NCLT Hyderabad Rejects Resolution Plan For Being Incompliant With Regulation 36B 4(A) Of CIRP Regulations:

The National Company Law Tribunal (“NCLT”), Hyderabad Bench, comprising of Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Shri Charan Singh (Technical Member), while adjudicating a petition filed in Asset Reconstruction Company (India) Limited v Viceroy Hotels Limited, has rejected the Resolution Plan submitted for Viceroy Hotels for being incompliant with Regulation 36B 4(A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”).

The Performance Bank Guarantee submitted by the Resolution Applicant was valid for 6 months period, whereas, the plan implementation schedule was spread over 675 days. The Bench held that the Performance Bank Guarantee must remain valid for the entire period of plan implementation schedule, which is a mandatory provision as per Regulation 36B 4(A) of CIRP Regulations. Since the resolution plan was found incompliant of this mandatory legal provision, the Bench rejected the plan on this basis alone.

BACKGROUND FACTS

M/s Asset Reconstruction Company (India) Ltd. (“Financial Creditor”) filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Viceroy Hotels Limited (“Corporate Debtor”).

The Adjudicating Authority admitted the Corporate Debtor into CIRP on 12.03.2018.

Anirudh Agro Farms Limited (“Resolution Applicant/RA”) submitted a resolution plan for the Corporate Debtor, which was approved by the Committee of Creditors (“CoC”) with 95.82% voting share. On 10.11.2022, the RA furnished a Performance Bank Guarantee of Rs. 16.85 crores to the Resolution Professional as per the terms of Request for Resolution Plans (RFRP) document and Letter of Intent. The Performance Guarantee was valid for a period of six months.

As per the Resolution Plan, the plan implementation schedule was spread over 675 days. In terms of Regulation 36B 4(A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), the Performance Bank Guarantee was required cover the entire period of plan implementation schedule i.e. 675 days.

The Resolution Professional filed an application before the Adjudicating Authority for approval of the RA’s Resolution Plan.

RELEVANT LAW

Regulation 36B 4(A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

“36B. Request for resolution plans.

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(4A) The request for resolution plans shall require the resolution applicant, in case its resolution plan is approved under sub-section (4) of section 30, to provide a performance security within the time specified therein and such performance security shall stand forfeited if the resolution applicant of such plan, after its approval by the Adjudicating Authority, fails to implement or contributes to the failure of implementation of that plan in accordance with the terms of the plan and its implementation schedule.”

NCLT VERDICT

The Bench placed reliance on the Supreme Court judgment in M.K. Rajagopalan vs Dr. Pariasamy Palani Gounder & Another, 2023 Live Law (SC) 403, wherein it has been held:

“The principles underlying the decisions of this Court respecting the commercial wisdom of CoC cannot be over-expanded to brush aside a significant shortcoming in the decision making of CoC when it had not duly taken note of the operation of any provision of law for the time being in force.”

The Bench observed that the sum payable by the RA under the Resolution Plan was within a timeline of 675 days. In terms of Regulation 36B (4A) of CIRP Regulations, the Performance Bank Guarantee shall cover the Plan Implementation Schedule, which was not the case. When the Resolution Professional was asked how the compliance of Regulation 36B (4A) would be ensured, the RA filed a Clarificatory Undertaking:

“SRA has proposed payment to all creditors in five tranches as per the approved resolution plan and the payments made under any prior tranches are liable to the forfeited if the SRA fails to make payments under the subsequent tranches as per the agreed terms and timelines given in the Resolution Plan”

It was opined that a mere above ‘clarification undertaking’ by the RA cannot be accepted as compliance of mandatory Regulation, for the simple reason that unilateral clarificatory undertaking cannot result in extending Bank Guarantee beyond six months from 10.11.2022.

Accordingly it was held as under:

“Therefore, it is not in doubt that the Performance Bank Guarantee furnished on 10.11.2022 by the Successful Resolution Applicant had expired by afflux of time specified therein, especially in the absence of any record placed before this Tribunal evidencing extension of Performance Bank Guarantee beyond the initial six months period. Therefore, ‘Performance Bank Guarantee’ from the Successful Resolution Applicant being non-est, in the eye of law as on date, non-compliance of the mandatory Regulation 36B (4A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 is apparent. In that view of the matter and following the ruling of the Hon’ble Supreme Court of India, in M.K. Rajagopalan vs Dr. Pariasamy Plalani Gounder & Another (supra), we have no alternative but to reject the Resolution Plan on the ground of noncompliance of the statutory provision.”

Liberty has been granted to the RA to pursue remedy available under law in this regard.

The Bench has rejected the Resolution Plan of the SRA. However, instead of passing an order for liquidation of Corporate Debtor, the Bench has directed the Resolution Professional to continue the CIRP and issue fresh Form-G.

Case Title: Asset Reconstruction Company (India) Limited v Viceroy Hotels Limited

Case No.: CP (IB) No. 219/7/HDB/2017

Counsel for Applicant: Shri S. Ravi, Senior Counsel assisted by Shri Shabbeer Ahmed and Shri V. Aneesh and Shri Indraprateek, Advocates.

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