2022 (10) TMI 888 - AT - Insolvency and Bankruptcy

Tribunal Upholds Forfeiture of Bank Guarantee in CIRP Appeal

Almas Global Opportunity Fund SPC Versus CA Kannan Triuvengadam, Dissenting Financial Creditor, LIC Housing Financial Ltd.

The Tribunal upheld the Adjudicating Authority's decision to forfeit the Performance Bank Guarantee due to the Appellant's failure to implement the ... Forfeiture of entire Performance Bank Guarantee given by the Appellant - direction to exclude the time from the date of issuance of Form G till the date of passing of orders and issued certain further directions - HELD THAT:- The present is a case where Performance Bank Guarantee was given by the Appellant to implement the Resolution Plan approved as per the Code. The forfeiture of the Performance Bank Guarantee in the CIRP Regulations is statutory requirement. The Application filed by Respondent No.1, thus, was a composite application invoking various provisions of the Code including Rule 11 of the NCLT Rules, 2016. In the facts of present case, we are not persuaded to accept the submission of the learned Counsel for the Appellant that only option available to the Adjudicating Authority was to direct for liquidation. Liquidation could have been one of the orders, which is contemplated in the facts of the present case, but it cannot be held that liquidation is the only option in the facts of the present case. It is well settled and reiterated from time to time by the Hon’ble Supreme Court that all steps shall be taken to revive the Corporate Debtor and the liquidation is always a last resort. The provision of the Code contemplates filing of a complaint by Board or the Central Government or any person authorized by the Government in this behalf. It is true that Adjudicating Authority while exercising jurisdiction under the Code is not required to return any finding of an offence within the meaning of Section 74, sub-section (3). It is a prerogative of the Special Court under Section 236 to try an office and award punishment if any - The observations made by the Adjudicating Authority has to be read only for the purpose of sending the copy of the order to the Board for consideration for filing a complaint and order of the Adjudicating Authority cannot be treated to any direction to initiate action under Section 74, sub-section (3), which is in the domain of the Board and Central Government as per the statutory Scheme of the Code. Appeal disposed off. Issues Involved:1. Forfeiture of Performance Bank Guarantee.2. Jurisdiction of the Adjudicating Authority to restart the CIRP.3. Locus of the Chairman of the Monitoring Committee to file the application.4. Consideration of liquidation as the only option.5. Directions under Section 74(3) of the Insolvency and Bankruptcy Code, 2016.Issue-wise Detailed Analysis:1. Forfeiture of Performance Bank Guarantee:The Appellant's Resolution Plan was approved, requiring an upfront payment of INR 568 crores within 60 days. The Appellant only paid INR 30 crores towards the Earnest Money Deposit and Performance Bank Guarantee. The Adjudicating Authority directed the forfeiture of the entire Performance Bank Guarantee due to the Appellant's failure to implement the Resolution Plan. Regulation 36-B(4-A) of the CIRP Regulations mandates the forfeiture of performance security if the Resolution Applicant fails to implement the approved Resolution Plan. The Tribunal upheld this forfeiture, emphasizing that the statutory requirement under the CIRP Regulations necessitates such action.2. Jurisdiction of the Adjudicating Authority to Restart the CIRP:The Appellant argued that the Adjudicating Authority exceeded its jurisdiction by ordering the restart of the CIRP instead of directing liquidation. The Tribunal noted that the Application filed by the Respondent included various provisions of the Code, not limited to Section 33. The Adjudicating Authority's decision was influenced by the fact that the Corporate Debtor was a going concern with 400 employees, and efforts should be made to revive it. The Tribunal concluded that the Adjudicating Authority had not acted beyond its jurisdiction in issuing directions to restart the CIRP.3. Locus of the Chairman of the Monitoring Committee to File the Application:The Appellant contended that the Chairman of the Monitoring Committee lacked the locus to file the application. However, the Tribunal found that under the Resolution Plan, the Monitoring Committee was entrusted to supervise the implementation of the Plan. The Chairman, as part of this Committee, had the duty to bring the failure of the Plan to the Adjudicating Authority's notice and seek further directions. Thus, the Tribunal upheld the locus of the Chairman to file the application.4. Consideration of Liquidation as the Only Option:The Appellant argued that liquidation was the only option available to the Adjudicating Authority. The Tribunal disagreed, noting that the Adjudicating Authority could consider other provisions of the Code and was not confined to ordering liquidation. The Tribunal emphasized that liquidation is a last resort, and efforts should be made to revive the Corporate Debtor. Given that the Corporate Debtor was a going concern with significant potential for revival, the Tribunal found no error in the Adjudicating Authority's decision to restart the CIRP.5. Directions under Section 74(3) of the Insolvency and Bankruptcy Code, 2016:The Appellant challenged the Adjudicating Authority's direction under Section 74(3) for initiating proceedings against the Appellant and its officers. The Tribunal clarified that the Adjudicating Authority could only draw the attention of the Board or the Central Government to consider filing a complaint under Section 236(2). The Tribunal modified the direction to indicate that the order should be sent to the Insolvency and Bankruptcy Board of India and the Secretary, Ministry of Corporate Affairs, for consideration, rather than mandating the initiation of proceedings.Conclusion:The Tribunal upheld the Adjudicating Authority's order regarding the forfeiture of the Performance Bank Guarantee and the decision to restart the CIRP. It dismissed the Appellant's contention that liquidation was the only option and confirmed the locus of the Chairman of the Monitoring Committee to file the application. The direction under Section 74(3) was modified to clarify that it should be treated as a recommendation for consideration by the appropriate authorities. The appeal was disposed of with these modifications.