Tribunal allows withdrawal of resolution plan due to non-compliance with Performance Guarantee

The Tribunal allowed the withdrawal of the application for approval of the resolution plan by Liberty House Group (LHG) due to non-compliance with the Performance Guarantee requirement. The period from 18.05.2018 to the date of receipt of the order was excluded from the insolvency resolution process timeline. LHG was ordered to pay exemplary costs of Rs. 10 lacs for failing to adhere to essential terms, with instructions to deposit the amount to the Prime Minister Relief Fund. Deccan Value Investors (DVI) were invited to express interest, and financial creditors were granted the right to pursue damages or costs.

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Issues Involved:
1. Approval of the resolution plan by Liberty House Group (LHG)
2. Withdrawal of the application for approval of the resolution plan
3. Exclusion of time period from the Corporate Insolvency Resolution Process (CIRP)
4. Compliance with the Performance Guarantee requirement
5. Imposition of costs on LHG for non-compliance

Detailed Analysis:

1. Approval of the Resolution Plan by Liberty House Group (LHG):
The resolution professional filed CA No.364/2018 under Section 30(6) read with Sections 31 and 60(5) of the Insolvency and Bankruptcy Code, 2016, to submit the resolution plan of LHG as approved by the Committee of Creditors (CoC). The plan was supported by an affidavit dated 03.09.2018. The CoC had approved the resolution plan with 98.80% votes in favor, and a Letter of Intent (LOI) was issued to LHG on 30.08.2018, requiring the submission of a Performance Guarantee within ten business days.

2. Withdrawal of the Application for Approval of the Resolution Plan:
State Bank of India, a financial creditor, filed CA No.592/2018 on behalf of the CoC, seeking permission to withdraw CA No.364/2018 due to LHG's failure to comply with the requirement of furnishing a Performance Guarantee. The application also sought exclusion of the time period spent in negotiating with LHG and in litigation from the CIRP period. The CoC had resolved to invoke the Bid Bond Guarantee and file an application for withdrawal of the resolution plan approval.

3. Exclusion of Time Period from the CIRP:
The Tribunal considered the exclusion of certain periods for counting the total period of 270 days for the completion of the insolvency resolution process. It referred to the judgment of the Hon'ble National Company Law Appellate Tribunal in Quinn Logistics India Pvt. Ltd. vs. Mack Soft Tech Pvt. Ltd., which allows exclusion of certain periods in unforeseen circumstances. The Tribunal decided to exclude the period from 18.05.2018 to the date of receipt of the certified copy of the order for counting the 270 days.

4. Compliance with the Performance Guarantee Requirement:
LHG failed to submit the Performance Guarantee of Rs. 100 crores as required by the LOI and the process memorandum. Despite reminders and negotiations, LHG proposed converting an existing bid bond guarantee into a performance guarantee and creating an overseas escrow account for the remaining amount, which was not acceptable to the CoC. The Tribunal concluded that LHG defaulted in complying with the essential terms of the LOI and the process memorandum.

5. Imposition of Costs on LHG for Non-Compliance:
The Tribunal imposed exemplary costs of Rs. 10 lacs on LHG for making a mockery of the CIRP system and failing to comply with the essential terms of the resolution plan and LOI. The costs were to be deposited with the Prime Minister Relief Fund within one month from the date of receipt of the order. The financial creditors were given liberty to file proceedings for claiming damages and/or costs before the appropriate forum.

Conclusion:
The Tribunal allowed the withdrawal of CA No.364/2018 and excluded the period from 18.05.2018 to the date of receipt of the certified copy of the order for counting the 270 days of the insolvency resolution process. It also directed the CoC to issue specific notice inviting Expression of Interest to Deccan Value Investors (DVI) and imposed costs on LHG for non-compliance. The order was communicated to the parties and the Insolvency and Bankruptcy Board of India.

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