TaxTMI 
TaxTMI 
2021 (5) TMI 712
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....Limited, the Successful Resolution Applicant under section 60(5)(c) of Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal Rules, 2016 seeking an order declaring that the Resolution Plan submitted by Kundan Care Products Limited on 22.10.2020 and approved by the CoC on 24.10.2020 stands revoked/withdrawn, and direct the cancellation/revocation/return/refund of the Financial Bank Guarantee of Rs. 50,00,000/- and the Performance Bank Guarantee of Rs. 3,01,32,780/- submitted by the Applicant in pursuance of the Plan. 3. Brief facts of the case, as mentioned in the Application, which are relevant to the issue in question, are as follows: (1) It is submitted that the Applicant is aggrieved by the erroneous misleading incomplete statements and omission of material facts in the Information Memorandum as well as the email dated 01.08.2020 issued by the Ld. RP on the material aspect of description of the total project lands of the Corporate Debtor and the average annual generation capacity of the project. That the information formed the edifice of the Resolution Plan and the financial projections contained therein. Pursuant to the discover....
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.... (6) It is submitted that after the relaxation of the lockdown the Applicant conducted further due diligence and found that the IM contained incorrect and inadequate description of the extant land that the project had been utilizing to produce average of 20.31 million units. Accordingly, the Applicant sought information from the RP. The RP issued email dated 01.08.2020 to the Applicant, wherein it was clarified that there were 3 land parcels (total admeasuring 58.07 Acres) which were being utilized for the operation of the project. The land parcels as described in the email are as follows: i) Land Parcel No. 1 admeasuring 0.63 acres owned by the Corporate Debtor. ii) Land Parcel No. 2 admeasuring 36.05 acres owned by the erstwhile directors/promoters of the Corporate Debtor and mortgaged with the Resolution Professional. iii) Land Parcel No. 3 admeasuring 21.39 acres comprising about 40 Survey Nos. and transferred by the erstwhile directors in favour of the Corporate Debtor by an unregistered agreement. (7) The Applicant vide email dated 07.08.2020 categorically requested the RP to ensure that the second land parcel was transferred by the Financ....
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.... that the same were inter alia based on the key assumption that the project would deliver 20 million saleable units annually. In this regard the Applicant submitted Performance Bank Guarantee bearing No. 1588-BG-13-2020 dated 26.10.2020 of Rs. 3,01,32,780/- with the RP. (12) In November 2020, the Applicant was informed by representative of erstwhile director/promoter of the Corporate Debtor, that there were major misrepresentations, incomplete statements and omissions in the information given to the Applicant in respect of the status and total requirement of project lands. It was revealed that there was a 4th land parcel in use, on the left and the right side of the river, admeasuring about 42 acres which was owned by persons belonging to Scheduled Castes/Tribes and was being used for the project under an informal arrangement between the said owners and the erstwhile directors/promoters of the Corporate Debtor. Thus, it was informed that the total land requirement for the project was 100 acres as opposed to 58 acres represented to the Applicant. A sum of Rs. 7.5 Cr was demanded by the representative of the erstwhile director of CD from the Applicant to ensure that the 4th ....
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.... (v) Meanwhile, the RP denied knowledge of 4th parcel vide letter dated 12.11.2020 despite being aware of it. The RP being supervisor of operations of project ought to be aware of it. (17) While the Applicant awaited positive remedial steps from the RP/CoC, a memo dated 18.11.2020 was filed by RP in the captioned IA for placing on record the correspondence dated 09.11.2020, 12.11.2020 and 17.11.2020. Surprisingly, the RP sought approval of Applicant's Resolution plan. Left with no other option, the Applicant withdrew its plan vide letter dated 28.11.2020 addressed to RP and the CoC members. The Applicant further requested for release of the performance bank guarantee of Rs. 3,01,32,780/- and EMD of Rs. 50,00,000/-. The RP responded vide letter dated 30.11.2020 stating that the withdrawal letter shall be placed before this Bench. (18) It is submitted that generation of 20 million units annually is imperative to sustain the financial projections which form the substratum of resolution plan. If the project generates 4 million units annually as stated in the investigation report, the project will incur an annual generation loss of Rs. 4,48,00,000/- (1,60,00,000 ....
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....s approval by the Adjudicating Authority". (21) The argument of the RP that the withdrawal of plan of RA has caused loss to the CoC/CD is incorrect because the undisclosed liquidation value of the CD was almost equivalent to the offer of RA's plan (30.13 Cr). Assuming that the liquidation value of the Corporate Debtor is 30 Cr, the CoC would suffer a loss of only 13 Lakh because of withdrawal, as there were only 2 bidders who submitted bids below 30 Cr, out of which only the present RA revised its bid over 30 Cr. 4. The Resolution Professional to the Corporate Debtor has filed written arguments in respect of I.A No. 439/2020 and I.A No. 500/2020 with the below stated submissions: (1) It is submitted that the Resolution Applicant upon being declared eligible bidders were provided bid process document by way of request for resolution plan (RFRP) detailing all the requirement and conditions to be fulfilled before submitting the resolution plan along with necessary templates etc. The Successful Resolution Applicant then based on its own due diligence presented their Resolution Plan to the Resolution Professional on 14.03.2020 for a bid value of Rs. 15 Cr only. ....
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.... at the time of issuance of IM was specified therein with necessary disclaimers which among others stated that: "This Information Memorandum has been prepared for private circulation to the Committee of Creditors and potential Resolution Applicants to provide basic information about Sagar Power (Neerukatte) Private Limited and to comply with the information requirements under the Insolvency and Bankruptcy Code, 2016 hereinafter referred to as "Code". This Information Memorandum has been prepared on the basis of the information submitted by and discussions held with the Company officials, industry norms, and other information/documents obtained by the RP from various sources/available publicly, which the RP believes to be reliable. The RP has not carried out any independent verification for the accuracy of the same. All the figures mentioned in this note are based on preliminary discussions and information obtained from the Company." This Information Memorandum constitutes an opinion expressed by the RP and hence, he shall not be held liable for any misrepresentation or financial loss caused to anyone based on this information Memorandum. The Information Memorandum....
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....06/- as land compensation standing in 76 individual accounts is produced as Annexure -B. (12) After the audit undertaken by the Resolution Professional, it was clear that there are four land parcels associated with the project: Land Parcel No. 1 admeasuring 0.63 Acres converted land as per ledger accounts of CD. Amount paid to acquire this land parcel being Rs. 9,45,000/- recorded in books as "Land D Surendra Nath Reddy". The said land parcel is in the possession of CD and used for installation of the plant and equipment for 15MW Power Project; Land Parcel No. 2 admeasuring 12.77 Acres (of 35.42 Acres), Agricultural land used for water storage, total 6 survey numbers in the name of Shri. D. Surendranath Reddy, and is mortgaged to banks, held as collateral security by CoC members). In the possession of the CD. It is used for storage of water for hydro-power generation. 22.65 Acres (of 35.42 Acres) Agricultural land used for water storage comprising 25 survey numbers in the name of Erstwhile Promoter, Shri N. Manohar Reddy. This land parcel has been mortgaged to banks (held as collateral security by CoC members) Land parcel No. 3 admeasuri....
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....smissed. 5. Heard Mr. V. Srinivasa Raghavan, learned Senior Counsel along with Mr. Prithu Garg for the Resolution Applicant and Ms Amrita Jain, Learned Counsel for Resolution Professional of the Corporate Debtor through Video Conference. We have carefully perused the pleadings of the party and also extant provisions of the Code, and Rules made thereunder. 6. The main issues that arise before us for examination in this application are: (i) Whether the Resolution Applicant can be allowed to withdraw the resolution plan after approval of the plan by CoC and pending approval by this Tribunal? If yes, under what circumstances? (ii) Whether the EMD and the Performance Bank Guarantee deposited by the Resolution Applicant to participate in the resolution process of the Corporate Debtor, be returned to the Resolution Applicant or forfeited due to loss caused for withdrawing from the process at this juncture? 7. At the outset it is made clear that the Resolution Applicant prepares a plan mainly based on the information provided in the information memorandum prepared by the Resolution Professional. The Resolution Professional is required to prepare the Information M....
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....lable parcels of land. Without these 4 parcels he apprehended huge losses as the generation would be too low, and further the erstwhile Promoter demanded Rs. 7.50 crore to hand over the 4th parcel. This request was denied and on the next meeting of the CoC the Plan was proposed for voting. At this point the Applicant opted to withdraw the Plan. 9. The Resolution plan being based on the details made available to the Applicant under the Information Memorandum, any new discovery that would affect the interests of the Applicant adversely, and entitles the Applicant to decide his participation afresh, bearing in mind the changed situation and the possibility of future losses. The Resolution Applicant cannot be compelled to participate in resolution plan jeopardising its own interest. Even if the information provided by the erstwhile Promoter is incorrect, as mentioned by the RP in his objections, if a doubt is created in the mind of the Applicant with regard to the possibility of losses from the project, backed by an independent consultant's report, we are of the view that he would justifiably not be inclined to carry on as a Resolution Applicant. In this regard, the decision of ....
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....tests the contentions of the erstwhile Promoter. Whatever may have been the reason, either lacuna in estimating the requirement as well as availability of land for generation of power in a manner that is beneficial to the Applicant, or the lack of full and correct information provided by the erstwhile Promoters to the RP, the fact remains that there was a considerable disparity in what was represented to the Applicant regarding the area of land required for generating 20 million saleable units of power, which is required to maintain the Corporate Debtor as a going concern and what is actually required/made available. In view of these facts and circumstances, we are of the considered view that the Resolution Applicant cannot be compelled to perform and execute the Resolution Plan when he apprehends huge losses, and should be permitted to withdraw the Plan submitted by him for approval of this Adjudicating Authority. The IA therefore merits to be allowed, subject to the directions mentioned below. 11. I.A. No. 499/2020 has been filed by the Resolution Professional and others against the Corporate Debtor and its erstwhile directors seeking an order declaring certain transactions as....