SUPREME COURT HOLDS RESOLUTION APPLICANT LIABLE FOR NON-COMPLIANCE OF RESOLUTION PLAN
In a recent case of Committee of Creditors of #AMTEK Auto Limited Through Corporation Bank vs. Dinkar T Venkatasubramanian & Ors.,the Supreme Court passed a Judgment dated 23-02-2021 and held the Respondent-#ResolutionApplicant not guilty of #Contempt of Court; however, it may be held liable for failure to fulfil the terms of its #ResolutionPlan.
In this case, an Application under Section 7 of the Insolvency and Bankruptcy Code 2016 (the Code) filed against AMTEK Auto Limited (Corporate Debtor) was admitted by the National Company Law Tribunal, Chandigarh (NCLT) on 24-07-2017. Mr Dinkar T Venkatsubramanian, the Respondent No. 1 herein, was appointed as Interim Resolution Professional (IRP) and later confirmed as the Resolution Professional (RP). The RP invited resolution plans from prospective resolution applicants on 31-08-2017. Two Resolution Plans were filed, one, by Liberty House Group and the other, by Deccan Value Investors LP. The Resolution Plan filed by Liberty House Group was approved by the Committee of Creditors (CoC) on 02-04-2018 and by the NCLT, vide Order dated 25-07-2018.
However, the CoC claimed that Liberty House Group has contravened the provisions of the approved Resolution Plan and hence, filed an Application on 04-12-2018 seeking permission of NCLT to attempt a fresh resolution process. NCLT passed an Order dated 13-02-2019 and held that Liberty House Group failed to fulfil its obligations under the Resolution Plan and directed reconstitution of the CoC for consideration of Resolution Plan already filed by Deccan Value Investors LP, the Respondent No. 3 herein. The NCLT refused to allow fresh process of inviting resolution plans.
Aggrieved, the CoC filed an Appeal before the National Company Law Appellate Tribunal (NCLAT) against the NCLT Order dated 13-02-2019, thereby, challenging the rejection of the prayer for inviting fresh applications from prospective applicants for submitting resolution plans. The NCLAT passed an Order dated 16-08-2019 and held that as per Section 12 of the Code amended till 06-08-2019, the time limit for completion of the insolvency resolution process was 270 days. Hence, as more than 270 days have passed, so, NCLAT directed NCLT to pass order for liquidation of the Corporate Debtor.
Aggrieved by the Order of the NCLAT dated 16-08-2019, the CoC filed an Appeal before the Supreme Court. The Apex Court passed an Order dated 06-09-2019 and stayed the Liquidation of the Corporate Debtor on the following grounds:
i) That Section 12 of the Code as amended with effect from 16-08-2019, provides that the time limit for completion of the insolvency resolution process is 330 days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this Section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor.
ii) Hence, the Supreme Court passed an Order dated 24-09-2019 and directed the RP to invite fresh resolution plans within a period of 21 days. Upon issuing fresh invites, Deccan Value Investors LP submitted a final proposal on 04-11-2019. Amongst various offers by prospective resolution applicants, the Resolution Plan submitted by Deccan Value Investors LP (Resolution Plan) was approved by CoC on 11-02-2020.
iii) Thus, the Apex Court returned the matter to NCLT, vide Order dated 08-06-2020, with directions to decide upon the approval of Resolution Plan within 15 days.
iv) On the same day (08-06-2020), the RP reminded Deccan Value Investors LP to submit a performance bank guarantee for Rs. 150 Crores by 15-06-2020.
Thereafter, Deccan Value Investors LP (the Resolution Applicant) filed an Application on 12-06-2020 before the Supreme Court and sought extension of time, in order to understand the impact of the onset of COVID-19, which is a Force Majeure Event, and to re-evaluate the feasibility and viability of the Resolution Plan. But the Apex Court refused to allow extension of time to the Resolution Applicant, vide Order dated 18-06-2020.
Meanwhile, NCLT passed an Order dated 09-07-2020, thereby approving the Resolution Plan of the Resolution Applicant. Aggrieved, the Resolution Applicant filed an Appeal against the NCLT Order dated 09-07-2020 before the NCLAT. This Appeal is pending.
Hence, as the Resolution Applicant did not comply with the Supreme Court Order dated 18-06-2020 and caused obstruction in implementation of the Resolution Plan, the CoC (Appellant) filed a Contempt Petition against Deccan Value Investors LP (Respondent No. 3 herein) before the Apex Court.
The Supreme Court made the following observations in this case:
1- That the Resolution Applicant has already undergone discussion and revision before the CoC before the approval of its Resolution Plan on 11-02-2020. Hence, by seeking permission to withdraw its Offer and to further extend time in view of Pandemic, makes it abundantly clear that the Resolution Applicant does not want to fulfil its obligations under the approved Resolution Plan.
2- Further, only when the RP reminded the Resolution Applicant to furnish its Performance Guarantee of Rs. 150 Crores by 15-06-2020, the Resolution Applicant sought extension of time and took the plea of special equities in view of Pandemic crisis. This also shows that the intention of the Resolution Applicant behind seeking extension of time, was to restrain the invocation of the bank guarantees.
Hence, the Apex Court held that the conduct of the Resolution Applicant has not been bona fide and that it was not ready to abide by the commitments made in the Resolution Plan. Therefore, the Supreme Court did not allow any further extension of time to the Resolution Applicant and directed NCLAT to hear the pending Appeal on merits and dispose of the matter within one month.
Further, the Apex Court dismissed the Contempt Petition filed against the Resolution Applicant on the ground that failing to adhere to its obligations under the Resolution Plan cannot per se be regarded as a Contempt of the Order dated 18-06-2020 passed by the Supreme Court. However, the default of the Resolution Applicant in failing to fulfil the terms of the Resolution Plan may invite consequences as envisaged in law.
Senior Legal Associate
The Indian Lawyer
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