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TMI Blog2024 (6) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... n without reasonable cause - In the present case, the CIRP was initiated on 11.04.2017. But the fact is that the CIRP of the Corporate Debtor was still going as on 24.01.2019 and the factum of default by the Appellant attained finality by way of the order PETER BECK AND PETER VERMOEGENSVERWALTUNG LTD. VERSUS EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. ANR. ETC. [ 2022 (2) TMI 1443 - SC ORDER] of the Hon ble Supreme Court. i.e. when the aforesaid Regulation was very much in force. The Appellant s contention that this Regulation cannot be applied retrospectively, therefore, without merit, as the CIRP was ongoing when the Regulation came into effect, and the default was established while the Regulation was in force. Irrespective of the fact whether Regulation 36B(4A) was applicable or not, the forfeiture Clause 12 of Section 5 of the Resolution Plan, as noted by us earlier, clearly provides for the forfeiture in such a situation and the argument of the Appellant, therefore, cannot be accepted. The Appellant s failure to provide valid bank guarantees in the internationally acceptable SWIFT format and the inability to meet the financial commitments as stipulated in the Resolution Plan c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crores by the CoC, led by SBI and approved by the AA, was lawful and in accordance with the Resolution Plan and the CIRP Regulations. The Appellant s failure to comply with the essential terms of the Resolution Plan, including the submission of valid bank guarantees and necessary financial commitments, warranted such forfeiture - there are no sufficient cause for initiation of proceedings in terms of Section 74(3) of the Code. Appeal dismissed. - [ Justice Ashok Bhushan ] Chairperson And [ Arun Baroka ] Member ( Technical ) For the Appellant : Mr. Ankur Kashyap, Mr. Ajith S. Ranganathan, Mr. Rohit Rajershi, Mr. Aman Bajaj and Mr. Purushartha Singh, Advocates. For the Respondent : Mr. Krishnendu Datta, Sr. Advocate with Mr. Rahul Kumar and Ms. Alisha Roy, JUDGMENT ( Hybrid Mode ) [ Per : Arun Baroka, Member ( Technical ) ] These two appeals have been filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) by the Appellant, Peter Beck und Partner Vermoegensverwaltung GMBH, against the order dated 12.12.2023 passed by the Learned National Company Law Tribunal (NCLT), Mumbai Bench in IA No.1360 of 2022 and IA No. 2989 of 2023 in CP (IB) No. 246/NCLT/MB/2017. The Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid from the plan's approval by the CoC until the Effective Date, which is defined as the date when the Appellant would be allotted all equity shares in accordance with the plan. Accordingly, the Appellant provided a bank guarantee issued by Banque De Luxembourg on 19.02.2017, which was subsequently renewed. Issues with Bank Guarantee and Deposit of Funds 10. On 04.07.2019, during a meeting of the Monitoring Agency and Lenders, SBI suggested depositing INR 10 Crores in lieu of the bank guarantee due to operational difficulties faced by the Appellant with the renewal of the bank guarantee in the required SWIFT format. 11. Consequently, the Appellant deposited INR 10 Crores in the account of Respondent No. 1 at Abhyudaya Cooperative Bank on 27.08.2019, in accordance with the CoC s instructions. However, the CoC s actions obstructed the deposit of the remaining INR 5 Crores, thus preventing the allotment of shares as stipulated in the Resolution Plan. Invocation of Bank Guarantee and Consequent Issues 12. Despite the infusion of INR 10 Crores, SBI, in a letter dated 30.08.2019, instructed Banque De Luxembourg to treat the letter as an invocation of the bank guarantee if it was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the impugned order dated 12.12.2023 by the NCLT, Mumbai, which allows the forfeiture of INR 10 Crores, is unjust and contrary to the terms of the Resolution Plan and CIRP regulations. The order misinterprets the purpose of the deposited funds and applies regulations retrospectively, which is not permissible. 21. It is also claimed by the Appellant that no prayer was made by the Respondents in the respective applications regarding the investigation under the provision of Section 74 (3) of the IB Code 2016 and this prayer has been incorporated in the allowed forfeiture application via previous order of the Adjudicating authority dated 21.11.2023 in I.A. No 4003 of 2019, in which the Appellant was not heard and the same was not even listed on the date of hearing of the allowed forfeiture application. 22. The Appellant seeks the setting aside of the impugned order on the grounds that the forfeiture is not justified, the CoC s actions impeded compliance, and the funds were intended for share application, not as a performance guarantee. In light of the above arguments, the Appellant prays this Appellate Tribunal to set aside the impugned order dated 12.12.2023 passed by the NCLT, Mumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. The Appellant grossly failed to implement its Resolution Plan, which was approved by the CoC in 2018, for four years until 2022. This failure has been documented in the orders of this Hon ble Tribunal and the Hon ble Supreme Court. 31. The NCLAT Order dated 05.01.2022 clearly states the Appellant s failure to provide a valid bank guarantee and to take steps towards the implementation of the Resolution Plan, including the payment of CIRP costs, workmen dues, and infusion of cash. Lawful Forfeiture of INR 10 Crore 32. The amount of INR 10 Crore has been lawfully forfeited by the CoC in terms of Clause 12 of Section 5 of the Resolution Plan and Regulation 36B(4A) of the CIRP Regulations. This clause provides for forfeiture if the Resolution Applicant withdraws without reasonable cause or fails to implement the Proposed Plan. 33. The term Effective Date is defined in the Resolution Plan as the date on which the Resolution Applicants are allotted all Equity Shares in accordance with the Proposed Plan. Applicability of Regulation 36B(4A) 34. Regulation 36B(4A) of the CIRP Regulations, which provides for forfeiture of performance security if the resolution applicant fails to implemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovals required for the proposed plan, as a result of which the RA cannot implement the proposed plan, shall not be valid grounds for invoking the guarantee 41. Applicability of Regulation 36B(4A): Apart from the condition in Clause 12 of Section 5 of the Resolution Plan, noted by us in previous paragraph, Regulation 36B(4A) of the CIRP Regulations, which provides for forfeiture of performance security, if the resolution applicant fails to implement the approved plan, is very much applicable in this case. The relevant Regulation is extracted herein as follows: Regulation 36B: Request for Resolution Plans. XXX 3[(4A) The request for resolution plans shall require the resolution applicant, in case its resolution plan is approved under sub-section (4) of section 30, to provide a performance security within the time specified therein and such 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 in accordance with the terms of the plan and its implementation schedule. Explanation I. For the purposes of this sub-regulation, perf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-enforceability of the Bank guarantee because it was due to the international banking practices. While bank guarantees were submitted later, they were not to the satisfaction of monitoring agency. Moreover, Respondent No. 1 failed to take steps towards implementation of the Resolution Plan, which included payment of CIRP costs and workmen dues and infusion of cash. Respondent No. 1 has submitted that CoC agreed to infusion of funds amounting to Rs. 10 Crores in the Corporate Debtor in the lieu of bank guarantee, and based on this agreement Respondent No.1 infused Rs. 10 Crores in the Corporate Debtor before the expiry of the bank guarantee and honour its commitment and this amount remains with the Corporate Debtor till date . 26. Thus, the issue of non-adherence of the timelines in accordance with the Approved Resolution Plan is quite apparent. The failure to provide valid bank guarantee in terms of Section 5 clause 12 (ii) of the Approved Resolution Plan to the satisfaction of the monitoring agency and the Financial Creditors is also a major default. XXX 34. Therefore, in light of discussion above, in partial modification of the Impugned Order, we direct that an enforceable bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the NCLAT, the Appellant did not fulfil its obligations. This non-compliance justifies the forfeiture of the deposited amount under the provisions of the Resolution Plan and the CIRP Regulations. On the Alleged Restraint by CoC 48. The Appellant s argument that the CoC restrained it from implementing the Resolution Plan is not supported by the facts. The records show that the bank details for the additional deposit were always available to the Appellant. The Appellant did manage to deposit INR 10 Crores on 27.08.2019, contradicting its claim that the CoC s actions were obstructive. 49. The correspondence between the CoC and the Appellant, including the emails and notices provided, indicates that the CoC was cooperative and provided ample opportunity for compliance. The Appellant s failure to deposit the remaining INR 5 Crores, despite being given an extended deadline, further undermines its claim of being restrained. 50. The Appellant contends that it had deposited the amount of INR 10 Cr. for share application money and accordingly it must be repatriated as per Foreign Exchange Management Act, 1999. It is to be noted that facts are different than being claimed by the Appellant. Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjudicating Authority in IA No. 1360 of 2022 in CP No 246 of 2017 seeking refund of INR 10 Cr. In the meantime, since the Appellant had defaulted on the implementation of the plan and on account of the Appellant s failure to maintain the BG on 03.06.2022, Respondent No. 2-SBI filed Interlocutory Application No. 4003 of 2019 inter alia requesting the NCLT to allow a fresh process of resolution for the Corporate Debtor, and to annul the declaration of the Appellant as the SRA. On 10.01.2023, Respondent No. 2- SBI filed forfeiture application before the Adjudicating Authority in IA No. 2989 of 2023 in CP No 246 of 2017 seeking forfeiture of INR 10 Cr. Adjudicating Authority disposed of both the applications and, inter-alia, ordered as follows: 7.8. We find from the Order dated 28.2.2022 passed by Hon ble Supreme Court that the SRA categorically expressed its inability to comply with the Order dated 5.1.2022 passed by Hon ble NCLAT. It is pertinent to note that the Hon ble NCLAT had modified the Order dated 2.2.2021 passed by this Tribunal on the willingness shown by the SRA before it to implement the approved Resolution Plan. Hence, it clearly follows from this sequence of events th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces before us, we cannot hold that the SRA s failure was wilful. However, the inability to implement the modified directions of Hon ble NCLAT which lead to initiation of fresh CIRP by the Hon ble Supreme Court, was certainly in knowledge of the SRA, as the failure to furnish the valid and subsisting bank guarantee by an entrepreneur cannot be said to be onerous condition, the compliance of which may be said to be beyond their control. Accordingly, we consider it appropriate to refer the matter to IBBI for taking appropriate action against the SRA, since this Bench cannot deal with the punishment aspect of the consequence for contravention under this section providing for imposition of fine or punishment or both. [ Emphasis supplied ] 52. Adjudicating Authority while passing the impugned order has made observations, as highlighted above and ordered in the last para to refer the matter to IBBI for taking appropriate action against the SRA to deal with the punishment under Section 74(3) of the Code. 53. We find that reference to initiate proceedings under Section 74(3) 74. Punishment for contravention of moratorium or the resolution plan. (1) XXX (2) XXX (3) Where the corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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