In the case of Edelweiss Asset Reconstruction Company Ltd. vs. Peter Beck and Peter Vermoegensverwaltung Ltd., the main issue that arose before the Hon’ble NCLAT was with respect to non- submission of an enforceable bank guarantee by the successful resolution applicant, and other delays in compliance of provisions of the resolution plan. Below we analyse the case:
Facts of the case:
The resolution plan submitted by Peter Beck and Peter Vermoegensverwaltung Ltd. in the corporate insolvency resolution process (CIRP) of Sharon Bio Medicine Ltd. was approved by National Company Law Tribunal, Mumbai Bench, vide order dated 28.02.2018. There were delays in implementation of the resolution plan, and by order dated 02.02.2021, the NCLT gave additional time to the successful resolution applicant to infuse funds.
The said order was then challenged before the National Company Law Appellate Tribunal, wherein the appellant prayed that the CIRP should be re-initiated along with reinstating the previous resolution professional and 90 days of extra period should be provided in CIRP to invite expressions of interest for submission of resolution plan.
Relevant Provisions of Law:
The Code provides that if the resolution plan approved by the Adjudicating Authority is contravened by the corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for liquidation order [Section 33(3)].
The Code further provides for punishment if the corporate debtor, any of its officers or creditors or any person on whom the approved resolution plan is binding under Section 31, knowingly and willfully contravenes any of the terms of such resolution plan or abets such contravention [Section 74(3]. As per Section 31(1), an approved resolution plan shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan.
The Code, however, does not stipulate for any consequences on the resolution applicant, if the approved plan is contravened by such resolution applicant. The committee of creditors can, at max, as per the terms of the request for resolution plan, forfeit the earnest money deposit and the performance security submitted by the successful resolution applicant.
In the present case, the Hon’ble NCLAT, in its judgement dated 05.01.2022, observed that there is no express provision regarding re-initiation of CIRP, and no application has been made for initiation of liquidation. In fact, the corporate debtor is a going concern and all the stakeholders are interested in keeping the Corporate Debtor as a going concern, therefore, the case is not a fit case for liquidation, and accordingly, the Hon’ble NCLAT granted additional time to the resolution applicant to comply with its obligations under the resolution plan.
Concluding Remarks: One may argue that even upon liquidation, the corporate debtor could be sold as a going concern, however, if such an event does not happen, the corporate debtor would most certainly face corporate death. Therefore, in author’s opinion, NCLAT should have relied on its precedent in the case of Ingen Capital Group LLC. vs. Ramkumar S. V., wherein a show cause notice was issued on the directors of the resolution applicant as to why cost not be imposed on them, and the NCLAT had further directed that if there is any another resolution plan compliant with Section 30(2), the resolution professional may place it before the CoC, and thereafter before the Adjudicating Authority for approval.
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Sumedha Management Solutions Pvt Ltd (SMSPL), an Insolvency Professional Entity (IPE), registered with the Insolvency and Bankruptcy Board of India, Registration No. IBBI/IPE/0020. SMSPL and Sumedha Fiscal Services Ltd (SFSL) are jointly referred to as “Sumedha”, and has vast experience in corporate restructuring, advisory, and due diligence for nearly three decades. The registered office of the company is situated at Kolkata, with branch offices at Mumbai, Bangalore, New Delhi, Hyderabad and Ahmedabad.
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