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TMI Blog2025 (4) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... BHUSHAN CHAIRPERSON AND BARUN MITRA MEMBER TECHNICAL For The Appellant : Mr. Gopal Jain, Sr. Advocate with Mr. Madhav Kanoria, Ms. Surabhi Khattar, Ms. Pallavi Agarwal, Ms. Prachi Jain, Advocates, Mr. Amrut Joshi, Mr. Prakhar Tandon, Mr. Anuj Tiwari, Advocates, Ms. Pooja Mahajan, Ms. Samridhi Shrimali, Advocates., Mr. Bishwajit Dubey and Ms. Aishwarya Singh, Advocates., Mr. Bishwajit Dubey and Ms. Aishwarya Singh, Advocates., Mr. Bishwajit Dubey and Ms. Aishwarya Singh, Advocates., Mr. Bishwajit Dubey and Ms. Aishwarya Singh, Advocates., For The Respondents : Mr. Amrut Joshi, Mr. Prakhar Tandon, Mr. Anuj Tiwari, Advocates for R-1. Ms. Pooja Mahajan, Ms. Samridhi Shrimali, Advocates for Erstwhile RP., Mr. Gopal Jain, Sr. Advocate with Mr. Madhav Kanoria, Ms. Surabhi Khattar, Ms. Pallavi Agarwal, Ms. Prachi Jain, Advocates for R-1 to R-16 (CoC/ Bank of Baroda)., Ms. Pooja Mahajan, Ms. Samridhi Shrimali, Advocates for Erstwhile RP, Mr. Amrut Joshi, Mr. Prakhar Tandon, Mr. Anuj Tiwari, Advocates for R-1. Mr. Gopal Jain, Sr. Advocate with Mr. Madhav Kanoria, Ms. Surabhi Khattar, Ms. Pallavi Agarwal, Ms. Prachi Jain, Advocates for R-4 (CoC/ Bank of Baroda)., Mr. Amrut Joshi, Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution Professional of M/s. GB Global Limited and other Appeals have been filed by the Operational Creditors who have filed application seeking direction for payment of their operational debts. 2. Background facts of the case and sequence of the events need to be noticed for deciding all these Appeals are:- 2.1. On the application filed by the Bank of Baroda under Section 7, the Corporate Debtor- 'Mandhana Industries Limited' (M/s. GB Global Limited) was admitted to the CIRP by order dated 29.09.2017 passed by the Adjudicating Authority. Ms. Chari Desai was appointed as IRP who was subsequently confirmed as a Resolution Professional. The Resolution Professional issued a Process Memorandum (Invitation for Submission of Resolution Plan for Mandhana Industries Limited in March, 2018). The last date for submission of the Expression of Interest (EoI) was extended to 18th May, 2018. On 23.05.2018, Formation Textiles LLC (hereinafter referred to as "Formation") submitted its EoI. Last date for submission of the Resolution Plan was fixed as 08.06.2018. On 30.05.2018, Formation and other Resolution Applicants were given access to the data room for completing its diligence on the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.09.2018, a letter was sent by Formation to the Resolution Professional demanding Resolution Professional to refund the PBG. Formation also communicated its reservation of rights to withdraw its Resolution Plan without and liabilities and obligations. It also communicated that it shall consider reduction in the financial offer of Rs. 480,00,00,000/- under its Resolution Plan by Rs. 5,00,00,000/- per 15 days of delay in obtaining approval and management control of the Corporate Debtor. Again on 29.10.2018, Formation wrote to the Resolution Professional. Resolution Professional informed the Formation that the process of approval of the plan is a judicial process and timeline is not in the control of the Resolution Professional and the CoC. Adjudicating Authority on 30.11.2018 approved the Resolution Plan of the Formation. Formation requested time till 31.01.2019 for bringing upfront payment. On 15.12.2018, Formation sent an e-mail to the Resolution Professional that it had already provided Rs. 55,00,00,000/- and are ready and willing to deposit the remaining Rs. 21,00,00,000/- to increase the authorised share capital. They prayed that management and control of the corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjudicating Authority heard the IA No.2326 of 2019 filed by the Bank of Baroda and IA No.2124 of 2019 filed by the Resolution Professional and passed an order on 05.12.2019 directing as an interim measure that possession of the corporate debtor be handed over to the CoC by Formation who in turn will hand over the same to the erstwhile Resolution Professional. Adjudicating Authority further directed restoration of the CIRP and erstwhile Resolution Professional to continue as Resolution Professional. 2.3. After the order dated 05.12.2019, CoC meeting was held on 10.12.2019 where decision was taken to forfeit/ invoke the performance bank guarantee given by Formation on account of its failure to implement the plan which decision was approved by 96.89% vote share of the CoC. On 08.01.2020, Formation handed over the possession of the corporate debtor to the CoC. On 21.01.2020, Formation filed MA No.427 of 2020 seeking refund of Rs. 93 Crores with some other prayers. An additional affidavit was filed by the Bank of Baroda seeking direction for inviting fresh Resolution Plan for the corporate debtor. On 05.02.2020, Adjudicating Authority allowed Resolution Professional to invite fresh Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he corporate debtor for supply of goods and services with regard to which different IAs have been filed by the operational creditors. The Appellants noted above filed their IAs after approval of the Resolution Plan of DLH. IA No.1986 of 2021 was filed by Vishal Dyes & Chemicals & Ors. praying for direction to make the payment to the applicant out of the deposit of Rs. 42.99 Crores made by Formation Textiles. The application was filed by Vishal Dyes & Chemicals along with 36 other creditors who have supplied goods and services to the corporate debtor at the time when Formation was running the corporate debtor. Similarly, Appellants in Company Appeal (AT) (Insolvency) No.1100-1101 have filed the IA No.1785 of 2021 which was by Anglomonto Resource Pvt. Ltd. seeking a direction to pay the balance amount due on account of supply of non-cooking imported coal from 17.09.2019 to 08.01.2020. Appellant in Company Appeal (AT) (Insolvency) No.1236 of 2023 who claimed to have supplied goods from 13.11.2018 till 06.09.2019 who also prayed for setting aside the order of the Adjudicating Authority passed in IA No.443 of 2021 and sought direction to make payment to their outstanding dues. Another A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant in Company Appeal (AT) (Insolvency) No.1026-1027 of 2023 as well as Respondents in other Appeals. Shri Amrut Joshi has advanced his submission on behalf of the Appellant in Company Appeal (AT) (Insolvency) No.1163 of 2023 filed by Formation and Respondents in other Appeals. Shri Bishwajit Dubey, Learned Counsel has appeared for Appellant on behalf of Interim Trade Creditors. Submissions on behalf of the Bank of Baroda as Appellant as well as Respondents in other Appeals, submissions of Counsel for the CoC (Bank of Baroda), submissions of the Resolution Professional as Appellant as well as Respondents in other Appeals being common, we shall noticed their submissions as submissions for the Appellant. 4.2. Counsel for the Formation Textile LLC has made limited submission in support of its appeal Company Appeal (AT) (Insolvency) No.1163 of 2023 but has made submissions as Respondents opposing appeals of all other Appellants. Thus, the submission of Formation as Appellants and Respondents shall be noticed separately. 4.3. Submission on behalf of the interim trade creditors is common of all the Appellants, it shall be sufficient to notice submission of the Appellant as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Adjudicating Authority on the request of the CoC or the Resolution Professional has allowed the Formation to exit in its order dated 05.12.2019 is erroneous and not based on facts. The present was a case where Formation failed to implement the Resolution Plan and has also filed an application praying for setting aside of the plan approval order which clearly proves the act of Formation in not implementing the plan. Formation always wanted to get away from the Resolution Plan and application IA No.443 of 2021 was filed on incorrect basis. The CoC and the Resolution Professional has provided all necessary information in the Information Memorandum for preparation of the Resolution Plan. All Resolution Applicants were to make their own due-diligence before submission of the Resolution Plan. The case set up by Formation that he was not made aware of the avoidance application and financial statement of the corporate debtor were inflated cannot be a reason to permit the SRA to withdraw from Resolution Plan and refuse to implement the Resolution Plan. The CoC under the process document has right to forfeit the PBG and EMD in event the SRA fails to implement the Resolution Plan. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation who gave revised and higher bid and obtained an order from NCLT for inter se bidding and it was after Formation was declared as H-1, the plan was approved. The judgment of the Hon'ble Supreme Court in "Ebix Singapore Pvt. Ltd. vs. CoC of Educomp Solutions Ltd. & Anr.- 2021 SCC OnLine SC 707" clearly prohibited Formation to withdraw from the plan and find out excuses for not implementing the plan. Formation was clearly bound by the approval of the Resolution Plan and was obliged to implement the Resolution Plan. Formation has not implemented the plan as plan has already failed and consequences for non-implementation of the plan had been rightly taken by the CoC by for forfeiting the PBG and EMD. The Adjudicating Authority in the impugned order has not followed the earlier orders passed by it on 05.12.2019 and 19.05.2021. The decision taken by the Adjudicating Authority in the impugned order is clearly against the intent and purpose of the order dated 05.12.2019. The Company was handed over back to the CoC and Resolution Professional only due to reason that the Formation failed to implement the plan and has filed an application praying for recall of the order approving the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-regulation (2) of the CIRP Regulations, learned Counsel submits that the Regulations also enjoins the RP to provide relevant information and relied on Clauses (a), (e), (h) of the Regulation 36, sub-regulation (2). It is submitted that making a Resolution Plan was depended on relevant information. It is submitted that relevant information has to include financial position of the CD. The RP is obliged to provide most accurate information available at its disposal for the purpose of showing the financial position of the CD. The Forensic Audit Report establishes that the real financial position has been suppressed. Learned Counsel has referred to an order dated 04.10.2024 passed by Adjudicating Authority in Application under Section 66 of the IBC. It is submitted that disclaimers given by the RP in the Process Memorandum is not sufficient to dilute or bypass any statutory mandate. The mere fact that in the Resolution Plan, Formation has provided for CIRP cost of Rs. 25 lakhs for Application under Sections 43, 45, 50 and 66, does not mean that Formation was well aware of Forensic Audit Report and the clauses in Resolution Plan was general in nature. It is submitted that the CD has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further submitted that Regulation 36B(4A) of the CIRP Regulations is also not applicable, which provision was introduced to subsequent to approval of Resolution Plan. Learned Counsel for the Formation submits that amount, which was treated to be equity infusion, could not have been retained by the CoC and has rightly been directed to be refunded by the Adjudicating Authority. Infact, the CoC and RP played a fraud on Formation by inducing it to part of mandatory infusion while not doing their own duty under the IBC. It is submitted that the Appeals filed by the CoC as well as the RP deserve to be dismissed with cost. 9. Ms. Pooja Mahajan, Learned Counsel appearing for the RP in support of Company Appeal (AT) (Ins.) No.1026 & 1027 of 2023 submits that Adjudicating Authority has recorded incorrect finding in the impugned order dated 06.07.2023. The finding of the Adjudicating Authority that RP did not treat the Plan as being contravened is against the materials on record. During the hearing on 05.12.2019, both the RP and the CoC submitted that SRA has not implemented the Plan, since the Formation has already filed an Application for recall of the Plan approval order, the NCLT as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to 21st CoC Meeting held on 04.07.2018, which record that Formation and Finquest were asked to include a provision in the Resolution Plan with respect to avoidance transactions and that any recoveries will be paid out to the Financial Creditors. It was also discussed that costs with respect to the same, subject to cap of Rs. 25 lakhs would be paid by the Resolution Applicants. The Formation being aware of the proposed filing of avoidance application, has included a condition in the Resolution Plan to pay cost of Rs. 25 lakhs for the application. The submission of the Formation is that financials of the CD were inflated and inflated financials were provided to them by the RP and the allegation in averments in IA No.443 of 2021 by the Formation is that RP provided heavily inflated financials of Financial Year 2015-16, which showed substantial income/ turnover of Rs. 1547 crores and Rs. 1657 crores. However, upon takeover, when Formation analyzed the actual production capacity of CD, it realized that the income generated cannot exceed more than Rs. 600 crores. Learned Counsel for the RP submitted that RP is not liable for what is stated in the CD's financial statements 2015- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Formation. Shri Bishwajit Dubey, learned Counsel appearing for the Interim Trade Creditors submits that Appellants have supplied goods and services to the CD at the time when CD was under the control and management of Formation. It is submitted that in the Plan of Dev Land & Housing Pvt. Ltd. ("DLH"), which was approved on 19.05.2021, an amount of Rs. 1.63 crores was proposed. The Plan further indicated that Formation had infused Rs. 42.99 crores in the CD, which was reflected in the current liability and the amount was kept as a fixed deposit with the Bank of Baroda, which was also directed by the Adjudicating Authority. When the CIRP re-commenced, the Appellant had no opportunity to file any claim, since no claim was invited by the RP. The total claim of Interim Trade Creditors was computed by RP was as Rs. 20.9 crores, is still payable to the Interim Trade Creditors, which has also been noted by the Adjudicating Authority in its order dated 19.05.2021. The amount of Rs. 42.99 crores, which was the amount infused by the Formation, being kept in the fixed deposit, the Interim Trade Creditors are entitled to receive their payouts of Rs. 20.9 crores from the said amount. It is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be directed to make the payment. It is submitted that it was during Formation's management that the Interim Trade Creditors claimed to have supplied their goods and services and it was Formation, which failed to make the payment to the Creditors to supply goods and services. Dues pertaining to the period when Formation was in custody and control of the CD. It is submitted that CoC is not liable to make the payment to the Appellant. 12. Learned Counsel for the RP submits that RP has already filed an application before the Adjudicating Authority with regard to payment of Interim Trade Creditors seeking a direction for making payment, it is for this Tribunal to consider and take appropriate decision. 13.Learned Counsel for the Formation refuting the submissions made on behalf of Interim Trade Creditors submits that DLH in their Resolution Plan has offered to deal with the claim of Interim Trade Creditors and offered an amount of Rs. 1.63 crores against their outstanding and the DLH Resolution Plan being approved on 19.05.2021, no further claim can be considered of the Interim Trade Creditors. It is submitted that no pending dues can be claimed after approval of the Resolution P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost its nature and character to enable the CoC to invoke the PBG after the RP's treated it towards equity infusion? (5). Whether the RP was obliged under Section 29 read with Regulation 36, sub-regulation (2) of the CIRP Regulations 2016 to include the Transaction Audit Report in the Information Memorandum and share the same to Formation, failure of which makes the implementation of the Resolution Plan voidable? (6) Whether the RP had not provided the correct financial position of the CD to RA, due to which performance of Resolution Plan became voidable? (7) Whether the Formation had made out a case for direction to refund the amount of Rs. 93.08 crores and the order of Adjudicating Authority directing such refund is sustainable? (8) Whether the Application filed by the RP as well as Application filed by Interim Trade Creditors (who are Appellant before us) were maintainable before the Adjudicating Authority in view of the approval of Resolution Plan of DLH on 19.05.2021 and Adjudicating Authority has rightly taken the view that Application of Interim Trade Creditors has to be decided in appropriate proceedings and not by Adjudicating Authority? (9) Whether Interim Trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to implement the Resolution Plan. This is for your information and record. For GB Global Limited (Formerly known as Mandhana Industries Limited) Charu Desai (On behalf of the CoC of GB Global Limited)" 17. The email clearly communicate that decision to invoke the PBG was taken on account of failure of SRA to implement the Resolution Plan. The submission advanced on behalf of the Formation as noted above is that the invocation of PBG in the facts of present case was not covered by any of Clauses of Process Memorandum. We, thus, need to notice the Clauses of Process Memorandum to find out as to whether CoC could have invoked the PBG and also whether invocation of the PBG by the CoC is sustainable or unsustainable. The Process Memorandum was issued by the RP in March 2018, which invited for submission of Resolution Plans for the CD (can also be referred to as "RFRP"). Clause 10.2 deals with 'Issuance of Performance Guarantee'. Clause 10.2.1 provides as follows: "10.2.1. The Successful Resolution Applicant shall, within 7 (seven) days of issuance of the Letter of Intent by the Resolution Professional (on behalf of the CoC) in accordance with Clause 10.1 (Acceptance of Lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority." 20. When we look into Clause 14.2 and 14.6 of the RFRP, the Clause 14.2 clearly contemplate "in the event the implementation of the Successful Resolution Plan is not complete on such date, failing which the Performance Guarantee may be immediately invoked or enforced by the Guarantee Beneficiary, subject to the approval of the CoC". Clause 14.6 provides -without prejudice to Clause 14.2 (Performance Guarantee), the Performance Guarantee can be invoked at any time, if any of the conditions under Letter of Intent or Resolution Plan are breached or failure of the Successful Resolution Applicant to implement the Resolution Plan to the satisfaction of the CoC. Thus, Clause 14.6 contemplated invocation of Performance Guarantee on failure of the Successful Resolution Applicant to implement the Resolution Plan to the satisfaction of the CoC. 21. Learned Counsel for the Formation submits that in view of the fact that Resolution Plan is itself vitiated on account of non-disclosure of relevant information by the RP and CoC, there is no question of implementation of vitiated Resolution Plan. The above submissions of the Formation cannot be accepted. In the facts of the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20, by which decision of the CoC was communicated to the Formation, which clearly mentions that CoC has invoked the Performance Guarantee since SRA has failed to implement the Resolution Plan. 23. The CoC, thus, has invoked its power under Clause 14.2 to 14.6 and 15.4 for invocation of the PBG, which is fully in accord with the Process Memorandum and the submission of the Formation that CoC could not have invoked the PBG in the facts of the present case is without any substance. Question Nos.(2) and (3) Whether the finding of the Adjudicating Authority that CoC and RP had not treated that approved Resolution Plan had been contravened by the Formation are based on materials on record? Whether sufficient materials were placed by CoC and RP before the Adjudicating Authority to establish that Formation has failed to implement the approved Resolution Plan? Question Nos. (2) and (3) being inter-related are taken together. 24. The Adjudicating Authority in paragraph 50 of the impugned order has returned a finding that CoC and RP had not treated that the approval Resolution Plan had been contravened by the Formation and Adjudicating Authority allowed the application of Formation T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STS 3.1 The Resolution Applicant proposes that CIRP Costs of upto Rs. 4 Crore shall be paid upfront within 30 days from Effective Date over and above the value to Financial Creditors from the cash balance available with the Company. This amount will be paid in priority to the repayment of any other debt amount. It is envisaged that CIRP cost will be paid on actuals and it is expected that it shall not exceed" 26. We have noticed above that RP had to file an application seeking direction to the Formation to release the CIRP costs being MA No.2124 of 2019, which MA was filed on 11.06.2019. The filing of the application by the RP, clearly indicated that SRA has not paid the CIRP costs within the time allowed in the Resolution Plan. On 13.06.2019, Formation has filed IA No.2223 of 2019 seeking modification of Resolution Plan and revision of its offer bid and reduction of the same from what was stated in the approved Resolution Plan. The Bank of Baroda on behalf of CoC has filed MA No.2326 of 2019 on 25.06.2019. In the application, the Bank of Baroda has made prayers, which clearly indicate that Bank of Baroda was complaining of non-implementation of Resolution Plan by the Formation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steps taken by them for implementation of the Resolution Plan and further all the steps taken by it in the running of the Corporate Debtor, in order to ascertain he status of the Corporate Debtor today including disclosing any progress reports filed by them before this Hon'ble Tribunal; H.That pending the hearing and final disposal of the Application before this Hon'ble Tribunal, Formation Textiles LLC and N.V. Dand & Associates be directed to, on affidavit, place on record the steps taken by them for implementation of the Resolution Plan and further all the steps taken by it in the running of the Corporate Debtor, in order to ascertain the status of the Corporate Debtor today including disclosing any progress reports filed by them before this Hon'ble Tribunal; I.That pending the hearing and final disposal of the Application this Hon'ble Tribunal, this Hon'ble Tribunal be pleased to direct that the management and control of the Corporate Debtor is given to a third party agency appointed by this Hon'ble Tribunal so that the assets of the Corporate Debtor are not further depleted and are protected from any acts of the Respondent Nos 1 to 3; J.That in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd reduce the same in line with the actual worth/ valuation of MIL; (b) For an Order and Direction from this Tribunal allowing the appointment by the Applicant of an independent auditor/agency to carry out a forensic audit of MIL to accurately determine its accurate worth/valuation; (c) For an Order from this Tribunal expressly allowing the liabilities to be extinguished in terms of Chapter VII of the Resolution Plan; (d) In the alternative to prayer (c), an order directing the Resolution Professional and the COC to remit amounts to the Applicant to the extent of the undisclosed liabilities of VAT, Income Tax, Customs Authorities, i.e. comes around a sum of Rs. 2,00,00,000/- (Rupees Two Crore Only) (e) For a declaration from this Hon'ble Tribunal that the total sum of Rs. 93 crores invested by the Applicant in MIL is towards the initial equity infusion of Rs. 76 crores (for subscription of 76 million of equity shares) and for payment of approx. 17.5 crores to financial creditors who have opted for cash option instead of equity shares of MIL; (f) For an Order from this Hon'ble Tribunal directing the Resolution Professional/ COC Members to forthwith take all steps n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Resolution Plan. Learned Counsel for the RP and CoC have categorically submitted before the Adjudicating Authority by means of various applications and oral submissions that SRA has failed to implement the Resolution Plan. 30. We may also refer to the order dated 05.12.2019, on which much reliance has been placed by learned Counsel for the Formation, also did not record any finding that CoC and RP has not treated that approved Resolution Plan have been contravened. The submission of the CoC has been captured by the Adjudicating Authority in order dated 05.12.2019 in following words: "Ld. Sr. Counsel representing the Banks also contends that the unit has been handed over to the Successful Resolution Applicant on "as is where is" condition and all the information that was required to be provided has already been provided and the successful Resolution Applicant had defaulted in making the payments as per the resolution plan." 31. Thus, the Adjudicating Authority itself has noticed the submission of the CoC that Resolution Applicant has defaulted in making the payment as per the Resolution Plan. We, thus, are of the view that the findings returned by the Adjudicating Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have noted above the issuance of Performance Guarantee has been dealt in Clause 10.2 and Performance Guarantee has been further been dealt in Clause 14. Clause 14.8 of the Process Memorandum clearly provides for answer to the submission raised by the Formation. Clause 14.8 prohibit Performance Guarantee to be set-off or used as part of the consideration that the Successful Resolution Applicant proposes to offer. Clause 14.8 is as follows: "14.8. The Performance Guarantee shall not be set-off against or used as part of the consideration that the Successful Resolution Applicant proposes to offer in relation to the Company, even if expressly indicated ns such by the Resolution Applicant in the Resolution Plan." 36. The above clause, thus, clearly provides that Performance Guarantee is not to be set-off against any payment, which is to be made by the SRA. We have noted that the equity capital of Rs. 76 crores was to made as per the Resolution Plan. Clause 2 of Chapter-IV, we have already extracted above, which indicate that upfront payment of Rs. 226 crores should be infused in the Company. Rs. 175 crores as upfront payment, including Rs. 76 crores as equity capital and Rs. 150 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s" and the table adduced under the heading "Summary of payment and security package", the PBG of Rs. 150 Crore could have been adjusted against the payment of the first tranche. It was submitted that in the last column of the table, the "Date of Release of Security" is provided. In the very first head in the column on date of release of security, the expression "PBG adjusted" has been mentioned against the first tranche of cash payment to be made to the Financial Creditors. Further, in the explanation given to the said table under Clause 6.4.4(a)(i), against the heading "Date of Release of Security", there is no mention of the PBG while the other two types of security find a mention. It was submitted that the only good reason for this exclusion was the understanding that the PBG was adjustable against the obligation of the SRA towards payment of the first tranche. Further, it is the case of the SRA that since a revolving security package was agreed to under Clause 6.4.4, other types of security were envisioned for the subsequent tranches of payment and therefore, no issue could have been raised in adjusting the PBG towards the first tranche. However, we find it extremely difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taken any deviations so as to be deemed non-responsive with respect to the provisions of the RFRP, the IB Code and the CIRP Regulations." (emphasis supplied) A bare reading of the above also strengthens the conclusion that the SRA has to remain compliant with the terms of the RFRP, at all times, in addition to being obedient to the terms of the Resolution Plan. Therefore, to say that the RFRP was merely a wish list of the CoC which was informed to the applicants at the time of inviting plans is incorrect, to say the least. The provisions of the RFRP, especially those provisions related to the Performance Security or PBG, were binding on the SRA." 39. In paragraph 111, the Hon'ble Supreme Court held that Clause of RFRP, which is binding on the SRA, cannot be given a go by, by clause of Resolution Plan. In paragraph 111, following was held: "111. Now, if the intention under the RFRP, the Resolution Plan (under Clauses 7.3 and 9.4) and Regulation 36B(4A) was that the PBG had to be kept alive till the completion of implementation of the Resolution Plan by the SRA and that it cannot be set-off against any payment obligation, then how do we reconcile such an intention wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respond and clarify in the pleadings. We are of the view that in view of the Clause 14.8 of the RFRP as noted above, any communication by RP on the above regard, has no relevance. Neither RP nor CoC or SRA had any right or jurisdiction to act in breach of Clause 14.8. 42. Learned Counsel for the Appellant has also referred to the Minutes of the Meeting of Financial Creditor held on 21.01.2019, where it is recorded "Bank of Baroda informed the lender that Rs.55 crores was lying with them and if Formation brings further Rs.21 crores, they shall take control of 70% of the equity of MIL". The above Minutes of the Financial Creditor, does not help the Appellant to contend that payment of PBG towards was for equity infusion. The equity infusion is clear consideration, which is to be paid by the SRA as per Resolution Plan and is clearly distinct from PBG. Hence, the submission of the Appellant that the PBG having been accepted towards equity infusion, the PBG lying with the CoC has lost its character and could not have been invoked, cannot be accepted. We hold that PBG given by the Appellant - SRA was as per the RFRP had to continue till 100% implementation of the Resolution Plan and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution plan for the corporate debtor, which shall include the financial position of the corporate debtor, all information related to disputes by or against the corporate debtor and any other matter pertaining to the corporate debtor as may be specified." 46. Learned counsel for the Formation has relied on explanation, which provides that relevant information means the information required by the resolution applicant to make the resolution plan for the corporate debtor, which shall include the financial position of the corporate debtor and any other matter pertaining to the corporate debtor as may be specified. Regulation 36(2) of the CIRP Regulations, 2016 on which reliance has been placed, provides as follows: "36. Information memorandum. (2) The information memorandum shall highlight the key selling propositions and contain all relevant information which serves as a comprehensive document conveying significant information about the corporate debtor including its operations, financial statements, to the prospective resolution applicant and shall contain the following details of the corporate debtor: (a) assets and liabilities 6[including contingent liabilities] with such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution professional deems relevant to the committee." 47. The present is not a case where Appellant's case is that the financial statement and audited financial statement of the corporate debtor of the last two financial years have not been provided. It is also not the case that provisional financial statement for the current financial year made upto the date not earlier than 14 days from the date of the application has not been provided. 48. Learned counsel for the Appellant during his submission has also referred to Regulation 36(2)(h) which required details of all materials and litigation and ongoing investigation or proceeding initiated by government and statutory authority. The above clause is confined to litigation and ongoing investigation or proceeding initiated by government or statutory authorities. The said clause obviously cannot relate to transaction audit report which has been directed by the RP for identification by the RP of the avoidance transaction. The provisions of Section 29 explanation as well as Regulation 36(2) thus cannot read to mean, as it existed at the relevant time, that transaction audit report was contemplated as an information which was require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their revised resolution plan: 1. If any contributions are made to/recoveries made by the Corporate Debtor pursuant to Order of Adjudicating Authority under any Application made by the Resolution Professional U/s 43/45/50/66 of the Code, the same shall be paid out to lenders in the proportion as provided herein and is going to be over and above the value to be paid out to them as per the Final Resolution Plan. All cost~ associated with the said application shall be treated as CIRP costs. On being asked, it was clarified that the said costs can be capped to INR 25 Lakhs." 51. In pursuance of the minutes of the meeting held on 04.07.2018, the Formation by submitting a resolution plan dated 06.07.2018 has included Clause 3.2, which pertain to the cost for application by the RP under Sections 43, 45, 50 & 56 of the Code. Clause 3.2 of the resolution plan is as follows: "3.2 We understand that any cost for making an application by the Resolution Professional under Sections 43, 45, 50, 66 of the Code, shall be treated as part of CIRP costs upto a cap of Rs. 25 lacs duly netted off by any recoveries made in any such cases. Any recoveries over and above costs incurred in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 10.12.2019, which we have already upheld in foregoing discussions. Question No.(6) Whether the RP had not provided the correct financial position of the CD to RA, due to which performance of Resolution Plan became voidable? 56. The present is a case where information memorandum dated 09.11.2017 was prepared and access to the Formation to the virtual data rooms was also provided on 30.05.2018. Financials of financial year 2015-16 were prepared by the ex-management and were part of the information memorandum. The RP also provided provisional financial for quarter ending 31.12.2017, which was disclosed to the Formation income turnover in 9 months period ending on 31.12.2017 was also mentioned which was income turnover of 251 Crore. 57. Learned counsel for the Formation submitted that financials of the corporate debtor were inflated. Financials of the corporate debtor which were uploaded with the MCA were prepared by ex-management and included in the information memorandum. Financial statements of financial year 2015-16 were available to all resolution applicants. 58. The Clause 3.2 of RFRP, which dealt with "representations, warranties, undertakings and acknowledgements". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect. (g) The Resolution Applicant represents to the Resolution Professional, and the CoC, that it has obtained all the requisite corporate authorizations and regulatory approvals (if any) required for submission of the Resolution Plan." 59. All resolution applicants were required to make their due diligence by submitting a resolution plan. It is useful to quote Clause 4.3 of the RFRP, which is as follows: "4.3 Without prejudice to the terms of Annexure I (Data Room Rules), the information and documents provide in the Data Room Have been provided by the Resolution Professional in good faith and based on the information and documents provided by the Company to the Resolution Professional. The Resolution Professional or its Representatives and advisors have not verified any of the information, data or documents contained in the Data Room and shall not accept any responsibility or liability, whatsoever, in respect of any statements or omissions contained in the Data Room, or the accuracy, correctness, completeness or reliability of information, data or documents contained therein. By having access to the Data Room, the Resolution Applicant shall be deemed to have full knowledge o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plan(s)." 61. Hon'ble Supreme Court further has observed that resolution plans are not prepared by lay persons and they are submitted after financial statements and data examined by domain and financial experts. In paragraphs 15 & 16 of the judgment, Hon'ble Supreme Court laid down following: "15. The resolution plans are not prepared and submitted by lay persons. They are submitted after the financial statements and data are examined by domain and financial experts, who scan, appraise evaluate the material as available for its usefulness, with caution and scepticism. Inadequacies and paltriness of data are accounted and chronicled for valuations and the risk involved. It is rather strange to argue that the super specialists and financial experts were gullible and misunderstood the details, figures or data. The assumption is that the resolution applicant would submit the revival/resolution plan specifying the monetary amount and other obligations, after in-depth analysis of the fiscal and commercial viability of the corporate debtor. Pointing out the ambiguities or lack of specific details or data, post acceptance of the resolution plan by the committee of creditors, should be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority. Adjudicating Authority committed an error in holding that due to not providing correct financial provisions of the corporate debtor to resolution applicant performance of the resolution plan became voidable. The said findings are incorrect findings and has been recorded without correct appreciation of facts and law. Question No.(7) Whether the Formation had made out a case for direction to refund the amount of Rs.93.08 crores and the order of Adjudicating Authority directing such refund is sustainable? 64. Adjudicating authority vide impugned order dated 06.07.2023 has allowed I.A.443/2021 filed by the Formation. In I.A.443/2021, following prayers were made: "a) Set aside the Resolution dated 10 December 2019 passed by the CoC (alongwith the RP) approving the invocation/forfeiture of the Performance Guarantee of the Applicant for being illegal and against the provisions of the Code. b) Direct the Resolution Professional and Committee of Creditors of GB Global Ltd. (erstwhile Mandhani Industries Limited) to refund to the Applicant forthwith the sum of Rs. 93.82Crores, alongwith interest @ 12% p.a. from the date of infusion, infused by the Applicant towards implementat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and CoC has never treated that approved resolution plan had not been contravened by the Formation. RP and CoC have always pleaded and argued that Formation has not implemented the resolution plan and has failed to implement the plan, we have already found that there was sufficient material on record to establish that Formation had failed to implement the approved resolution plan while considering Question No. (3). 68. It is relevant to notice that adjudicating authority in its order dated 05.02.2020 has held that resolution applicant (Formation failed to implement the resolution plan). Adjudicating authority vide order dated 05.12.2020 allowed the RP to invite fresh resolution plan from prospective resolution applicant by providing 70 days' time. 69. Learned counsel for the Formation has submitted that findings returned in paragraph 13 of the order dated 05.02.2020 were subsequently corrected on 28.02.2022 by the adjudicating authority. In the above reference, we need to notice the findings which were returned in paragraph 13 of the order dated 05.02.2020. In order 05.02.2020 in paragraph 13 following was held by adjudicating authority: "13. This Bench is of the considered vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered opinion that the CoC/Bank of Baroda has no jurisdiction to forfeit the total amount of Rs. 93.82 crores infused by the Applicant-Formation in the Corporate Debtor-MIL, especially in view of the fact the subsequently another resolution plan has been approved and the CoC stands to loose nothing." 71. Observation of the adjudicating authority are that CoC be not allowed unjust enrichment by permitting forfeiture of not only the earnest money, but also PBG and other sum infused towards the corporate debtor. We fail to see that by invocation of PBG which is part of the RFRP and there being existing default on part of the SRA, how the CoC can be said to be unjustly enrich itself by invocation. The above findings of the adjudicating authority are wholly erroneous and contrary to the express provision of RFRP. Adjudicating Authority has wrongly concluded that CoC has no jurisdiction to forfeit the amount of 93.82 Crore infused by the applicant. 72. Insofar as the forfeiture of PBG and earnest money, the same is fully covered by the RFRP as noted above, thus we uphold the invocation of PBG and earnest money deposit by the CoC, which is in accordance with the RFRP. The questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to resort lo the remedies available to them under the RfP and applicable law. We expect that you shall ensure the complete implementation of the resolution plan in all respects within the timelines specified above." 73. The Adjudicating Authority also in the impugned order in paragraph 44 has observed that due to Bank of Baroda's objection, the equity infusion did not result in transfer of shares of CD to Formation. In paragraph 44 of the impugned order, following has been observed: "44. It was because of Bank of Baroda's objections letter dated 04.04.2019 to SEBI, the equity infusion did not result into transfer of shares of Corporate Debtor-MIL to Applicant-Formation Textiles LLC who was the original (earlier) successful Resolution Applicant." 74. There is enough material on record to indicate that Rs.38 crores, which Formation has to infuse towards the equity, is lying in the Escrow Account of the Bank of Baroda as a current liability. The Formation has referred to the Report submitted by the RP to the Bombay Stock Exchange, part of which Report was also brought on record by Formation along with IA No.443 of 2021. It is useful to refer to paragraph 43 of the IA of Forma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that amount of Rs.42.99 crores shall be retained intact and shall abide by order passed by the Adjudicating Authority as and when felt necessary. Equity infusion of Rs.38.2 crores, which probably due to earn interest was kept in fixed deposit, hence Rs.42.99 crores required consideration while passing order dated 06.07.2023. The case of the CoC and the RP before the Adjudicating Authority was only with regard to invocation of PBG on 10.12.2018 by the CoC, which was communicated on 17.01.2020 to the Formation. The letter dated 17.01.2020 written by the RP to the Formation has been brought on record in Company Appeal (AT) (Ins.) No.1026-1027 of 2021. For the sake of ready reference, the same is reproduced again: "To, Mr. Piyush Viradia, Formation Textiles LLC. A limited liability company incorporated under the laws of the United States of America, having its principal office at 16, Arcadien Drive Suite C, Paramus, New Jersey, 07625, USA and the Resolution Applicant in the Corporate Insolvency Resolution Process of Mandhana Industries Limited. Dear Sir, Sub:Invocation of the Performance Guarantee submitted by Formation Textiles LLC in the Corporate Insolvency Resolution Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Resolution Plan of DLH on 19.05.2021 and Adjudicating Authority has rightly taken the view that Application of Interim Trade Creditors has to be decided in appropriate proceedings and not by Adjudicating Authority? Whether Interim Trade Creditors had made out a case for issuing a direction to make payment of their outstanding amount of Rs.20.09 crores towards goods and services provided to CD, when it was under control of the Formation? 79. Question No. VIII & IX relate to the application filed by Interim Trade Creditors for payment of their outstanding dues, which was consequent to supply of goods and service to the corporate debtor during the period when Formation was in management and in control of the corporate debtor. 80. The RP has filed an application I.A.561/2021, before the adjudicating Authority. Interim Trade Creditors have also filed application seeking a direction for payment of their outstanding dues. The RP in its application 561/2021 as well as in reply filed to the IAs filed by Interim Trade Creditors have given the sequence of the events and details and has noted the liabilities of 22.53 Crore towards Interim Trade Creditors, it was pleaded that resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; ... "Even though no amount has been admitted by the Resolution Professional for Operational Debt in relation to the Prior SRA Period, we note that the books of the Corporate Debtor have a liability of JNR 22.53 crores (Indian Rupees Twenty Two Crores Fifty Three Lakh only) (as detailed in Annexure IV). We understand that when the Prior SRA took over the Corporate Debtor for the Prior SRA Period, no payouts were made to these creditors. Considering their claims are not even admitted, they are effectively not even Operational Creditors as recognized under the Code. However, considering these creditors are also essential to the business of the Corporate Debtor, and keeping in mind the principles of equity, we have allotted an amount of INR I, 63, 00,000 (Indian Rupees One Crore Sixty Three Lakhs only) to be paid to such creditors, who's liability have been incurred during the Prior SRA Period. As mentioned in other portions of this Resolution Plan, at no point of time are the dues owed to such creditors in any way categorized as CIRP costs unless held otherwise by the Adjudicating Authority. In ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for this liability of 20.9 Crores." (Emphasis Supplied) 81. The RP in its submission have pleaded that Formation is liable to make good the balance outstanding Interim Trade Creditors due amounting to 20.35 Crore. In paragraph 5 of the same reply, RP has pleaded as follows: "5. In light of the above, it is submitted that it is the Respondent No. 1 (FTL) which is liable to make good the balance outstanding Interim Trade Creditors' dues, amounting to INR 20.35 crores, and pay this amount to the Corporate Debtor as these costs/ liabilities were incurred during the period when FTL was in management and control of the Corporate Debtor pursuant to approval of its resolution plan, which it eventually failed to implement. An application (I.A. 561 of 2021) seeking directions against FTL to pay for the liabilities incurred during the interim period when it was in management and control of the Corporate Debtor has already been filed by the Respondent No. 3 and is pending adjudication before this Hon'ble Adjudicating Authority. The Respondent No. 3 craves leave to refer to and rely upon the contents of I.A. 561 of 2021 before this Hon'ble Adjudicating Authority, as and when nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t RA (DLH) shall not in any manner be held accountable for this liability of Rs.20.9 Crores." 83. In above paragraph, adjudicating authority has observed "this issue has to be decided only after hearing such categories of operational creditor in an appropriate proceeding and as and when initiated". The above observation clearly indicates that adjudicating authority has abdicated its jurisdiction to consider the said claim of operational creditor and has observed that it should be decided in an appropriate proceeding as and when initiated. The application by Interim Trade Creditors were filed before the adjudicating authority in the same CIRP proceedings where the Interim Trade Creditors has supplied goods and services to the corporate debtor at the time when it was in the control and management of Formation. We fail to see that why the said issues could not be examined by the adjudicating authority, which arose out of CIRP process. It is true that after the approval of the resolution plan by the Formation, Formation took control and management of the corporate on 30.01.2019 and the steps taken by the SRA, under which it could not implement the resolution plan was subject matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appropriate action against the parties concerned for unpaid debt due to R-1 to R-3. The above observations were made in reference to the order dated 19.05.2021 and as observed above, the application filed by Interim Trade Creditors were proceeding initiated by Interim Trade Creditors for payment of due of Rs.20.9 Crore. 86. The adjudicating authority observed in paragraph 37 that the order dated 19.05.2021 has made difficult for adjudicating authority to interfere in such a case. We fail to see that how the order 19.05.2021 created any impediment in the jurisdiction of the adjudicating authority to decide the application filed by Interim Trade Creditors when such applications were filed by liberty granted by adjudicating authority itself as has been noticed by the adjudicating authority. We are of the view that adjudicating authority while deciding the applications of the Interim Trade Creditors has abdicated its jurisdiction in considering their claim and has made observation rejecting the claim of Interim Trade Creditors which are unsustainable. Adjudicating authority has also made observation that no objection were made by Interim Trade Creditors between 06.01.2019 and 19.05. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. We have noted above that Formation has infused Rs.38 Crore in addition to amount of Rs.55 Crores Rs.50 Crore of PBG and Rs.5 Crore of EMD, which Rs.38 Crore were towards the equity infusion. It is undisputed that no equity share could be allotted to the Formation. We, thus are of the view that after discharging the dues of Interim Trade Creditors of Rs.20.9 Crores along with the interest earned on it, the balance amount of Rs.42.99 Crore which was kept in the fixed deposit towards amount infused by the Formation, thus rest of the amount along with interest earned on it need to be refunded to the Formation, i.e., amount of Rs.22.09 Crore with interest earned on it. Question No.(10) Whether Formation was entitled to claim interest @ 12% as prayed in IA No.443 of 2021? 89. The Formation in IA No.442 of 2021 has prayed for refund of amount along with interest @ 12% per annum, which prayer is contained in prayer (b): "b)Direct the Resolution Professional and Committee of Creditors of GB Global Ltd. (erstwhile Mandhani Industries Limited) to refund to the Applicant forthwith the sum of Rs.93.82 crores, along with interest @ 12% p.a. from the date of infusion, infused by the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities as requested in the aforesaid letters should not be granted, pending the hearing disposal of the Miscellaneous Applications. Bank of Baroda states that allowing allotment of shares as sought for by the Resolution Applicant would not only render the captioned Miscellaneous Applications infructuous but also directly affect the interest of the creditors of the Corporate Debtor." 92. Thus, the above clearly indicate that the Formation has not paid entire amount, which was required to be paid in the equity. Hence, the claim of interest @ 12% cannot be accepted. 93. There is one more reason due to which above prayer of the Formation could not be accepted. The Formation has relied on Section 42, sub-section (6) of the Companies Act, 2013, which is as follows: "42(6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Resolution Plan, on the continuing debt of Rs. 305,00,00,000.00/- (Indian Rupees Three Hundred and Five Crores only) payable monthly by Respondent No. I from the date of Formation taking over the control and management of the Corporate Debtor (i.c., January 31, 2019); (iii)direct Respondent No.1 to 3 to compensate and pay to the Committee of Creditors of Mandhana Industries Limited to the litigation/ legal advisory cost amounting to approximately 2,00,00,000.00.00/- (Rupees Two Crores Only) or actual cost incurred, on account of filing of numerous and frivolous applications/ proceedings both in India and USA by Respondent No.1 or on account of proceedings which are a direct result of the mala fide conduct of Respondent No.1; (iv)direct Respondent No.1 to 3 to pay to the COC, interest @ 10% in accordance with Clause 3 under "Chapter V-Transaction Structure" of the Resolution Plan, on the sum of Rs. 305,00,00,000.00/- (Indian Rupees Three Hundred and Five Crores only), from February 01, 2021 till the date of realisation; (v) Direct Respondent No. 1 to 3 to compensate the COC for the litigation costs which continue to be incurred by the COC, in defending the numerous app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of Code." 97. The Adjudicating Authority while disposing of the said Application - IA No.1847 of 2021, held following in paragraph 76 of the order: "76. In view of the order passed in IA No. 443 of 2021, there is nothing to adjudicate in IA 1847 of 2021 filed by Bank of Baroda. Hence IA No. 1847 of 2021 is disposed of. 98. We are, although of the view that order passed in IA No.443 of 2021 was with regard to refund of amount to the Formation and that itself could not have been a reason for the Adjudicating Authority relying on its order in IA No.443 of 2021 observing that there is nothing to adjudicate in IA No.1847 of 2021. Learned Counsel for the Bank of Baroda in his Appeal while challenging the order passed by the Adjudicating Authority submitted that IA No.1847 of 2021 was required to be considered on merits. The SRA has given indemnity to the CoC. Learned Counsel for the Bank of Baroda has referred to Clause 3.2 of the Process Memorandum. 99. When we look into the prayers made in IA No.1847 of 2021, the IA clearly prays for award of compensation and damages to the CoC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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