NCLAT (2025.04.22) in Bank of Baroda Vs. Formation Textile LLC and Ors. [(2025) ibclaw.in 278 NCLAT, Company Appeal (AT) (Insolvency) No. 983 and 984 of 2023] held that.
The Clauses of RFRP are binding on the SRA. In view of the aforesaid Clause, no submission on behalf of the Appellant that the amount of PBG should be treated towards equity infusion can be accepted.
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 required to be included in the information memorandum.
The finding of the adjudicating authority returned in paragraph 61 that non-disclosure of the above information, performance of terms of resolution plan becomes voidable is also an incorrect finding. Non-sharing of transaction audit report in no manner can affect implementation of the resolution plan and it is far fetched to hold that due to not sharing of the said transaction audit report, the performance of the resolution plan became voidable.
Pointing out the ambiguities or lack of specific details or data, post acceptance of the resolution plan by the committee of creditors, should be rejected, except in an egregious case were data and facts are fudged or concealed. Absence or ambiguity of details and particulars should put the parties to caution, and it is for them to ascertain details, and exercise discretion to submit or not submit the resolution plan.
Information memorandum is not to be tested applying “the true picture of risk” obligation, albeit as observed by the National Company Law Appellate Tribunal the resolution professional’s obligation to provide information has to be understood on “best effort” basis.”
The law is well settled that insofar as breach of any undertaking or Clauses, which provide for forfeiture of any amount, there is no question of referring to Section 74 of the Indian Contract Act, 1872 and the said amount can be awarded.
However, when damages or loss is difficult to prove, Court is empowered to award liquidated amount. The Hon’ble Supreme Court in Kailash Nath Associates vs. Delhi Development Authority and Anr. – (2015) 4 SCC 136 has clarified the law.
Excerpts of the Order;
# 14. We have considered the submissions of learned Counsel for the parties and have perused the records.
# 15. From the submissions of learned Counsel for the parties and materials on record, following are the questions, which arise for consideration in these Appeal(s):
(1) Whether under the Process Memorandum (March 2018) issued by RP, the action of CoC to invoke PBG on 10.12.2018 was not covered by any of Clauses of Process Memorandum and invocation of PBG was unsustainable?
(2) 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?
(3) 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?
(4) Whether the amount of PBG and earnest money has to be adjusted in the equity infusion, which was required to be made by the SRA under the Resolution Plan, had the PBG lost 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 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?
(10) Whether Formation was entitled to claim interest @ 12% as prayed in IA No.443 of 2021?
(11) Whether the Adjudicating Authority is right in observing that in view of the order passed in IA 443 of 2021, there is nothing to adjudicate in IA No.1847 of 2021 filed by the Bank of Baroda and if not, what relief to be granted to the Bank of Baroda in IA No.1847 of 2021?
(12) Relief to which Appellants’ are entitled, if any?
Question No.(1) :
Whether under the Process Memorandum (March 2018) issued by RP, the action of CoC to invoke PBG on 10.12.2018 was not covered by any of Clauses of Process Memorandum and invocation of PBG was unsustainable?
# 16. The CoC has invoked the PBG on 10.12.2019. The CoC in its Meeting dated 10.12.2019 decided to invoke the PBG on account of failure of SRA to implement the Resolution Plan, which Resolution Plan approved by 96.89% vote share of the CoC. The RP vide email dated 17.01.2020 has informed the Formation about invocation of PBG. The email dated 17.01.2020 sent to Formation reads as follows: . . . .
# 22. We have also noted the email dated 17.01.2020, 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 Textile to exit. The findings returned by the Adjudicating Authority in paragraph 50 are as follows:
“50. The aforesaid facts show that the CoC or the RP had not treated that the approved resolution plan had been contravened by the applicant-formation to attract liquidation under Section 33 (3) of the Code. The Adjudicating Authority had also not held that the Applicant-Formation Textiles LLC had contravened its resolution plan and thereby to pass an order under Section 33 (3) of the Code. Taking into consideration, the difficulties placed by the applicant-formation in implementing its resolution plan, it allowed Applicant-Formation Textiles LLC to exit; order to transfer the Corporate Debtor to the CoC who in turn was directed to hand over the same to RP and further allowed re-commencement of the Corporate Debtor.”
# 32. The Adjudicating Authority while deciding IA No.734/MB/2021 filed by the Formation Textiles LLC in its order dated 19.05.2021 has clearly held that the Applicant (Formation Textiles LLC) could not implement the Resolution Plan. It is useful to extract observation made by the Adjudicating Authority in order dated 19.05.2021 in paragraph 5(vi), which is as follows:
“5(vi). The Applicant who could not implement the Resolution Plan submitted by him has come up before us with this frivolous Application and making bald allegations by taking on his hand a single transaction of the year 2010 and trying to scuttle the approval of the fresh Resolution Plan, which is pending approval.”
# 33. The above observation also clearly indicate that Adjudicating Authority has also observed that Appellant has failed to implement the Resolution Plan. We, thus, are of the view that there was sufficient material on record to hold that Applicant – Formation failed to implement the Plan which is clearly proved and beyond any pale of doubt.
Question Nos.(2) and (3) are answered accordingly.
Question No.(4)
Whether the amount of PBG and earnest money has to be adjusted in the equity infusion, which was required to be made by the SRA under the Resolution Plan, had the PBG lost its nature and character to enable the CoC to invoke the PBG after the RP’s treated it towards equity infusion?
# 35. Before we enter into respective submissions of the parties, we need to notice relevant Clauses of Process Memorandum. 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 as 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 crores as external commercial borrowings. The submission of the Appellant – Formation is that the amount of Performance Guarantee of Rs.50 crores and Rs.5 crores EMD was treated towards the equity infusion, since Formation was informed to deposit Rs.21 crores more to complete the equity infusion. When, Clause 14.8 of the Process Memorandum clearly prohibits any set-off against or used of the Performance Guarantee as part of consideration that the SRA proposes to offer in the Plan, the submission of the Appellant, which run counter to specific Clause 14.8, cannot be accepted. In this context, we may refer to the judgment of the Hon’ble Supreme Court in Civil Appeal Nos.5023- 5024 of 2024 – State Bank of Inida & Ors. vs. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr. decided on 07.11.2024. In the above case also the SRA had given a PBG of Rs.150 crores. The first tranche of payment was to be made by 31.01.2024 amounting to Rs.350 crores. In the Appeal, which was before the NCLAT, the SRA submitted that in pursuance of the order passed by the Hon’ble Supreme Court dated 18.01.2024, SRA has deposited an amount of Rs.200 crores and Rs.150 crores was already infused towards PBG security, be adjusted in the payment of Rs.350 crores, which was to be paid by 31.01.2024. The said submission of the SRA was accepted and this Tribunal took the view that as per the Resolution Plan for first tranche of payment, the PBG can be adjusted. The order of the NCLAT came to be challenged in the aforesaid Appeal by the State Bank of India and Hon’ble Supreme Court framed one of the question, i.e. Question-I, which is to the following effect:
“I. The adjustment of the PBG was impermissible under the terms of the Resolution Plan read with Regulation 36B(4A) of the 2016 Regulations.”
# 37. The said question was considered and answered by the Hon’ble Supreme Court in negative holding that PBG cannot be adjusted towards payment, which has to be made by SRA. The Hon’ble Supreme Court in the above context has noticed the relevant Clauses of RFRP and that of Resolution Plan. The submission of SRA relying on Clause 64.4 was noticed in paragraph 99 of the judgment, which arguments was noticed and rejected. Paragraph 99 of the judgment is as follows:
“99. It is the case of the SRA that as per Clause 6.4.4 on the “Treatment of Financial Creditors” 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 to agree with the stance of the SRA for multiple reasons which are detailed below.”
# 38. The Hon’ble Supreme Court in paragraph 102 held that provisions of RFRP, specially those related to Performance Security or PBG, were binding on the SRA. Paragraph 102 of the judgment is as follows:
“102. Furthermore, in the Covering Letter adduced with the Resolution Plan, the SRA stated as thus:
“4. We hereby undertake that we, and our Representatives, shall at all times, be in compliance with the provisions of the RFRP, the Non-Disclosure Agreement, the IB Code and the CIRP Regulations.
xxx xxx xxx
c. Acceptance
We hereby unconditionally and irrevocably agree and accept the terms of the RFRP and that the decision made by the Resolution Professional, CoC and/or the Adjudicating Authority in respect of any matter with respect to, or arising out of, the RFRP and the Resolution Plan Submission Process shall be binding on us…
xxx xxx xxx
10. We confirm that we have 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 with the expression “PBG adjusted” mentioned under Clause 6.4.4 of the Resolution Plan? As mentioned above, Clauses 7.3 and 9.4 respectively of the Resolution Plan incorporated the terms of the RFRP into the Resolution Plan. Clause 3.13.9 of the RFRP states that the PBG shall not be set off against any payment or consideration which is to be made by the SRA, even if expressly provided so under the Resolution Plan. Clause 6.4.4 is quite ambiguous in its construction regarding the question whether the PBG can be specifically adjusted against the first tranche payment. Although in the Summary of Payments and Security Package, under the column titled “Date of release of security”, the expression “PBG adjusted” exists, yet Clause 6.4.4(a)(i) which furnishes some additional clarity on the Summary of Payments and Security Package provides no mention of the PBG under the heading “Date of release of Security”, while the other two forms of security i.e., the BKC property and Dubai property No.1 are mentioned. The argument of the counsel for the Respondent is that this omission indicates that the PBG would be adjusted under the first tranche payment. However, in our considered opinion 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.
# 40. The above judgment of the Hon’ble Supreme Court has clearly laid down that Clauses of RFRP, which required PBG be kept alive till complete implementation of Resolution Plan and shall not be set-off against any payment to be made by SRA. The Clauses of RFRP are binding on the SRA. In view of the aforesaid Clause, no submission on behalf of the Appellant that the amount of PBG should be treated towards equity infusion can be accepted.
# 41. Learned Counsel for the SRA has referred to the emails sent by the RP on 03.01.20219, 09.01.2019 and 30.01.2019. In the reply filed by the Formation in Company Appeal (AT) (Ins.) No.983-984 of 2019, the said emails have been brought on record along with the legal submission filed by Formation. The above emails have been filed along with the legal submissions and the RP had no opportunity to 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 the said PBG cannot be treated as equity infusion as per the Resolution Plan.
Question No.4 is answered accordingly.
Question No. (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?
# 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 required to be included in the information memorandum.
# 54. We, thus are of the view that Formation cannot raise any issue regarding non-sharing of transaction audit report or not including the transaction audit report in the information memorandum for wriggling out from its obligation in the resolution plan, which had approved by the adjudicating authority on 30.11.2018. The finding of the adjudicating authority returned in paragraph 61 that non-disclosure of the above information, performance of terms of resolution plan becomes voidable is also an incorrect finding. Non-sharing of transaction audit report in no manner can affect implementation of the resolution plan and it is far fetched to hold that due to not sharing of the said transaction audit report, the performance of the resolution plan became voidable.
# 55. There is material on record to indicate that earnest money was invoked in October 2018 itself by the CoC, on Formation not extending the EMD as per provisions of the Process Memorandum. The PBG was invoked 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”. The warranties and undertakings by the resolution applicants have contained in 3.2 which clause is as follows:
“3.2 Representations, warranties, undertakings and acknowledgement By accessing/obtaining this Process Memorandum and upon obtaining access to the Data Room and Information Memorandum, the Resolution Applicant shall be deemed to have made the following representations, warranties, undertakings and acknowledgements:
(a) The Resolution Applicant has made its own independent appraisal of the Company and accepted the risk of inadequacy error or mistake in the information provided in the Process Memorandum, Data Room, Information Memorandum or any other information furnished by or on behalf of the Resolution Professional.
(b) The Resolution Applicant shall indemnify and hold harmless the Resolution Professional, its advisors and/or the members of the CoC and/or CoC’s Advisor, from and against all Losses which may arise against the Resolution Professional and / or the members of the CoC and/or their advisors (including the CoC’s Advisor), suffered or incurred in respect of, arising out of, or in any way connected with this Process Memorandum, EOI, the Resolution Plan, the Confidentiality Agreement and/or any other document/undertaking executed by it in relation to the Resolution Plan Process or arising out of or pursuant to the obligations of the Resolution Applicant therein (including on account of breach of such obligations by the Resolution Applicant).
(c) The Resolution Applicant represents that this Resolution Applicant is in compliance with the requirements set out under the Applicable Laws.
(d) The Resolution Applicant represents to the Resolution Professional and the CoC that it has the necessary financial resources available for the purpose of implementation of the Resolution Plan as approved by the Adjudicating Authority.
(e) The Resolution Applicant acknowledges that, the implementation of the Resolution Plan will be on “as is where is” basis.
(f) The Resolution Applicant acknowledges that neither the Resolution Professional nor, the members of the CoC, nor their respective advisors are providing any representations or warrnaty(ies) regarding the status of business, business prospects, or assets of the Company and the Resolution Professional or the CoC and their respective advisors assume no such liability whatsoever in this respect.
(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 of the condition of the Company, its assets, relevant documents, information, etc. as contained in the Data Room and is expected to undertake its own independent due diligence on the Company and satisfy itself of the matter contained therein for participation in the Plan Process.”
# 60. The above clause clearly contemplated resolution applicant to undertake its own independent due diligence on the company and satisfy itself of the matter contained therein for participation in the plan process. In the above context, we may refer to the judgment of the Hon’ble Supreme Court in ‘Deccan Value Investors LP & Anr.’ Vs. ‘Dinkar Venkatasubramanian & Anr.’ reported in 2024 SCC OnLine SC 804. In the above case, also Successful Resolution Applicant had contended that it was prevented and were handicapped because of lack of information or other fraud on the part of the RP. In paragraph 7 of the judgment, the arguments of the SRA have been captured, which is as follows:
“7. On facts and to justify the withdrawal, it was submitted that in the present case, the successful resolution applicants were prevented, and were handicapped because of lack of information or rather fraud on the part of the resolution professional. Four aspects were highlighted:
(a) It was concealed that 70 per cent. of the revenue of the corporate debtor came from trading, and not from manufacturing.
(b) The Mott Macdonald Report dated September 30, 2016 is factually incorrect and flawed.
(c) Misleading and false statement was made with regard to the uninstalled imported components of 12,500 M.T. Press, which were stored in the land of a sister concern-Clover Forging and Machining P. Ltd.
(d) The successful resolution applicants were misled in view of the non-reliability of financial data. There was ongoing financial/forensic audit.”
Rejecting the arguments in paragraphs 8 & 9, following was held:
“8. The aforesaid reasons or grounds taken by the successful resolution applicants do not qualify and cannot be treated as a fraud on the part of the resolution professional. This is not a case where misinformation or wrong information was given to the resolution applicants.
9. We have been taken through the information memorandum, as well as, the data in the virtual data room, access to which was granted to the prospective resolution applicant(s), before they had submitted their resolution 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 rejected, except in an egregious case were data and facts are fudged or concealed. Absence or ambiguity of details and particulars should put the parties to caution, and it is for them to ascertain details, and exercise discretion to submit or not submit the resolution plan.
16. Records of the corporate debtor, who are in financial distress, may suffer from data asymmetry, debatable or even wrong data. Thus, the provision for transactional audit, etc., but this takes time and is not necessary before information memorandum or virtual data room is set up. Financial experts being aware, do tread with caution. Information memorandum is not to be tested applying “the true picture of risk” obligation, albeit as observed by the National Company Law Appellate Tribunal the resolution professional’s obligation to provide information has to be understood on “best effort” basis.”
# 62. Hon’ble Supreme Court allowed the appeal and set aside the order of the NCLAT interfering with the order of NCLT approving the resolution plan. We find substance in the submission of the RP that SRA is only raising a bogey of not being disclosed the relevant information, including financials to wriggle out from its obligation of the approved resolution plan.
# 63. The judgment of the Hon’ble Supreme Court in ‘Ebix Singapore’ (Supra), clearly binds SRA from its obligation and it cannot be allowed to wriggle out there its obligation as sought to be made in the present case. The submission which has been raised by learned counsel for the Formation distinguishing the judgment of the Hon’ble Supreme Court in ‘Ebix Singapore’ (Supra), have no substance. One of the distinguishing features sought to be drawn by learned counsel for the Formation is that ‘Ebix Singapore’ (Supra), was a case where resolution plan was approved by CoC and was pending consideration before the adjudicating authority, whereas in the present case plan has already been approved by adjudicating authority on 30.11.2018. When the plan is approved by the adjudicating authority, obligations on the SRA to implement the plan becomes obligation which are to be statutorily enforced. Thus, on the said ground, the judgment of the Hon’ble Supreme Court in ‘Ebix Singapore’ (Supra), cannot be distinguished nor SRA can be allowed to wriggle out from its obligation on the exclusion and pretext as was raised before the adjudicating authority. 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?
# 67. We have already while considering Question No.(2) held that RP 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).
# 78. In conclusion, we are of the view that direction of adjudicating Authority to refund 93.82 Crore to the Formation cannot be upheld, and the said direction need to be set aside subject to further orders in this batch of appeals, which need to be considered while considering the appeals filed by Interim Trade Creditors.
Question Nos. (8) & (9)
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?
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?
.
# 88. We, thus are satisfied that application filed by Interim Trade Creditors deserves to be allowed and respondents are directed to pay the balance outstanding amount of Rs.20.9 Crore from the fixed sum of Rs.42.99 Crore which is lying in the fixed deposit with the CoC. The CoC shall take steps to discharge the said amount. 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 Applicant towards implementation of the Resolution Plan;”
# 94. The said Section 42 was with respect to provisions in the Companies Act pertaining to share on a private placement basis. The above provision cannot be pressed into service where equity is required to be provided under the Resolution Plan. The consequence of providing or not providing the equity has to be read from Resolution Plan itself. Hence, the provision of Section 42, sub-section (6), cannot be pressed by the Formation. We, thus, are of the view that prayer of the Formation for claiming interest @ 12% could not have been granted.
Question No.(10) is answered accordingly.
Question No.(11)
Whether the Adjudicating Authority is right in observing that in view of the order passed in IA 443 of 2021, there is nothing to adjudicate in IA No.1847 of 2021 filed by the Bank of Baroda and if not, what relief to be granted to the Bank of Baroda in IA No.1847 of 2021?
# 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. The law is well settled that insofar as breach of any undertaking or Clauses, which provide for forfeiture of any amount, there is no question of referring to Section 74 of the Indian Contract Act, 1872 and the said amount can be awarded. However, when damages or loss is difficult to prove, Court is empowered to award liquidated amount. The Hon’ble Supreme Court in Kailash Nath Associates vs. Delhi Development Authority and Anr. – (2015) 4 SCC 136 has clarified the law. The Adjudicating Authority on breach of any terms and conditions by the SRA could very well have directed for payment of amount, which is contemplated in the Process Memorandum, under which the Resolution Plan is submitted. We, however, are of the view that Adjudicating Authority could not have proceeded to adjudicate about the compensation or damages, which are not liquidated damages in exercise of jurisdiction under Section 60, sub-section (5) (c) of the IBC. We, thus, uphold the decision of the Adjudicating Authority disposing of IA No.1847 of 2021 for the reasons as indicated above.
Question No.(11) is answered accordingly.
Question No.(12)
Relief to which Appellants’ are entitled, if any?
100. In view of the forgoing discussions, we dispose of all the above Appeals in following manner:
i. Company Appeal (AT) (Ins.) Nos. 983 and 1026 of 2023, insofar as it relates to order dated 06.07.2023 passed in IA NO.443 of 2021 is allowed. Order passed by Adjudicating Authority in IA No.443 of 2021 directing for refund of amount of Rs.93.82 Crores is set-aside and modified to the extent that Formation shall be entitled to refund of only Rs.22.09 Crores along with interest earned on it, which was kept in the fixed deposit of Rs.42.99 Crores under the orders of Adjudicating Authority.
ii. Company Appeal (AT) (Ins.) Nos.984 and 1027 of 2023, insofar as it relates to order dated 06.07.2023 passed in IA No.1847 of 2021 are dismissed. Order passed by Adjudicating Authority while rejecting IA No.1847 of 2021 is upheld, but for the reasons as indicated in this order.
iii. Company Appeal (AT) (Ins.) No. 1163/2023 filed by Formation Textile is dismissed.
iv. Company Appeal (AT) (Ins.) Nos. 1098, 1099, 1100, 1101, 1236 & 1237/2023 are allowed. The respondent, CoC is directed to make payment of outstanding amounts of Interim Trade Creditors of Rs.20.9 Crores along with interest earned on it out of the fixed deposit amount of Rs.42.99 Crore. The payment to the Interim Trade Creditors shall be made by the CoC within a period of 30 days from today. Order dated 06.07.2023 is set aside and I.A. Nos.1785/2021, 1986/2021 & 1052/2022 are allowed to the extent as indicated above.
Parties shall bear their own costs.
-------------------------------------------------
No comments:
Post a Comment