2021 (3) TMI 281 - SC - Insolvency and Bankruptcy

Court dismisses Civil Appeal for non-compliance with Resolution Plan, emphasizing timely compliance in insolvency.

Kridhan Infrastructure Pvt Ltd (Now known as Krish Steel and Trading Pvt Ltd) Versus Venkatesan Sankaranarayan & Ors

The Court dismissed the Civil Appeal due to the appellant's persistent non-compliance with the Resolution Plan terms, leading to liquidation. Despite ... Failure to implement Resolution Plan - NCLAT noted that the appellant had failed to implement the Resolution Plan for a period of over eight months and, hence, declined to exercise its jurisdiction pursuant to its inherent power under Rule 11 of the NCLAT Rules, 2016 - HELD THAT:- By the order of the court dated 9 October 2020, which was passed on the statement which was made by Senior Counsel, an amount of ₹ 50 crores was required to be deposited before 10 January 2021. On 25 November 2020, while clarifying the earlier order by which the order of NCLAT was stayed, time for the deposit of ₹ 50 crores was extended until 25 February 2021. The appellant was clearly put on notice that the amount of ₹ 20 crores already deposited would stand forfeited in the event the appellant fails to comply with the terms of the order. The appellant has been unable to raise the funds. The fact of the matter, as it emerges from Mr Vishwanathan’s submissions, is that the appellant will be unable to raise funds from the Term Lenders who are insisting that the status of the Company should change from a company under liquidation to an active status. The order of liquidation has not been set aside. Ultimately, what the request of the appellant reduces itself to, is that it would raise funds on a mortgage of the assets of the Company and unless the Company is brought out of liquidation, it would not be in a position to raise the funds. This is unacceptable. The appellant has failed to abide by its obligations. In that view of the matter, there are no reason or justification to entertain the Civil Appeal any further. The consequence envisaged under the order of this Court shall accordingly ensue in terms of the forfeiture of the amount of ₹ 20 crores. As a consequence of this order, the management shall revert to the liquidator for taking steps in accordance with law. Application disposed off. Issues:1. Failure to implement Resolution Plan leading to liquidation.2. Appellant's non-compliance with deposit obligations.3. Request for altering company status from liquidation to active.4. Inability to raise funds due to company status.5. Court's decision on appellant's failure to comply with terms.Issue 1: Failure to implement Resolution Plan leading to liquidationThe appellant submitted a Resolution Plan for a company undergoing Corporate insolvency Resolution Process under the Insolvency and Bankruptcy Code 2016. Despite approval, the appellant failed to fulfill obligations, leading to liquidation as CoC voted for it due to non-implementation of the Plan. NCLAT noted the appellant's failure for over eight months and declined to exercise jurisdiction under Rule 11 of NCLAT Rules, 2016.Issue 2: Appellant's non-compliance with deposit obligationsDespite various opportunities, the appellant did not fulfill its obligations under the Resolution Plan, including equity infusion, after depositing an initial amount in an Escrow Account. The appellant agreed to deposit a specific amount within a timeframe but failed to comply, resulting in liquidation proceedings.Issue 3: Request for altering company status from liquidation to activeThe appellant sought a change in the company status from liquidation to active to secure funds from Term Lenders. However, the Term Lenders insisted on the status change before providing finance, causing a delay in fund availability and hindering compliance with the Resolution Plan terms.Issue 4: Inability to raise funds due to company statusThe appellant faced challenges in raising funds as Term Lenders required a change in the company status from liquidation to active before providing finance. Despite efforts to secure funds through a mortgage on company assets, the inability to alter the company status hindered fund availability.Issue 5: Court's decision on appellant's failure to comply with termsThe Court observed the appellant's failure to raise funds within the specified timeframe despite multiple opportunities. Emphasizing the importance of timely compliance under the Insolvency and Bankruptcy Code, the Court dismissed the Civil Appeal due to the appellant's persistent non-compliance with the Resolution Plan terms, leading to the forfeiture of the deposited amount and the management reverting to the liquidator as per law.In conclusion, the judgment highlighted the significance of adhering to Resolution Plan terms, timely compliance, and the consequences of persistent non-compliance in insolvency proceedings.