TaxTMI 
TaxTMI 
2025 (4) TMI 1402
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.... No. 1237 of 2023 JUSTICE ASHOK BHUSHAN CHAIRPERSON AND BARUN MITRA MEMBER TECHNICAL For The Appellant : Mr. Gopal Jain, Sr. Advocate with Mr. Madhav Kanoria, Ms. Surabhi Khattar, Ms. Pallavi Agarwal, Ms. Prachi Jain, Advocates, Mr. Amrut Joshi, Mr. Prakhar Tandon, Mr. Anuj Tiwari, Advocates, Ms. Pooja Mahajan, Ms. Samridhi Shrimali, Advocates., Mr. Bishwajit Dubey and Ms. Aishwarya Singh, Advocates., Mr. Bishwajit Dubey and Ms. Aishwarya Singh, Advocates., Mr. Bishwajit Dubey and Ms. Aishwarya Singh, Advocates., Mr. Bishwajit Dubey and Ms. Aishwarya Singh, Advocates., For The Respondents : Mr. Amrut Joshi, Mr. Prakhar Tandon, Mr. Anuj Tiwari, Advocates for R-1. Ms. Pooja Mahajan, Ms. Samridhi Shrimali, Advocates for Erstwhile RP., Mr. Gopal Jain, Sr. Advocate with Mr. Madhav Kanoria, Ms. Surabhi Khattar, Ms. Pallavi Agarwal, Ms. Prachi Jain, Advocates for R-1 to R-16 (CoC/ Bank of Baroda)., Ms. Pooja Mahajan, Ms. Samridhi Shrimali, Advocates for Erstwhile RP, Mr. Amrut Joshi, Mr. Prakhar Tandon, Mr. Anuj Tiwari, Advocates for R-1. Mr. Gopal Jain, Sr. Advocate with Mr. Madhav Kanoria, Ms. Surabhi Khattar, Ms. Pallavi Agarwal, Ms. Prachi Jain, Advocates for R-4 (CoC/ ....
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....ve been filed by Charu Desai, erstwhile Resolution Professional of M/s. GB Global Limited and other Appeals have been filed by the Operational Creditors who have filed application seeking direction for payment of their operational debts. 2. Background facts of the case and sequence of the events need to be noticed for deciding all these Appeals are:- 2.1. On the application filed by the Bank of Baroda under Section 7, the Corporate Debtor- 'Mandhana Industries Limited' (M/s. GB Global Limited) was admitted to the CIRP by order dated 29.09.2017 passed by the Adjudicating Authority. Ms. Chari Desai was appointed as IRP who was subsequently confirmed as a Resolution Professional. The Resolution Professional issued a Process Memorandum (Invitation for Submission of Resolution Plan for Mandhana Industries Limited in March, 2018). The last date for submission of the Expression of Interest (EoI) was extended to 18th May, 2018. On 23.05.2018, Formation Textiles LLC (hereinafter referred to as "Formation") submitted its EoI. Last date for submission of the Resolution Plan was fixed as 08.06.2018. On 30.05.2018, Formation and other Resolution Applicants were given access to the data ro....
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....e bank guarantee (PBG) of Rs. 50,00,00,000.00/-. On 24.09.2018, a letter was sent by Formation to the Resolution Professional demanding Resolution Professional to refund the PBG. Formation also communicated its reservation of rights to withdraw its Resolution Plan without and liabilities and obligations. It also communicated that it shall consider reduction in the financial offer of Rs. 480,00,00,000/- under its Resolution Plan by Rs. 5,00,00,000/- per 15 days of delay in obtaining approval and management control of the Corporate Debtor. Again on 29.10.2018, Formation wrote to the Resolution Professional. Resolution Professional informed the Formation that the process of approval of the plan is a judicial process and timeline is not in the control of the Resolution Professional and the CoC. Adjudicating Authority on 30.11.2018 approved the Resolution Plan of the Formation. Formation requested time till 31.01.2019 for bringing upfront payment. On 15.12.2018, Formation sent an e-mail to the Resolution Professional that it had already provided Rs. 55,00,00,000/- and are ready and willing to deposit the remaining Rs. 21,00,00,000/- to increase the authorised share capital. They prayed ....
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....g direction of release of the outstanding CIRP costs. Adjudicating Authority heard the IA No.2326 of 2019 filed by the Bank of Baroda and IA No.2124 of 2019 filed by the Resolution Professional and passed an order on 05.12.2019 directing as an interim measure that possession of the corporate debtor be handed over to the CoC by Formation who in turn will hand over the same to the erstwhile Resolution Professional. Adjudicating Authority further directed restoration of the CIRP and erstwhile Resolution Professional to continue as Resolution Professional. 2.3. After the order dated 05.12.2019, CoC meeting was held on 10.12.2019 where decision was taken to forfeit/ invoke the performance bank guarantee given by Formation on account of its failure to implement the plan which decision was approved by 96.89% vote share of the CoC. On 08.01.2020, Formation handed over the possession of the corporate debtor to the CoC. On 21.01.2020, Formation filed MA No.427 of 2020 seeking refund of Rs. 93 Crores with some other prayers. An additional affidavit was filed by the Bank of Baroda seeking direction for inviting fresh Resolution Plan for the corporate debtor. On 05.02.2020, Adjudicating Auth....
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....rational debts totalling to Rs. 22.30 Crores on behalf of the corporate debtor for supply of goods and services with regard to which different IAs have been filed by the operational creditors. The Appellants noted above filed their IAs after approval of the Resolution Plan of DLH. IA No.1986 of 2021 was filed by Vishal Dyes & Chemicals & Ors. praying for direction to make the payment to the applicant out of the deposit of Rs. 42.99 Crores made by Formation Textiles. The application was filed by Vishal Dyes & Chemicals along with 36 other creditors who have supplied goods and services to the corporate debtor at the time when Formation was running the corporate debtor. Similarly, Appellants in Company Appeal (AT) (Insolvency) No.1100-1101 have filed the IA No.1785 of 2021 which was by Anglomonto Resource Pvt. Ltd. seeking a direction to pay the balance amount due on account of supply of non-cooking imported coal from 17.09.2019 to 08.01.2020. Appellant in Company Appeal (AT) (Insolvency) No.1236 of 2023 who claimed to have supplied goods from 13.11.2018 till 06.09.2019 who also prayed for setting aside the order of the Adjudicating Authority passed in IA No.443 of 2021 and sought dir....
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....als. Resolution Professional has advanced submission on behalf of the Appellant in Company Appeal (AT) (Insolvency) No.1026-1027 of 2023 as well as Respondents in other Appeals. Shri Amrut Joshi has advanced his submission on behalf of the Appellant in Company Appeal (AT) (Insolvency) No.1163 of 2023 filed by Formation and Respondents in other Appeals. Shri Bishwajit Dubey, Learned Counsel has appeared for Appellant on behalf of Interim Trade Creditors. Submissions on behalf of the Bank of Baroda as Appellant as well as Respondents in other Appeals, submissions of Counsel for the CoC (Bank of Baroda), submissions of the Resolution Professional as Appellant as well as Respondents in other Appeals being common, we shall noticed their submissions as submissions for the Appellant. 4.2. Counsel for the Formation Textile LLC has made limited submission in support of its appeal Company Appeal (AT) (Insolvency) No.1163 of 2023 but has made submissions as Respondents opposing appeals of all other Appellants. Thus, the submission of Formation as Appellants and Respondents shall be noticed separately. 4.3. Submission on behalf of the interim trade creditors is common of all the Appellan....
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....ainst the process document. The observations of the Adjudicating Authority that Adjudicating Authority on the request of the CoC or the Resolution Professional has allowed the Formation to exit in its order dated 05.12.2019 is erroneous and not based on facts. The present was a case where Formation failed to implement the Resolution Plan and has also filed an application praying for setting aside of the plan approval order which clearly proves the act of Formation in not implementing the plan. Formation always wanted to get away from the Resolution Plan and application IA No.443 of 2021 was filed on incorrect basis. The CoC and the Resolution Professional has provided all necessary information in the Information Memorandum for preparation of the Resolution Plan. All Resolution Applicants were to make their own due-diligence before submission of the Resolution Plan. The case set up by Formation that he was not made aware of the avoidance application and financial statement of the corporate debtor were inflated cannot be a reason to permit the SRA to withdraw from Resolution Plan and refuse to implement the Resolution Plan. The CoC under the process document has right to forfeit the ....
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....olution Plan. In the CIRP process when Finquest was declared as H1, it was Formation who gave revised and higher bid and obtained an order from NCLT for inter se bidding and it was after Formation was declared as H-1, the plan was approved. The judgment of the Hon'ble Supreme Court in "Ebix Singapore Pvt. Ltd. vs. CoC of Educomp Solutions Ltd. & Anr.- 2021 SCC OnLine SC 707" clearly prohibited Formation to withdraw from the plan and find out excuses for not implementing the plan. Formation was clearly bound by the approval of the Resolution Plan and was obliged to implement the Resolution Plan. Formation has not implemented the plan as plan has already failed and consequences for non-implementation of the plan had been rightly taken by the CoC by for forfeiting the PBG and EMD. The Adjudicating Authority in the impugned order has not followed the earlier orders passed by it on 05.12.2019 and 19.05.2021. The decision taken by the Adjudicating Authority in the impugned order is clearly against the intent and purpose of the order dated 05.12.2019. The Company was handed over back to the CoC and Resolution Professional only due to reason that the Formation failed to implement the plan ....
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....as referred to and relied on Explanation to Section 29. Referring to Regulation 36, sub-regulation (2) of the CIRP Regulations, learned Counsel submits that the Regulations also enjoins the RP to provide relevant information and relied on Clauses (a), (e), (h) of the Regulation 36, sub-regulation (2). It is submitted that making a Resolution Plan was depended on relevant information. It is submitted that relevant information has to include financial position of the CD. The RP is obliged to provide most accurate information available at its disposal for the purpose of showing the financial position of the CD. The Forensic Audit Report establishes that the real financial position has been suppressed. Learned Counsel has referred to an order dated 04.10.2024 passed by Adjudicating Authority in Application under Section 66 of the IBC. It is submitted that disclaimers given by the RP in the Process Memorandum is not sufficient to dilute or bypass any statutory mandate. The mere fact that in the Resolution Plan, Formation has provided for CIRP cost of Rs. 25 lakhs for Application under Sections 43, 45, 50 and 66, does not mean that Formation was well aware of Forensic Audit Report and th....
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....of the Process Memorandum are not attracted, in the facts of the present case. It is further submitted that Regulation 36B(4A) of the CIRP Regulations is also not applicable, which provision was introduced to subsequent to approval of Resolution Plan. Learned Counsel for the Formation submits that amount, which was treated to be equity infusion, could not have been retained by the CoC and has rightly been directed to be refunded by the Adjudicating Authority. Infact, the CoC and RP played a fraud on Formation by inducing it to part of mandatory infusion while not doing their own duty under the IBC. It is submitted that the Appeals filed by the CoC as well as the RP deserve to be dismissed with cost. 9. Ms. Pooja Mahajan, Learned Counsel appearing for the RP in support of Company Appeal (AT) (Ins.) No.1026 & 1027 of 2023 submits that Adjudicating Authority has recorded incorrect finding in the impugned order dated 06.07.2023. The finding of the Adjudicating Authority that RP did not treat the Plan as being contravened is against the materials on record. During the hearing on 05.12.2019, both the RP and the CoC submitted that SRA has not implemented the Plan, since the Formation h....
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....for the same should be passed on to the creditors. Learned Counsel for the Respondent referred to 21st CoC Meeting held on 04.07.2018, which record that Formation and Finquest were asked to include a provision in the Resolution Plan with respect to avoidance transactions and that any recoveries will be paid out to the Financial Creditors. It was also discussed that costs with respect to the same, subject to cap of Rs. 25 lakhs would be paid by the Resolution Applicants. The Formation being aware of the proposed filing of avoidance application, has included a condition in the Resolution Plan to pay cost of Rs. 25 lakhs for the application. The submission of the Formation is that financials of the CD were inflated and inflated financials were provided to them by the RP and the allegation in averments in IA No.443 of 2021 by the Formation is that RP provided heavily inflated financials of Financial Year 2015-16, which showed substantial income/ turnover of Rs. 1547 crores and Rs. 1657 crores. However, upon takeover, when Formation analyzed the actual production capacity of CD, it realized that the income generated cannot exceed more than Rs. 600 crores. Learned Counsel for the RP subm....
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....udicating Authority, seeking a direction for payment of their outstanding amount from the Formation. Shri Bishwajit Dubey, learned Counsel appearing for the Interim Trade Creditors submits that Appellants have supplied goods and services to the CD at the time when CD was under the control and management of Formation. It is submitted that in the Plan of Dev Land & Housing Pvt. Ltd. ("DLH"), which was approved on 19.05.2021, an amount of Rs. 1.63 crores was proposed. The Plan further indicated that Formation had infused Rs. 42.99 crores in the CD, which was reflected in the current liability and the amount was kept as a fixed deposit with the Bank of Baroda, which was also directed by the Adjudicating Authority. When the CIRP re-commenced, the Appellant had no opportunity to file any claim, since no claim was invited by the RP. The total claim of Interim Trade Creditors was computed by RP was as Rs. 20.9 crores, is still payable to the Interim Trade Creditors, which has also been noted by the Adjudicating Authority in its order dated 19.05.2021. The amount of Rs. 42.99 crores, which was the amount infused by the Formation, being kept in the fixed deposit, the Interim Trade Creditors ....
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....mits that the amount claimed by the Interim Trade Creditors is not CIRP cost, nor the CoC can be directed to make the payment. It is submitted that it was during Formation's management that the Interim Trade Creditors claimed to have supplied their goods and services and it was Formation, which failed to make the payment to the Creditors to supply goods and services. Dues pertaining to the period when Formation was in custody and control of the CD. It is submitted that CoC is not liable to make the payment to the Appellant. 12. Learned Counsel for the RP submits that RP has already filed an application before the Adjudicating Authority with regard to payment of Interim Trade Creditors seeking a direction for making payment, it is for this Tribunal to consider and take appropriate decision. 13.Learned Counsel for the Formation refuting the submissions made on behalf of Interim Trade Creditors submits that DLH in their Resolution Plan has offered to deal with the claim of Interim Trade Creditors and offered an amount of Rs. 1.63 crores against their outstanding and the DLH Resolution Plan being approved on 19.05.2021, no further claim can be considered of the Interim Trade Cred....
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.... has to be adjusted in the equity infusion, which was required to be made by the SRA under the Resolution Plan, had the PBG lost its nature and character to enable the CoC to invoke the PBG after the RP's treated it towards equity infusion? (5). Whether the RP was obliged under Section 29 read with Regulation 36, sub-regulation (2) of the CIRP Regulations 2016 to include the Transaction Audit Report in the Information Memorandum and share the same to Formation, failure of which makes the implementation of the Resolution Plan voidable? (6) Whether the RP had not provided the correct financial position of the CD to RA, due to which performance of Resolution Plan became voidable? (7) Whether the Formation had made out a case for direction to refund the amount of Rs. 93.08 crores and the order of Adjudicating Authority directing such refund is sustainable? (8) Whether the Application filed by the RP as well as Application filed by Interim Trade Creditors (who are Appellant before us) were maintainable before the Adjudicating Authority in view of the approval of Resolution Plan of DLH on 19.05.2021 and Adjudicating Authority has rightly taken the view....
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....h December 2019, the CoC (in accordance with the terms of the Process Memorandum dated 6th March 2018 and the Letter of Intent dated 7th July 2018) has approved the invocation/ forfeiture of the Performance Bank Guarantee on account of your failure to implement the Resolution Plan. This is for your information and record. For GB Global Limited (Formerly known as Mandhana Industries Limited) Charu Desai (On behalf of the CoC of GB Global Limited)" 17. The email clearly communicate that decision to invoke the PBG was taken on account of failure of SRA to implement the Resolution Plan. The submission advanced on behalf of the Formation as noted above is that the invocation of PBG in the facts of present case was not covered by any of Clauses of Process Memorandum. We, thus, need to notice the Clauses of Process Memorandum to find out as to whether CoC could have invoked the PBG and also whether invocation of the PBG by the CoC is sustainable or unsustainable. The Process Memorandum was issued by the RP in March 2018, which invited for submission of Resolution Plans for the CD (can also be referred to as "RFRP"). Clause 10.2 deals with 'Issuance o....
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.... non-receipt of required approvals for implementation of Resolution Plan of the Successful Resolution Applicant within the timelines specified in the Resolution Plan or 45 (forty five) days from the acceptance of the Letter of Intent or any other such extended period as may be prescribed by the CoC or the Adjudicating Authority." 20. When we look into Clause 14.2 and 14.6 of the RFRP, the Clause 14.2 clearly contemplate "in the event the implementation of the Successful Resolution Plan is not complete on such date, failing which the Performance Guarantee may be immediately invoked or enforced by the Guarantee Beneficiary, subject to the approval of the CoC". Clause 14.6 provides -without prejudice to Clause 14.2 (Performance Guarantee), the Performance Guarantee can be invoked at any time, if any of the conditions under Letter of Intent or Resolution Plan are breached or failure of the Successful Resolution Applicant to implement the Resolution Plan to the satisfaction of the CoC. Thus, Clause 14.6 contemplated invocation of Performance Guarantee on failure of the Successful Resolution Applicant to implement the Resolution Plan to the satisfaction of the CoC. 21. Learned Coun....
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....(Default by Successful Resolution Applicant and its consequences) set out above; and (c) The Guarantee Beneficiary may invoke the Performance Guarantee and the Earnest Money, provided by the Successful Resolution Applicant, while submitting the Resolution Plan, subject to the approval of the CoC." 22. We have also noted the email dated 17.01.2020, by which decision of the CoC was communicated to the Formation, which clearly mentions that CoC has invoked the Performance Guarantee since SRA has failed to implement the Resolution Plan. 23. The CoC, thus, has invoked its power under Clause 14.2 to 14.6 and 15.4 for invocation of the PBG, which is fully in accord with the Process Memorandum and the submission of the Formation that CoC could not have invoked the PBG in the facts of the present case is without any substance. Question Nos.(2) and (3) Whether the finding of the Adjudicating Authority that CoC and RP had not treated that approved Resolution Plan had been contravened by the Formation are based on materials on record? Whether sufficient materials were placed by CoC and RP before the Adjudicating Authority to establish that Formation has fail....
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....tial allotment of Equity Shares to the Resolution Applicant by the Company, in accordance with Applicable Law. Additionally, the CIRP costs upto Rs. 4 Crore and payment of Rs. 2.224 Crore towards admitted claims of Workmen & Employee (Rs. 1.59 Crore) and admitted claims of Operational Creditors (Rs. 0.634 Crores) shall be made upfront within 30 days from Effective Date from the cash balance available in the Company. 3. CIRP COSTS 3.1 The Resolution Applicant proposes that CIRP Costs of upto Rs. 4 Crore shall be paid upfront within 30 days from Effective Date over and above the value to Financial Creditors from the cash balance available with the Company. This amount will be paid in priority to the repayment of any other debt amount. It is envisaged that CIRP cost will be paid on actuals and it is expected that it shall not exceed" 26. We have noticed above that RP had to file an application seeking direction to the Formation to release the CIRP costs being MA No.2124 of 2019, which MA was filed on 11.06.2019. The filing of the application by the RP, clearly indicated that SRA has not paid the CIRP costs within the time allowed in the Resolution Plan. O....
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....anner as laid down under Chapter III of the Insolvency and Bankruptcy Code, 2016, F. That this Hon'ble Tribunal be pleased to pass an order under Section 74(3) of the Insolvency and Bankruptcy Code 2016 against Respondent No. 1 and/or Respondent No. 2 for contravention of the terms of the Resolution Plan; G. That pending the hearing and final disposal of the Application before this Hon'ble Tribunal, Respondent Nos. 1 and 5 be called upon to, on affidavit, place on record the steps taken by them for implementation of the Resolution Plan and further all the steps taken by it in the running of the Corporate Debtor, in order to ascertain he status of the Corporate Debtor today including disclosing any progress reports filed by them before this Hon'ble Tribunal; H.That pending the hearing and final disposal of the Application before this Hon'ble Tribunal, Formation Textiles LLC and N.V. Dand & Associates be directed to, on affidavit, place on record the steps taken by them for implementation of the Resolution Plan and further all the steps taken by it in the running of the Corporate Debtor, in order to ascertain the status of the Corporate Debt....
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.... No.2223 of 2019, where it sought an order permitting FTL to revise its offer or reduce the same and various amendments were also sought in the said MA. By MA No.2223 of 2019, Formation also sought setting aside/ recall of the Plan approval order. Copy of MA No.2223 of 2019 has been brought on record as Annexure-A2 to the rejoinder affidavit filed in Company Appeal (AT) (Ins.) No.983-984 of 2023, where the Formation has made following prayers: "(a) For an Order from this Hon'ble Tribunal permitting the Applicant to revise its offer/bid and reduce the same in line with the actual worth/ valuation of MIL; (b) For an Order and Direction from this Tribunal allowing the appointment by the Applicant of an independent auditor/agency to carry out a forensic audit of MIL to accurately determine its accurate worth/valuation; (c) For an Order from this Tribunal expressly allowing the liabilities to be extinguished in terms of Chapter VII of the Resolution Plan; (d) In the alternative to prayer (c), an order directing the Resolution Professional and the COC to remit amounts to the Applicant to the extent of the undisclosed liabilities of VAT, Income Tax,....
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....ave opted for cash option instead of equity shares of MIL, and, directing the Resolution Professional/ COC Members to take necessary steps to transfer the 76 million equity shares of MIL in favour of and in the name of the Applicant consideration of the equity infusion of Rs. 76 Crores having been received from the Applicant. By the present Application the Applicant seeks to amend Misc. Application No. 2223 of 2019." 29. When the Formation has been praying for recall of the Plan approval order, the intent was clear and loud that Formation was not implementing the Resolution Plan, nor they were interested in implementing the Resolution Plan. Learned Counsel for the RP and CoC have categorically submitted before the Adjudicating Authority by means of various applications and oral submissions that SRA has failed to implement the Resolution Plan. 30. We may also refer to the order dated 05.12.2019, on which much reliance has been placed by learned Counsel for the Formation, also did not record any finding that CoC and RP has not treated that approved Resolution Plan have been contravened. The submission of the CoC has been captured by the Adjudicating Authority in order dated 05.....
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....e PBG after the RP's treated it towards equity infusion? 34. The submission which has been made on behalf of learned Counsel for the Formation is that amount of PBG of Rs. 50 crores and earnest money have been adjusted in the equity infusion, which was to be made by the SRA, hence, the PBG of Rs. 50 crores lost its character and nature, which resulted in inability of CoC to invoke the PBG, which submission has been refuted by learned Counsel for the RP and the CoC. It is submitted that equity infusion by the SRA was in addition to the PBG. 35. Before we enter into respective submissions of the parties, we need to notice relevant Clauses of Process Memorandum. We have noted above the issuance of Performance Guarantee has been dealt in Clause 10.2 and Performance Guarantee has been further been dealt in Clause 14. Clause 14.8 of the Process Memorandum clearly provides for answer to the submission raised by the Formation. Clause 14.8 prohibit Performance Guarantee to be set-off or used as part of the consideration that the Successful Resolution Applicant proposes to offer. Clause 14.8 is as follows: "14.8. The Performance Guarantee shall not be set-off against or used a....
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.... PBG was impermissible under the terms of the Resolution Plan read with Regulation 36B(4A) of the 2016 Regulations." 37. The said question was considered and answered by the Hon'ble Supreme Court in negative holding that PBG cannot be adjusted towards payment, which has to be made by SRA. The Hon'ble Supreme Court in the above context has noticed the relevant Clauses of RFRP and that of Resolution Plan. The submission of SRA relying on Clause 64.4 was noticed in paragraph 99 of the judgment, which arguments was noticed and rejected. Paragraph 99 of the judgment is as follows: "99.It is the case of the SRA that as per Clause 6.4.4 on the "Treatment of Financial Creditors" and the table adduced under the heading "Summary of payment and security package", the PBG of Rs. 150 Crore could have been adjusted against the payment of the first tranche. It was submitted that in the last column of the table, the "Date of Release of Security" is provided. In the very first head in the column on date of release of security, the expression "PBG adjusted" has been mentioned against the first tranche of cash payment to be made to the Financial Creditors. Further, in the explanat....
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....; xxx xxx 10. We confirm that we have not taken any deviations so as to be deemed non-responsive with respect to the provisions of the RFRP, the IB Code and the CIRP Regulations." (emphasis supplied) A bare reading of the above also strengthens the conclusion that the SRA has to remain compliant with the terms of the RFRP, at all times, in addition to being obedient to the terms of the Resolution Plan. Therefore, to say that the RFRP was merely a wish list of the CoC....
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....id down that Clauses of RFRP, which required PBG be kept alive till complete implementation of Resolution Plan and shall not be set-off against any payment to be made by SRA. The Clauses of RFRP are binding on the SRA. In view of the aforesaid Clause, no submission on behalf of the Appellant that the amount of PBG should be treated towards equity infusion can be accepted. 41. Learned Counsel for the SRA has referred to the emails sent by the RP on 03.01.20219, 09.01.2019 and 30.01.2019. In the reply filed by the Formation in Company Appeal (AT) (Ins.) No.983-984 of 2019, the said emails have been brought on record along with the legal submission filed by Formation. The above emails have been filed along with the legal submissions and the RP had no opportunity to respond and clarify in the pleadings. We are of the view that in view of the Clause 14.8 of the RFRP as noted above, any communication by RP on the above regard, has no relevance. Neither RP nor CoC or SRA had any right or jurisdiction to act in breach of Clause 14.8. 42. Learned Counsel for the Appellant has also referred to the Minutes of the Meeting of Financial Creditor held on 21.01.2019, where it is recorded "Ba....
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....ndum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan. (2) The resolution professional shall provide to the resolution applicant access to all relevant information in physical and electronic form, provided such resolution applicant undertakes- (a) to comply with provisions of law for the time being in force relating to confidentiality and insider trading; (b) to protect any intellectual property of the corporate debtor it may have access to; and (c) not to share relevant information1A with third parties unless clauses (a) and (b) of this sub-section are complied with. Explanation.-For the purposes of this section, "relevant information" means the information required by the resolution applicant to make the resolution plan for the corporate debtor, which shall include the financial position of the corporate debtor, all information related to disputes by or against the corporate debtor and any other matter pertaining to the corporate debtor as may be specified." 46. Learned counsel for the Formation has relied on explanation, which provides that relevant info....
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....btor towards them; (j) [***] (k) [***] (ka) fair value: Provided that the committee may decide not to disclose the fair value if, for reasons to be recorded in writing, it considers such non-disclosure to be beneficial for the resolution process. (j) company overview including snapshot of business performance, key contracts, key investment highlights and other factors which bring out the value as a going concern over and above the assets of the corporate debtor such as brought forward losses11 in the income tax returns, input credit of GST, key employees, key customers, supply chain linkages, utility connections and other pre-existing facilities. (k) Details of business evolution, industry overview and key growth drivers in case of a corporate debtor having book value of total assets exceeding one hundred crores rupees as per the last available financial statements. (l) other information, which the resolution professional deems relevant to the committee." 47. The present is not a case where Appellant's case is that the financial statement and audited financial statement of the corporate debtor of the last two financi....
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.... the RP has also submitted that the information memorandum was already prepared and shared with Formation on 30.05.2018 and Final Transaction Audit Report was received only on 22.06.2018. The resolution plan from resolution applicants were already received on 08.06.2018, hence there was no occasion to refer the same either in the information memorandum or share the same to the resolution applicant who had already filed their plan by 08.06.2018. Learned counsel for the RP, however, has referred to the minutes of 21st meeting of the CoC held on 04.07.2018, where resolution applicant was asked to include provision of cost with regard to avoidance application. The copy of the minutes of 21st meeting held on 04.07.2018 has been brought on the record as Annexure A-9 to the Company Appeal (AT) (Ins.) Nos. 1026 & 1027/2023. It is relevant to notice the following part of the minutes: "The RAs were also apprised of the below terms and information which should be incorporated in their revised resolution plan: 1. If any contributions are made to/recoveries made by the Corporate Debtor pursuant to Order of Adjudicating Authority under any Application made by the Resolution Pro....
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.... Section 29 cannot be supported. 54. We, thus are of the view that Formation cannot raise any issue regarding non-sharing of transaction audit report or not including the transaction audit report in the information memorandum for wriggling out from its obligation in the resolution plan, which had approved by the adjudicating authority on 30.11.2018. The finding of the adjudicating authority returned in paragraph 61 that non-disclosure of the above information, performance of terms of resolution plan becomes voidable is also an incorrect finding. Non-sharing of transaction audit report in no manner can affect implementation of the resolution plan and it is far fetched to hold that due to not sharing of the said transaction audit report, the performance of the resolution plan became voidable. 55. There is material on record to indicate that earnest money was invoked in October 2018 itself by the CoC, on Formation not extending the EMD as per provisions of the Process Memorandum. The PBG was invoked on 10.12.2019, which we have already upheld in foregoing discussions. Question No.(6) Whether the RP had not provided the correct financial position of the CD to RA, due ....
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....or pursuant to the obligations of the Resolution Applicant therein (including on account of breach of such obligations by the Resolution Applicant). (c) The Resolution Applicant represents that this Resolution Applicant is in compliance with the requirements set out under the Applicable Laws. (d) The Resolution Applicant represents to the Resolution Professional and the CoC that it has the necessary financial resources available for the purpose of implementation of the Resolution Plan as approved by the Adjudicating Authority. (e) The Resolution Applicant acknowledges that, the implementation of the Resolution Plan will be on "as is where is" basis. (f) The Resolution Applicant acknowledges that neither the Resolution Professional nor, the members of the CoC, nor their respective advisors are providing any representations or warrnaty(ies) regarding the status of business, business prospects, or assets of the Company and the Resolution Professional or the CoC and their respective advisors assume no such liability whatsoever in this respect. (g) The Resolution Applicant represents to the Resolution Professional, and the CoC, that it has ob....
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....ealed that 70 per cent. of the revenue of the corporate debtor came from trading, and not from manufacturing. (b) The Mott Macdonald Report dated September 30, 2016 is factually incorrect and flawed. (c) Misleading and false statement was made with regard to the uninstalled imported components of 12,500 M.T. Press, which were stored in the land of a sister concern-Clover Forging and Machining P. Ltd. (d) The successful resolution applicants were misled in view of the non-reliability of financial data. There was ongoing financial/forensic audit." Rejecting the arguments in paragraphs 8 & 9, following was held: "8. The aforesaid reasons or grounds taken by the successful resolution applicants do not qualify and cannot be treated as a fraud on the part of the resolution professional. This is not a case where misinformation or wrong information was given to the resolution applicants. 9. We have been taken through the information memorandum, as well as, the data in the virtual data room, access to which was granted to the prospective resolution applicant(s), before they had submitted their resolution plan(s)." 61. Hon'ble Supreme ....
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....ion of the approved resolution plan. 63. The judgment of the Hon'ble Supreme Court in 'Ebix Singapore' (Supra), clearly binds SRA from its obligation and it cannot be allowed to wriggle out there its obligation as sought to be made in the present case. The submission which has been raised by learned counsel for the Formation distinguishing the judgment of the Hon'ble Supreme Court in 'Ebix Singapore' (Supra), have no substance. One of the distinguishing features sought to be drawn by learned counsel for the Formation is that 'Ebix Singapore' (Supra), was a case where resolution plan was approved by CoC and was pending consideration before the adjudicating authority, whereas in the present case plan has already been approved by adjudicating authority on 30.11.2018. When the plan is approved by the adjudicating authority, obligations on the SRA to implement the plan becomes obligation which are to be statutorily enforced. Thus, on the said ground, the judgment of the Hon'ble Supreme Court in 'Ebix Singapore' (Supra), cannot be distinguished nor SRA can be allowed to wriggle out from its obligation on the exclusion and pretext as was raised before the adjudicating authority. Adjudi....
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....pal prayer of the Formation was to set aside the decision of the CoC dated 10.12.2019 forfeiting the performance bank guarantee which was claimed to be against the RFRP. We have already while deciding Question No. (1) has held that invocation of performance bank guarantee on 10.12.2018 by the CoC was in accordance with the process memorandum. The reasons given by adjudicating authority allowing the I.A.443/2021 were: i. CoC and RP had not treated that approved resolution plan had been contravened by the Formation. ii. Adjudicating authority had also not by its earlier order held that Formation had contravened the resolution plan and thereby to pass an order under Section 33(3) of the code. iii. Taking into consideration, the difficulties faced by the applicant-Formation in implementing the resolution plan, adjudicating authority allowed the application Formation textile to exit. 66. Further reasons given in paragraph 50 of the order is that no penal action can be taken against Formation on the ground of contravention on its resolution plan of its failure to implement having allowed by the adjudicating authority to exit on the request of the CoC and the....
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....antee and other sums infused by the applicant-formation especially where subsequently a resolution plan by another entity has been approved. The subsequent approval of the resolution plan shows that the lender/CoC have suffered no loss or damage. In the aforementioned cases, where even at the stage of liquidation, when asset of the Corporate Debtor has further suffered substantial loss, the liquidator has been directed to refund the amount in view of the settled position of law with regard to forfeiture in the nature of penalty. The necessary corollary to the aforesaid is that the RP and CoC in the present case, who have not suffered any loss and in terms of their own discretion deemed it fit in seeking approval of another resolution process and have consequently been able to approve another resolution plan, must not be allowed unjust enrichment by permitting forfeiture of not only the earnest money (Rs.5 crores) but also performance bank guarantee (Rs.55 crores) and such other sums infused towards the Corporate Debtor i.e. (Rs.38.82 crores) such unjust enrichment in face of settled position of law by the Hon'ble Supreme Court and decision of NCLT as well as in terms of the pro....
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....i) INR 50 Crores deposited by FTL In lhe form of cash equivalent of the performance bank guarantee that was to be provided under Clause 10.2.1 of the RfP; and (iii) INR 38.82 Crores towards part payment of FTL's equity component under the resolution plan, as well as for purposes of buying out the financial creditor's share of the equity held in MIL. FTL is yet to bring in the remaining amount towards the Upfront Equity Infusion and also the entire ECB Infusion to the tune of INR 160 Crores on an upfront basis. Such amounts should be brought tn on an immediate basis, in order lo ensure compliance with the terms of the resolution plan. Further, FTL must also immediately finalize the loan documents for continuation of debt owed to the financial creditors to the tune of INR 305 Crores. In light of the inordinate delay in the implementation of the resolution plan till date by FTL as specified hereinabove. Bank of Baroda, on behalf of itself and the other financial creditors hereby requests you to take the necessary steps and actions to ensure the implementation of the terms of your resolution plan, within a period of fifteen (15) days from the dale of this....
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....plication." 75. We have also noticed that Adjudicating Authority in order dated 19.05.2021 while approving the Resolution Plan of DLH has also noted and directed the amount of Rs.42.99 crores in fixed deposits. It is for ready reference, we extract paragraph 3(k) of the order dated 19.05.2021 passed in IA No.19 of 2021, which is to the following effect: "K. UTILIZATION OF FIXED DEPOITS OF FORMER SRA (FTL) LYING WITH THE CORPORATE DEBTOR: As a part of the Resolution Plan, it has been submitted that the former SRA has infused . 42.99 Crores into the Corporate Debtor which is reflected in the current liability and the amount is kept as a fixed deposit with Bank of Baroda, the lead bank. This amount was infused as share application money. But the shares were not issued. It is stated by the new SRA that such amount infused by the former SRA is not an asset over which it or the Corporate Debtor would have any interest and the treatment of this amount shall be at the instructions of the Financial Creditors in accordance with the orders of the Adjudicating Authority. As already stated by the (new) SRA in its Resolution Plan, we hereby direct that such fixed deposits of....
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....G and EMD, which was earlier done in October 2018. Thus, only the aforesaid two amounts were forfeited by the CoC, which was rightly forfeited by the CoC, which could not have been directed to be refunded by the CoC. We, however, of the view that with regard to Rs.38.2 crores, which by adding interest was kept in fixed deposit of Rs.42.99 crores, orders were required for utilization of the said amount. We, thus, are of the view that order of Adjudicating Authority of 06.07.2023, insofar as it directed refund of the EMD and PBG, cannot be sustained and it deserve to be set aside. With regard to other part of the amount of Rs.38.2 crores, which was subsequently kept in fixed deposit of Rs.42.99 crores, orders were necessary to be passed for utilization of the said amount. This aspect, we shall consider while considering the Appeal(s) filed by Interim Trade Creditors and appropriate directions shall be passed therein. 78. In conclusion, we are of the view that direction of adjudicating Authority to refund 93.82 Crore to the Formation cannot be upheld, and the said direction need to be set aside subject to further orders in this batch of appeals, which need to be considered while co....
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....settled, discharged and extinguished in full and reduced to nil by payment of INR 1,63,00,000 (Indian Rupees One Crore Sixty Three Lakhs only). The DLH Resolution Plan further provided as follows- "Since the Resolution Professional was not in charge of the management of operations of the Corporate Debtor when the Corporate Debtor was under the control of the Prior SRA, the costs in relation to the Prior SRA Period are not being treated as CIRP Cost, and the treatment that is being provided to the costs of the Prior SRA Period is in line with the other creditors of the Corporate Debtor. In case it is held that the costs in relation to the prior SRA Period are CIRP Cost, then the same shall be paid like CIRP Cost in the manner set out hereinabove. For avoidance of doubt it is hereinafter clarified that the total amount allocated by the Resolution Applicant for CIRP Cost will not be more than the Allotted CIRP Cost Amount. In case the CIRP Cost does exceed the Allotted CIRP Cost Amount, then any such excess amount, will be deducted from the FC Discharge Amount. At no point intime would the Resolution Applicant be required to make an additional payment for such costs and such ....
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....e Operational Creditors to the extent of D. 22.53 Crores and a sum ofD.1.63 Crores is provided to them under this Resolution Plan. Hence, there is a balance of 20.9 Crores payable to this category of the Operational Creditors. For * this balance amount payable, the CoC has submitted that this category of Operational Creditor shall be treated as pre-CIRP Operational Creditors. However, we are unable to concede to such submission. The rights of this category of Operational Creditors cannot be decided the way opined/suggested by the CoC. It is to be noted that these creditors cannot even file their claims. This does not relate to pre-CIRP liability but a liability created by the former SRA. We feel that the commercial wisdom of the CoC cannot be stretched to a situation where the rights of these creditors can be decided by the CoC. In fact, the liabilities were created by the former SRA during the period the Company was under its management. A decision relating to such liability by the CoC adversely affecting the rights of these category of creditors to the extent of around 20.9 Crores, could not be decided without hearing the affected parties. Hence in our considered opinion the CoC ....
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.... It is submitted that the former SRA has created a liability towards the Operational Creditors to the extent of Rs.22.53 Crores and a sum of Rs. 1.63 Crores is provided to them under this Resolution Plan. Hence, there is a balance of Rs. 20.9 Crores payable to this category of the Operational Creditors. For this balance amount payable, the CoC has submitted that this category of Operational Creditor shall be treated as pre-CIRP Operational Creditors. However, we are unable to concede to such submission. The rights of this category of Operational Creditors cannot be decided the way opined/suggested by the CoC. It is to be noted that these creditors cannot even file their claims. This does not relate to pre-CIRP liability but a liability created by the former SRA. We feel that the commercial wisdom of the CoC cannot be stretched to a situation where the rights of these creditors can be decided by the CoC. In fact, the liabilities were created by the former SRA during the period the Company was under its management. A decision relating to such liability by the CoC adversely affecting the rights of these category of creditors to the extent of around Rs.20.9 Crores, could not be decided....
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.... above paragraph has held that present resolution applicant (DLH) shall not in any manner be responsible for liability of Rs.20.9 Crore. However, under paragraph 3K, the adjudicating authority has directed for keeping Rs.42.99 Crore in a fixed deposit which was to abide by orders passed by adjudicating authority as and when felt necessary. When the application filed by Interim Trade Creditors came for consideration before the adjudicating Authority with regard to order dated 06.07.2023 has been passed, that was the appropriate stage when decision was to be taken with regard to liability of Rs.20.9 Crore and discharged for said liability out of amount of Rs.42.99 Crore which was kept in the fixed deposit. When we look into the impugned order passed by adjudicating authority dated 06.07.2023, in paragraph 24 of the said order, adjudicating authority made following observations: "24. It is only on 17.01.2020, the Resolution Professional sent a letter to Applicant-Formation Textiles LLC intimating that the committee of creditors in its meeting held on 10.12.2019 had approved the invocation/forfeiture of the performance guarantee on account its failure to implement the resoluti....
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....Crore in the fixed deposit. The application filed by Interim Trade Creditors was occasion for the Adjudicating Authority to consider the application. Adjudicating authority with regard to application filed by RP Charu Desai observes that after approval of the resolution plan, RP has become functus officio, hence the application is infructuous. The adjudicating authority, however, in no manner was precluded from considering the pleadings made by RP in reply to the I.A. filed by the Interim Trade Creditors as noted above. RP has recommended for payment to Interim Trade Creditors who supplied goods and services and there is no dispute with regard to quantum of the amount, we fail to see any valid reason forthcoming in the order dated 06.12.2021, rejecting the application. Adjudicating Authority found an easy escape route by observing that it had no jurisdiction in view of the approval of resolution plan on 19.05.2021, which observations cannot be approved. 87. We, thus are of the view that Interim Trade Creditors were entitled for payment of their balance dues of Rs.20.9 Crore and the said debts could have been very well discharged from fixed deposit of Rs.42.99 Crore which was kep....
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....G Rs.5 crores as earnest money and Rs.21 crores asked from the SRA, which meant that RP and CoC treated the amount of PBG and earnest money towards equity. We have already considered the issue in foregoing paragraphs that as per the provisions of Process Memorandum, no consideration as per the Resolution Plan can be set-off with the equity requirement. There being specific clause in the Process Memorandum, the case of Formation that the payment of earnest money towards PBG could be treated towards equity payment, cannot be accepted. Further, insofar as the emails, which were sent by the RP and the CoC, asking the Formation to pay balance amount of Rs.21 crores, towards the equity, suffice it to say that both RP and CoC have taken a stand that Formation has not paid the balance amount of equity. In this reference the letter written by Bank of Baroda to Formation dated 04.04.2019 is referred to, in which letter the Bank of Baroda clearly informed that Formation has paid only Rs.38.82 towards part payment of FTL's equity component under the Resolution Plan as well as for purposes of buying out the Financial Creditor's share of the equity held in MIL. Further, Bank of Baroda on 22.07.2....
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....Plan. The consequence of providing or not providing the equity has to be read from Resolution Plan itself. Hence, the provision of Section 42, sub-section (6), cannot be pressed by the Formation. We, thus, are of the view that prayer of the Formation for claiming interest @ 12% could not have been granted. Question No.(10) is answered accordingly. Question No.(11) Whether the Adjudicating Authority is right in observing that in view of the order passed in IA 443 of 2021, there is nothing to adjudicate in IA No.1847 of 2021 filed by the Bank of Baroda and if not, what relief to be granted to the Bank of Baroda in IA No.1847 of 2021? 95. The Bank of Baroda has filed IA No.1847 of 2021 praying for following reliefs: (i) direct Respondent No. 1 to 3 to compensate and pay to the Committee of Creditors of Mandhana Industries Limited for the losses amounting to Rs. 249,00,00,000.00/-(Indian Rupees Two Hundred and Forty Nine Crores) caused on account of non-implementation of the Resolution Plan submitted by Respondent No.1, and the consequent deterioration in the value and goodwill of the Corporate Debtor which has directly resulted in the diminished recove....
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.... and compensation towards the huge amount of losses to the Financial Creditors on account of failure of Formation to implement its Resolution Plan. In the Application, the Bank of Baroda has mentioned that Formation has failed to comply with the requirement for renewal or extension of the earnest money, hence, the same was invoked in October 2018 itself. We have already noticed that invocation of PBG was made by CoC on 10.12.2018, which was communicated by the RP by letter dated 17.01.2020. The prayers made in the Application as noted above, clearly indicate that Bank of Baroda was asking for compensation and different amount towards compensation was prayed for in the Application. The Application filed by the Bank of Baroda was opposed by the Formation. One of the preliminary objection taken in the reply as contained in paragraph-7 of the reply to the Application is as follows: "7.It is submitted that there is no provision under the Code which empowers the Tribunal to adjudicate and award compensation and damages to the party. It is settled that the Code is complete code in itself and the remedies provided by it holistically covers all the maters under it. Thus, Code canno....