Appeal Dismissed Over Missing Bank Guarantee; Tribunal Upholds Rejection of Resolution Plan as Per CIRP Regulations.

The Appellate Tribunal dismissed the appeal concerning the rejection of a resolution plan due to the Appellant's failure to submit a required bank guarantee of Rs. 50 lakhs as per the Request for Resolution Plan (RFRP). The Appellant argued that the bank guarantee requirement was contrary to CIRP Regulations, but the Tribunal found that the RFRP's condition complied with Regulation 36B (4A). The Appellant's non-compliance and failure to challenge the RFRP terms justified the CoC's decision to reject the plan. The appeal was deemed moot as the resolution plan was already approved and implemented.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a Request for Resolution Plan (RFRP) that requires submission of a bank guarantee along with the resolution plan (in absolute terms: Rs. 50 lakhs) contravenes Regulation 36-B(4) of the CIRP Regulations, 2016 which prohibits any non-refundable deposit for submission of or along with resolution plans.

2. Whether an RFRP that specifies a performance security to be provided by the successful resolution applicant in terms of Regulation 36-B(4A) (including Explanation I and II) can also require, as a pre-condition for consideration, submission of an upfront bank guarantee by prospective resolution applicants.

3. Whether the Committee of Creditors (CoC) acted illegally or beyond its powers by refusing to consider a resolution plan where the prospective resolution applicant failed to submit a bank guarantee mandated by the RFRP and by refusing to waive that requirement.

4. Whether an appeal challenging non-consideration of a plan on grounds of non-compliance with an RFRP condition is maintainable when the RFRP condition was never challenged before the CoC or earlier authorities and the approved resolution plan has been implemented and distributions made.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Compatibility of an upfront bank guarantee requirement in the RFRP with Regulation 36-B(4)

Legal framework: Regulation 36-B(4) states that the request for resolution plans shall not require any non-refundable deposit for submission of or along with a resolution plan. Regulation 36-B(4A) permits a requirement that the resolution applicant, if its plan is approved, provide a performance security within the time specified and permits specification of the nature, value and duration of such performance security in the RFRP (Explanation I & II).

Precedent Treatment: The judgment does not cite or rely upon external precedents; the Court's analysis is confined to statutory text and the terms of the RFRP.

Interpretation and reasoning: The Court distinguishes a prohibition on non-refundable deposits (Reg.36-B(4)) from the separate, post-approval performance security regime (Reg.36-B(4A)). The RFRP's requirement of an upfront bank guarantee of Rs. 50 lakhs was examined to determine whether it constituted a prohibited non-refundable deposit. The RFRP did not characterize or treat the Rs. 50 lakhs as a non-refundable deposit; rather it required a bank guarantee to be submitted along with the plan as a condition of consideration. The Court finds that Reg.36-B(4) bars non-refundable deposits but does not per se forbid a requirement for a bank guarantee submitted with the plan, where the RFRP also complies with Reg.36-B(4A) by providing for performance security by the successful applicant.

Ratio vs. Obiter: Ratio - The prohibition in Reg.36-B(4) on non-refundable deposits does not automatically render an RFRP invalid where it requires an upfront bank guarantee, provided the RFRP does not require a non-refundable deposit and otherwise complies with Reg.36-B(4A) concerning performance security.

Conclusions: The upfront bank guarantee in the RFRP was not found to be in contravention of Regulation 36-B(4), because the RFRP did not require a non-refundable deposit and separately complied with the performance security requirement under Regulation 36-B(4A).

Issue 2 - Permissibility of requiring an upfront bank guarantee in addition to a post-approval performance security under Regulation 36-B(4A)

Legal framework: Regulation 36-B(4A) permits specification of a performance security (nature, value, duration, source) in the RFRP with the approval of the CoC, with Explanation I permitting specification "with the approval of the committee, having regard to the nature of resolution plan and business of the corporate debtor" and Explanation II allowing absolute specifications (e.g., guarantee for Rs. X for Y years) or variable specifications.

Precedent Treatment: No external precedent cited; the Court interprets the regulatory text and the RFRP language.

Interpretation and reasoning: The Court reads Reg.36-B(4A) and its explanations as authorizing the CoC to specify performance security in the RFRP, including in absolute terms. The RFRP in question specified both an upfront bank guarantee of Rs. 50 lakhs to be submitted with the resolution plan and a separate performance bank guarantee (10% of total amount) by the successful resolution applicant. The Court treats the upfront bank guarantee as a legitimate term of the RFRP aimed at testing seriousness and financial capability of prospective applicants, and as not inconsistent with the statutory scheme when the RFRP otherwise respects the limitations of Reg.36-B(4) and (4A).

Ratio vs. Obiter: Ratio - An RFRP may validly specify an upfront bank guarantee (in absolute terms) for submission with the plan where the RFRP also specifies the post-approval performance security authorized by Regulation 36-B(4A) and does not require a non-refundable deposit.

Conclusions: The RFRP's dual requirements (upfront bank guarantee plus post-approval performance bank guarantee) were permissible under Regulation 36-B(4A) and not barred by Regulation 36-B(4).

Issue 3 - Legality of the CoC's refusal to consider a plan where the applicant failed to submit the mandated bank guarantee and refused to waiver

Legal framework: Parties must comply with terms of an RFRP; the CoC has authority to set conditions in the RFRP (subject to regulatory limits) and to consider only those plans complying with RFRP conditions.

Precedent Treatment: None cited; analysis based on RFRP terms and minutes of the CoC meeting.

Interpretation and reasoning: The CoC minutes show that the prospective applicant failed to submit the Rs. 50 lakhs bank guarantee and requested a waiver to submit it post-approval; the CoC refused waiver because the requirement was an express term of the RFRP. The Court finds no illegality in the CoC's refusal to waive a condition of the RFRP or in declining to consider a non-compliant plan. The Appellant did not challenge the RFRP term earlier and accepted the RFRP process in communications to the bank, undermining contention of invalidity.

Ratio vs. Obiter: Ratio - The CoC is entitled to enforce RFRP conditions and to decline consideration of plans that do not comply with such conditions; refusal to waive an express RFRP requirement is not per se illegal.

Conclusions: The CoC's decision not to consider the plan for non-submission of the required bank guarantee and its refusal to waive the condition was lawful; no illegality was found in the CoC's action.

Issue 4 - Maintainability of appeal when RFRP condition was not challenged earlier and the approved plan has been implemented

Legal framework: The appellate review focuses on whether the decision under challenge is vitiated by illegality or non-compliance with law; remedies may be limited if the challenged order has been implemented and distributions completed.

Precedent Treatment: Not invoked; outcome inferred from facts and equitable considerations.

Interpretation and reasoning: The Court notes that the appellant never challenged the RFRP terms at any earlier stage, only sought to raise the objection after its plan was not considered. Further, the approved resolution plan has been implemented and distributions made, rendering the appeal virtually infructuous. These factual and procedural circumstances weigh against entertaining the appeal.

Ratio vs. Obiter: Ratio - An appeal challenging non-consideration of a non-compliant resolution plan may be dismissed where the appellant failed to challenge RFRP terms at the appropriate stage and where the approved plan has been implemented and distributions effected, making the appeal practically moot.

Conclusions: The appeal was dismissed as there was no reason to entertain it given (a) absence of earlier challenge to the RFRP condition, (b) the appellant's non-compliance with the RFRP, and (c) full implementation and distribution under the approved resolution plan.

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