must not be exercised mechanically without any application of mind. An extension on the strict timelines fixed under the resolution plan must be done by adequately weighing the period of extension sought with the consequences of such extension on the continued implementation of the Resolution Plan. After all, such a discretion cannot be exercised to the detriment of the resolution plan and its implementation itself - The feasibility and practicability of the resolution plan adjudged by the commercial wisdom of the CoC might no longer remain in cases where incessant extensions are granted by the NCLT and NCLAT under their discretionary powers. The discretion in extending the time limits fixed under the Resolution Plan must be exercised in a much more circumspect manner, especially in cases such as the present, which pertains to the aviation sector, wherein timely resolution and revival of the Corporate Debtor is all the more crucial since the sector operates in such a way that a continuous flow of cash is required to maintain the company in a position of status quo. Since the Resolution Plan is no longer capable of being implemented, we must ensure that at least liquidation remains as a viable last resort for the Corporate Debtor and its creditors. Being mindful of the underlying objective that Time and Speed are of the essence under the Code and to prevent the frustration of this objective, we have thought fit and necessary to exercise our plenary powers under Article 142 and direct the Corporate Debtor into liquidation in the manner as laid down in the IBC, 2016. Granting this relief to the Appellants would not run counter to the timelines and predictability that is central to IBC - it would not be necessary for the parties to again approach the Adjudicating Authority for a determination under Section 33(3) of the IBC, 2016 on the ground that the provisions of the approved Resolution Plan have been contravened. The impugned order passed by the NCLAT is perverse and unsustainable in law. It has led to further complications. As a result, the appeals succeed and are allowed. The impugned order passed by the NCLAT is set aside. Appeal allowed.
Issues Involved:
1. Adjustment of Performance Bank Guarantee (PBG) towards the first tranche payment. 2. Non-payment of Airport dues. 3. Non-payment of Workmen and Employees' dues. 4. Achievement of Effective Date. 5. Non-fulfilment of Conditions Precedent. Issue-wise Detailed Analysis: 1. Adjustment of PBG towards the first tranche payment: The Supreme Court addressed whether the PBG of Rs. 150 Crore could be adjusted against the first tranche payment of Rs. 350 Crore. The Court emphasized that the Resolution Plan required the infusion of Rs. 350 Crore in cash, as per Clause 6.3.1(g) and Clause 7.7 of the Plan. The RFRP and the Resolution Plan, through Clauses 7.3 and 9.4, incorporated terms that prohibited the adjustment of PBG against any payment obligation. The Court found that the NCLAT's order allowing such adjustment was contrary to the terms of the Resolution Plan and the Court's own order dated 18.01.2024, which mandated cash payment of Rs. 150 Crore. The Court concluded that the PBG could not be adjusted against the first tranche payment, and the SRA's failure to comply with this requirement led to a breach of the Resolution Plan. 2. Non-payment of Airport dues: The Court examined whether the SRA failed to implement the Resolution Plan due to non-payment of Airport Dues. The NCLAT had concluded that Airport Charges were part of the CIRP costs, which the SRA was obligated to pay as per the Resolution Plan. The Court clarified that Clause 6.4.1(h) of the Resolution Plan included Airport Charges as part of CIRP costs, and these had to be paid in full, in priority, within 180 days from the Effective Date. The SRA's failure to infuse the first tranche payment of Rs. 350 Crore resulted in a breach of its obligation to pay the CIRP costs, including Airport Dues. 3. Non-payment of Workmen and Employees' dues: The Court addressed the SRA's obligation to pay workmen and employees' dues, including Provident Fund and Gratuity, as per the NCLAT's order dated 21.10.2022. The Resolution Plan initially provided for Rs. 52 Crore, but the NCLAT increased this to Rs. 113 Crore, with additional obligations for Provident Fund and Gratuity. The SRA's failure to pay these dues constituted a breach of the Resolution Plan. The Court emphasized that the NCLAT's impugned order failed to address the full extent of the SRA's obligations, particularly regarding Gratuity dues. 4. Achievement of Effective Date: The Court analyzed whether the Effective Date was achieved on 20.05.2022, as claimed by the SRA. The NCLT and NCLAT had concurred that the Conditions Precedent were fulfilled, fixing the Effective Date as 20.05.2022. The Court rejected the SRA's contention that the Effective Date was not achieved due to ongoing litigation. The Court emphasized that the Effective Date was fixed, and the SRA was obligated to implement the Resolution Plan from that date. 5. Non-fulfilment of Conditions Precedent: The Court examined whether the SRA fulfilled the Conditions Precedent, particularly regarding the Validation of AOC, Slot Allotment Approval, and International Traffic Rights Clearance. The NCLT and NCLAT found these conditions to be fulfilled. However, the Court noted that the SRA's failure to renew the AOC and pay Airport Dues indicated non-compliance. The Court emphasized that the SRA's obligations under the Resolution Plan were not conditional on the resolution of litigation and that the SRA had failed to implement the Plan within the stipulated timelines. Conclusion: The Supreme Court found that the SRA had failed to implement the Resolution Plan, leading to contraventions of its terms. The Court directed that the Corporate Debtor be taken into liquidation under Section 33(3) of the IBC, 2016. The Court emphasized the importance of timely implementation of Resolution Plans under the IBC, 2016, and highlighted deficiencies in the insolvency framework, suggesting improvements for better enforcement and efficiency.
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