Insolvency and Bankruptcy Code, 2016 – The appellant submitted a resolution plan for a company which was undergoing the Corporate Insolvency Resolution Process (CIRP) under the 2016 Code – The Resolution Plan was approved by the Committee of Creditors (CoC) and National Company Law Tribunal (NCLT) – Accordingly, the appellant deposited an amount of Rs.5 crores in an escrow account of the corporate debtor – However, further obligations were not fulfilled by the appellant under the Resolution Plan despite numerous opportunities – As a result on 11.11.2019, the CoC voted for the liquidation of the corporate debtor – The same was allowed by the NCLT – In appeal, the NCLAT permitted appellant to deposit Rs.15 crores in the escrow account and appellant agreed to the stipulation that the amount of Rs.15 crores would be forfeited if it failed to deposit the payment of Rs. 50 crores – On 08.09.2020, the appeal was dismissed and NCLAT upheld the order of liquidation – Before the Supreme Court on 09.10.2020, the appellant stated that an amount of Rs.50 crores would be deposited on or before 10.01.2021 – The appellant was specifically informed that if it failed to do so in whole or in part, the entire amount of Rs.20 crores deposited earlier would be forfeited – Thereafter, the time for making the deposit was extended until 25.02.2021 – However, several months elapsed after extension of time and no payments were made – Appellant submitted that it has moved to term lenders for finance – However, before finance can be made available to the appellant, the term lenders insisted that the status of the company must be altered from that of a company under liquidation, to an active company – Held : The appellant was unable to raise the funds – The fact of the matter emerges that the appellant will be unable to raise funds from the term lenders, who were insisting on changing the status of company from under liquidation to an active status – The order of liquidation was not set aside – What the request of the appellant reduces itself to, is that it would raise funds on a mortgage of assets of the company and unless the company is bought out of liquidation, it would not be in a position to raise the funds – This cannot be accepted – The order of liquidation was stayed and a final view is yet to be taken – Sufficient opportunities were granted to the appellant and it was not able to deposit Rs.50 crores – The appellant has failed to abide by its obligations – The consequence envisaged under the order of the Supreme Court accordingly ensue the forfeiture of the amount of Rs.20 crores – As a consequence, the management directed to revert to the liquidator for taking steps in accordance with law.
Dismissing the Civil Appeal, the Court
HELD: 1. The appellant has been unable to raise the funds. The fact of the matter, as it emerges from appellant’s submission, is that the appellant will be unable to raise funds from the Term Lenders who are insisting that the status of the Company should change from a company under liquidation to an active status. The order of liquidation has not been set aside. Ultimately, what the request of the appellant reduces itself to, is that it would raise funds on a mortgage of the assets of the Company and unless the Company is brought out of liquidation, it would not be in a position to raise the funds. This is unacceptable. At this stage, the order of liquidation has only been stayed, but a final view was, thus, to be taken by this Court. Sufficient opportunities were granted to the appellant earlier during the pendency of the proceedings both before the NCLT and NCLAT. The orders of the NCLT and NCLAT make it abundantly clear that despite the grant of sufficient time, the appellant has not been able to comply with the terms of the Resolution Plan. Since 9 October 2020, despite the passage of almost five months, the appellant has not been able to deposit an amount of Rs 50 crores. Time is a crucial facet of the scheme under the IBC. To allow such proceedings to lapse into an indefinite delay will plainly defeat the object of the statute. A good faith effort to resolve a corporate insolvency is a preferred course. However, a resolution applicant must be fair in its dealings as well. The appellant has failed to abide by its obligations. In that view of the matter, we see no reason or justification to entertain the Civil Appeal any further. The consequence envisaged under the order of this Court shall accordingly ensue in terms of the forfeiture of the amount of Rs 20 crores. As a consequence of this order, the management shall revert to the liquidator for taking steps in accordance with law. [Para 11][528-A-F] Innoventive Industries Ltd. v ICICI Bank (2018) 1 SCC 407:[2017] 8 SCR 33 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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