Resolution applicant loses appeal after breaching shareholding conditions and constitutional pattern maintenance undertakings

The NCLAT dismissed an appeal by a resolution applicant who breached addendum conditions by changing shareholding and directorship without obtaining required approvals from financial creditors. The CoC was held entitled to withdraw the previously approved resolution plan and issue fresh Form G due to the applicant's violation of constitutional pattern maintenance undertakings. The tribunal upheld forfeiture of Rs.20 crores performance guarantee under RFRP clause 13.2, finding the applicant had essentially sold the resolution plan to third parties. The adjudicating authority's decision to exclude the period from CIRP timeline and issue fresh Form G was affirmed as proper.

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Issues Involved:
1. Breach of Addendum and Conditions of LoI by Successful Resolution Applicant.
2. CoC's Authority to Withdraw Approved Resolution Plan.
3. Legality of Forfeiture of Performance Guarantee.
4. Adjudicating Authority's Power to Grant Exclusion of Time in CIRP.

Summary:

Issue 1: Breach of Addendum and Conditions of LoI by Successful Resolution Applicant
The Tribunal affirmed the Adjudicating Authority's finding that the Successful Resolution Applicant (SRA) breached the addendum dated 18.06.2021 and the conditions of the Letter of Intent (LoI) dated 28.07.2021. The SRA had undertaken not to change its shareholding or directorship without the consent of top two financial creditors for five years from the effective date. However, Mr. Gaurav Gupta, who controlled 100% shareholding in 'Shoora Capital', exited by transferring his shareholding to Mr. Sandeep Parwal, thereby altering the constitution of the SRA without obtaining the required consent. This breach justified the CoC's decision to withdraw the plan approval application and invite fresh resolution plans.

Issue 2: CoC's Authority to Withdraw Approved Resolution Plan
The Tribunal held that while a resolution plan approved by the CoC is binding, the CoC can withdraw the plan if the SRA breaches its terms and conditions. The Tribunal referenced the Supreme Court's judgment in "Ebix Singapore Pvt. Ltd. vs. CoC of Educomp Solutions," which emphasized that the Adjudicating Authority cannot direct an unwilling CoC to renegotiate or allow withdrawal of a resolution plan at the behest of the SRA. However, in this case, the breach by the SRA justified the CoC's decision to withdraw the plan and issue fresh Form G.

Issue 3: Legality of Forfeiture of Performance Guarantee
The Tribunal upheld the CoC's decision to forfeit the performance guarantee of Rs. 20 Crores deposited by the SRA. The decision was based on Clause 13.2 of the Request for Resolution Plan (RFRP), which allows forfeiture if any conditions under the LoI or Resolution Plan are breached. The Tribunal noted that Regulation 36B (4A) of the IBBI (CIRP) Regulations, 2016, which provides for forfeiture of performance security after plan approval by the Adjudicating Authority, does not exclude forfeiture under other conditions as contemplated in the RFRP.

Issue 4: Adjudicating Authority's Power to Grant Exclusion of Time in CIRP
The Tribunal found no error in the Adjudicating Authority's decision to exclude the period from 05.02.2021 till the passing of the order in the CIRP and to issue fresh Form G. The exclusion of time was consequential to the decision to allow the application for withdrawal of the Resolution Plan. The Tribunal emphasized that the Corporate Debtor being a going concern and the buoyancy in the market for its products justified the exclusion of time to facilitate the revival of the Corporate Debtor.

Conclusion:
The Tribunal dismissed all appeals, upholding the Adjudicating Authority's order dated 21.11.2023, which allowed the withdrawal of the plan approval application, directed the issuance of fresh Form G, and granted exclusion of time in the CIRP.

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