NCLAT upholds lenders' invocation of Performance Bank Guarantee after resolution applicant fails mandatory deposit under Regulation 36B(4A)

NCLAT dismissed appeals challenging invocation of Performance Bank Guarantee (PBG) by lenders. The appellant failed to deposit Rs.100 crore within mandated 90 days from effective date of 25.07.2023 under approved resolution plan. Despite litigation regarding plan approval being dismissed, no payment was made. NCLAT held that PBG invocation was statutorily permissible under Regulation 36B(4A) of IBBI Regulations when resolution applicant fails plan implementation. Court emphasized timely adherence to resolution plan timelines as fundamental IBC objective, rejecting appellant's belated offer to deposit amount after considerable delay.

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ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the invocation of the Performance Bank Guarantee (PBG) by Union Bank of India (UBI) was justified.
• Whether the Successful Resolution Applicant (SRA) failed to implement the approved resolution plan within the stipulated timeline.
• Whether the Adjudicating Authority was correct in rejecting the appellant's application challenging the invocation of the PBG and in allowing the re-initiation of the Corporate Insolvency Resolution Process (CIRP).
• Whether the appellant's request for an extension of time to implement the resolution plan was justified.
• Whether the restoration of the CIRP was appropriate following the failure of the SRA to implement the plan.

ISSUE-WISE DETAILED ANALYSIS

1. Invocation of the Performance Bank Guarantee (PBG)

The legal framework involves the provisions under the Insolvency and Bankruptcy Code, 2016, particularly Regulation 36B(4A) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The regulation allows for the forfeiture of a performance security if the resolution applicant fails to implement the approved resolution plan.

The Court interpreted that the invocation of the PBG was justified as the SRA failed to implement the resolution plan. The evidence showed that despite the approval of the plan, the SRA did not make the required payments within the stipulated timeline. The invocation of the PBG was a decision taken by the majority of the lenders, indicating a collective agreement on the SRA's failure.

The appellant's argument that the PBG was not properly invoked was rejected. The Court noted that the SRA had not taken any substantial steps towards implementing the plan even after the dismissal of appeals by the National Company Law Appellate Tribunal (NCLAT).

2. Failure to Implement the Resolution Plan

The resolution plan required the SRA to infuse Rs.100 crore within 90 days from the effective date. The evidence presented showed that the SRA did not adhere to this timeline. The Court found that the SRA's failure to make the upfront payment and take real steps towards implementation justified the invocation of the PBG.

The Court dismissed the appellant's claim that ongoing litigation caused uncertainty, preventing the implementation of the plan. It was noted that there was no interim order restraining the SRA from implementing the plan, and the appellant's failure to act was unjustifiable.

3. Rejection of the Appellant's Application and Re-initiation of CIRP

The Court upheld the Adjudicating Authority's decision to reject the appellant's application challenging the invocation of the PBG and to allow the re-initiation of CIRP. The Court emphasized the importance of adhering to timelines in the CIRP process, as delays could lead to the depreciation of the corporate debtor's assets.

The appellant's request for an extension of time was also rejected. The Court noted that the appellant had not provided a specific timeframe for making the required payments and had only made a conditional offer to implement the plan.

4. Restoration of CIRP

The Court concluded that the restoration of CIRP was appropriate given the SRA's failure to implement the plan. The decision to restore CIRP was supported by the need to adhere to the timelines and ensure the corporate debtor's assets were not further diminished.

SIGNIFICANT HOLDINGS

The Court held that the invocation of the PBG was justified due to the SRA's failure to implement the resolution plan. It emphasized the importance of adhering to timelines in the CIRP process and rejected the appellant's request for an extension of time. The restoration of CIRP was deemed appropriate, aligning with the statutory framework and objectives of the Insolvency and Bankruptcy Code, 2016.

Verbatim Quotes of Crucial Legal Reasoning:

"SRA not only failed to make the Upfront payment as required under the approved Resolution Plan but also failed to take any real steps even after the dismissal of appeals by Hon'ble NCLAT."

"The CIRP process has to be completed in a timeline and timeline of the CIRP process has to be adhered by all, including the SRA."

"Timely implementation of the resolution plan is also one of the underlying objectives of the IBC."

The Court concluded that no grounds were present to interfere with the impugned order, leading to the dismissal of the appeals. The decision underscores the necessity of timely action and compliance with statutory requirements in insolvency proceedings.

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