The Supreme Court dismissed appeals filed by a successful resolution applicant who had challenged the forfeiture of his ₹1 crore Earnest Money Deposit and the decision to liquidate the corporate debtor. The Court held that once the Committee of Creditors approved the resolution plan, the successful resolution applicant could not indirectly back out by alleging that the Letter of Intent was conditional.
Court’s Decision
The Supreme Court upheld the orders of the NCLT and NCLAT.
The Court held that the Letter of Intent was not conditional merely because it stated that approval of the plan would be subject to the outcome of pending applications before the NCLT. The Court found that the successful resolution applicant was already aware of those pending proceedings and had participated in CoC meetings where they were discussed.
The Court also upheld the forfeiture of the ₹1 crore EMD and approved the liquidation process, since the CoC had voted for liquidation with 99.61% voting share after the successful resolution applicant failed to comply with the plan requirements.
Facts
The corporate debtor was undergoing Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code.
The appellant, who was connected with the corporate debtor, submitted a resolution plan. The plan was approved by the Committee of Creditors with 99.90% voting share.
After approval, the Resolution Professional issued a Letter of Intent. The appellant objected to certain clauses in the Letter of Intent and claimed that it was conditional. He wanted an unconditional Letter of Intent.
Since he did not accept the Letter of Intent and did not submit the required performance guarantee, his ₹1 crore EMD was forfeited.
Later, as the resolution process could not move forward and the CIRP period expired, the Committee of Creditors voted for liquidation. The NCLT allowed liquidation, and the NCLAT confirmed it. The matter then reached the Supreme Court.
Issues
The Supreme Court considered:
- Whether the Letter of Intent was truly conditional.
- Whether the successful resolution applicant could refuse to accept the Letter of Intent after the CoC had approved his resolution plan.
- Whether forfeiture of the ₹1 crore EMD was valid.
- Whether the CoC’s decision to liquidate the corporate debtor could be interfered with.
Appellant’s Arguments
The appellant argued that the Letters of Intent were conditional because they were made subject to the outcome of pending applications filed by other prospective resolution applicants.
He also argued that the clause making employee/workmen litigation risk his responsibility made the Letter of Intent conditional.
Another argument was that the time for submitting the performance guarantee was wrongly reduced from 45 days to 7 days.
Respondent’s Arguments
The respondents argued that the appellant was fully aware of the pending proceedings and had participated in CoC meetings where these issues were discussed.
They also pointed out that the appellant had agreed to the risk relating to employee/workmen claims and later agreed to submit the performance guarantee within 7 days.
According to them, the appellant was only trying to avoid implementing the resolution plan after it had been approved by the CoC.
Analysis of the Law
The Supreme Court held that once the CoC approves a resolution plan, the successful resolution applicant cannot continue renegotiating or indirectly withdraw from the plan.
The Court relied on the principle that a CoC-approved resolution plan is binding between the CoC and the successful resolution applicant. Allowing withdrawals or modifications after CoC approval would delay the insolvency process and defeat the purpose of the IBC.
The Court also relied on the doctrine that a party cannot approbate and reprobate, meaning a party cannot accept a position when it is beneficial and then reject the same position when it becomes inconvenient.
Court’s Reasoning
The Supreme Court found that the appellant was not taken by surprise. He knew about the pending applications. He knew about the employee/workmen litigation risk. He had participated in the meetings. He had agreed to the conditions. Therefore, he could not later claim that the Letter of Intent was conditional.
The Court made a strong observation:
“The device adopted by the appellant was an indirect attempt to renege from the plan. It was a clear subterfuge.”
The Court further held:
“If such artifices are allowed to succeed, the entire architecture of the IBC would crumble…”
On forfeiture of EMD, the Court held that the Request for Resolution Plan clearly permitted forfeiture where the successful applicant failed to submit the performance guarantee within the stipulated time or failed to comply with the resolution process.
On liquidation, the Court held that the CoC’s decision was based on commercial wisdom and could not be interfered with unless there was a statutory violation.
Precedent Analysis
The Supreme Court referred to Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd., where it was held that after CoC approval, there is no scope for withdrawal or modification of a resolution plan by the successful resolution applicant.
The Court also referred to K. Sashidhar v. Indian Overseas Bank, which held that the commercial wisdom of the CoC is given paramount status and is generally non-justiciable.
The Court further referred to judgments on acquiescence and approbate and reprobate, holding that a party cannot agree to terms during the process and later turn around to challenge them.
Conclusion
The Supreme Court dismissed the appeals and directed the liquidator to proceed with the remaining liquidation process.
The judgment is significant because it sends a clear message under the IBC:
A successful resolution applicant cannot treat a CoC-approved plan like an optional deal. Once the plan is approved and the applicant has agreed to the process, he cannot delay implementation, avoid obligations, and then blame the CoC.
Key takeaway:
Under IBC, resolution is time-bound. A successful resolution applicant cannot back out indirectly after CoC approval. If he fails to comply, EMD can be forfeited and the corporate debtor may proceed into liquidation.