TMI Blog2022 (1) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not responsible for non-enforceability of the Bank guarantee because it was due to the international banking practices. While bank guarantees were submitted later, they were not to the satisfaction of monitoring agency. Moreover, Respondent No. 1 failed to take steps towards implementation of the Resolution Plan, which included payment of CIRP costs and workmen dues and infusion of cash. The issue of non-adherence of the timelines in accordance with the Approved Resolution Plan is quite apparent. The failure to provide valid bank guarantee in terms of Section 5 clause 12 (ii) of the Approved Resolution Plan to the satisfaction of the monitoring agency and the financial creditors is also a major default. Since the approved Resolution Plan is under implementation since its approval on 28.2.2018, the moot point is whether the Successful Resolution Applicant is serious about implementation of the plan - the Successful Resolution Applicant has claimed to be unsecured Financial Creditor of the Corporate Debtor, and therefore has interest in maintaining the Corporate Debtor as a going concern. The Appellants Edelweiss and SBI are also interested that the Corporate Debtor con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) No. 161 of 2021[Edelweiss Asset Reconstruction Company Ltd.(acting in its capacity as trustee of EARC SC Trust 233) vs. Peter Beck and Peter Vermoegensverwaltung Ltd. Anr.] and Company Appeal (AT) (Ins) No. 169 of 2021 [State Bank of India vs. Peter Beck and Peter Vermoegensverwaltung Ltd. Anr.], which were filed against Order dated 2.2.2021 (hereafter called Impugned Order ) passed by the Adjudicating Authority(National Company Law Tribunal, Mumbai Bench) in I.A No. 4003 of 2019 and in I.A No. 2220 of 2020 in CP (IB) No. 246 (MB) 2017. In CA (AT) (Ins) No. 169/2021, State Bank of India has been authorized by other financial creditors to file the appeal on their behalf. 2. By the Impugned Order, the Adjudicating Authority has given an extra period of two weeks to the Successful Resolution Applicant (Respondent No. 1) to deposit ₹ 10 crores even though the Appellant had prayed in I.A. No. 2220 of 2020 that since the Successful Resolution Applicant had failed to implement the Resolution Plan as per its provisions, therefore CIRP should be re-initiated along with reinstating the previous Resolution Professional and 90 days of extra period should be provided in CIRP to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... renew the bank guarantee or provide a new bank guarantee. On 19.7.2019, the Banque De Luxembourg issued a Bank guarantee in favour of the Appellant State Bank of India, which could not be sent to the Appellant via SWIFT due to certain constraints as claimed by Respondent No. 1. Thereafter, the financial creditors decided in meeting on 28.8.2019 that Respondent No. 1 should infuse additional amount of ₹ 5 crores by 13.8.2019 prior to the expiry of existing Bank on 13.8.2019. Respondent No. 1 sent an e-mail on 31.8.2019 stating that ₹ 10 crores has been remitted to the bank account of the Corporate Debtor maintained with Abhyudaya Cooperative Bank Limited on 23.8.2019 in lieu of the bank guarantee. On September 11, 2019, the Banque De Luxembourg issued a letter to the Appellant State Bank of India refusing to renew the Bank guarantee or honour its revocation stating that Bank guarantee cannot be considered as valid bank guarantee, but as a not-effective one. In September 2019, the Appellant State Bank of India sent an e-mail to the monitoring agency advising it to ensure the availability of the bank guarantee before the issuance of the shares to the Successful Resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The I.A. No. 4003/2019 was heard after notice to Respondent No. 1 on 2.2.2021, whereupon the Impugned Order was passed. 8. In the appeal filed by Edelweiss Asset Reconstruction Company Ltd. (CA (AT) (Ins) No. 161 of 2021), the course of events as mentioned by the Appellant SBI have been stated and it is prayed that the Impugned Order dated 2.2.2021 passed by the Adjudicating Authority be set aside and in accordance with prayer in I.A. No. CA (AT)(Ins.) 2220 of 2020, order for re-instating the Committee of Creditors and erstwhile Resolution Professional after allowing extension of 90 days in CIRP for inviting fresh EOIs has been prayed for. 9. The Impugned Order of the Adjudicating Authority dated 2.2. 2021 records as follows: Counsel for the Resolution Applicant further submitted that the Bank guarantee has been issued for ₹ 10 crores from the Banque De Luxembourg Bank. When the CoC invoked the Bank guarantee, the issuing bank, i.e. Banque De Luxembourg Bank informed the CoC that it is a non-enforceable guarantee. Since Resolution Applicant has already deposited ₹ 10,000,000 in lieu of the Bank guarantee. The Counsel for the RA also submitted that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase II. Implementation of Proposed Plan 8. Execution of material agreements giving effect to the proposed plan Z+180 Pending 9. Increase in authorized share capital, conversion of debt to equity by secured lenders, issuance of RTS and CCES to secure lenders and capital reduction. Z+180 Pending 10. Purchase of equity share by Resolution Applicant and inclusion of funds towards Resolution Applicant debt Z+180 Pending 11. Conversion of CCPS held by secured lenders, FCCB holders into equity shares Z+180 Pending 12. Change in Memorandum and Articles of Association and other documentation, if required under the proposed Plan Z+180 Pending 13. Management o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 2016 to pass orders necessary for meeting the ends of justice. He has claimed that since the previously Approved Resolution Plan has failed, the company under insolvency resolution should not be allowed to go into liquidation which would mean corporate death of the company and therefore, in the interest of fairness and justice to stakeholders of the Corporate Debtor, this Tribunal has the power to direct re-initiating the insolvency resolution process of Corporate Debtor after setting aside the order dated 2.2.2021 of the Adjudicating Authority, with a further period of 90 days provided to there-instated Resolution Professional to invite EOIs and complete the insolvency resolution process of the Corporate Debtor. 14. The Learned Sr. Counsel for the Appellant Edelweiss Asset Reconstruction Company Limited(in short EARC)(in Company Appeal No. 161 of 2021) has argued that Respondent No.1 has not adhered to the provisions and timelines given in the Approved Resolution Plan by not complying with the following conditions: (i) Non-payment of CIRP costs of ₹ 5 crores within 30 days from the date of approval of the resolution plan i.e. 28.2.2018 (Appeal paper book, Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10 crore deposited by Respondent No.1 in Abhyudaya Cooperative Bank Ltd. on 23.8.2019 was initially claimed by Respondent No.1 to be in lieu of bank guarantee, but subsequently stated by Respondent No.1 that it was share application money. Such a statement of Respondent No.1 itself shows non-compliance in providing Bank guarantee. The Learned Senior Counsel has also referred to numerous opportunities provided by the financial creditors to Respondent No.1for implementation of the resolution plan which are recorded duly in the minutes of meetings dated 3.10.2018, 17.1.2019, 26.2.2019, 26.6.2019, 4.7.2019, 13.8.2019, 28.8.2019, 24.8.2020 and 4.9.2020 which were conveyed to Respondent No.1 by the monitoring agency EY Restructuring LLP and also by SBI vide e-mail dated 12.9.2019.He has claimed that in all, there has been a delay of more than 108 days in implementation of the Approved Resolution Plan, which is sufficient proof of the time granted to the Successful Resolution Applicant Respondent No. 1 by the financial creditors and the monitoring agency. 17. The Learned Senior Counsel for Appellant EARC has reiterated the argument of the Appellant SBI that the Impugned Order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed additional time to file resolution plans afresh. Also, in the CoC of Amtek Auto Ltd. (supra)the orders dated 24.9.2019 and 2.12.2019 are based on agreement between the parties that fresh offers were allowed to be considered, whereas in the present case the Successful Resolution Applicant did not consent to reinstating the CIRP and calling fresh EOIs. 19. Learned Counsel for Respondent No. 1 has also argued that the bonafide of the Successful Resolution Applicant is established because prior to initiation of CIRP, the Respondent No.1 was a Foreign Currency Convertible Bond holder (FCCB holder) of the Corporate Debtor who had invested a sum of approximately ₹ 146.08 crores in the Corporate Debtor. He is, therefore, an unsecured lender of the Corporate Debtor and has interest in successful resolution of the Corporate Debtor. He has further claimed that after the approval of the resolution plan by the Learned Adjudicating Authority on 28.2.2018, it was challenged by the former promoters/Directors of the Corporate Debtor right upto Hon ble Supreme Court and on 5.4.2019, after the Hon. Supreme Court dismissed the appeal preferred by the former promoters/Directors of the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the ulterior motive of the Appellants is to compel the resolution applicant into compensating the lenders for the purported loss of interest due to alleged delay in the implementation of the Approved Resolution Plan, which is not the fault of Respondent No.1, and now the Appellants are arm twisting the Successful Resolution Applicant for appropriation of cash Corporate Debtor and sharing of profits generated by the Corporate Debtor, which is completely outside the terms and conditions of the Approved Resolution Plan and contrary to law. 21. We have heard the oral arguments of the Learned Senior Counsel and Counsel of the Appellants and Respondent No. 1 respectively in both the appeals. We have also considered the pleadings and documents submitted by all the parties. 22. The issues that arise in these appeals are two-fold: (i) Whether the default of Respondent No. 1 in implementing the successful resolution plan is justified because of appeals in NCLAT and in Hon ble Supreme Court and the delay because of the time for litigation and in making initial payments as required in the approved Resolution Plan? (ii) Whether any more time could be granted as prayed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Hon ble Supreme Court dismissed the appeal of former promoter/directors of the Corporate Debtor. It is quite apparent that the bank guarantee submitted by Respondent No. 1 was not enforced properly because it was not submitted in SWIFT mode. Respondent No. 1 has claimed that it is not responsible for non-enforceability of the Bank guarantee because it was due to the international banking practices. While bank guarantees were submitted later, they were not to the satisfaction of monitoring agency. Moreover, Respondent No. 1 failed to take steps towards implementation of the Resolution Plan, which included payment of CIRP costs and workmen dues and infusion of cash. Respondent No. 1 has submitted that CoC agreed to infusion of funds amounting to ₹ 10 crores in the Corporate Debtor in the lieu of bank guarantee, and based on this agreement Respondent No. 1 infused ₹ 10 crores in the Corporate Debtor before the expiry of the bank guarantee and honor its commitment and this amount remains with the Corporate Debtor till date. 26. Thus, the issue of non-adherence of the timelines in accordance with the Approved Resolution Plan is quite apparent. The failure to provide val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of a proper bank guarantee of ₹ 10 crores and other payments and actions that had to be taken from zero date i.e. 28.2.2018 in accordance with the approved resolution plan. We are, therefore, of the opinion that it would serve the interests of justice if the Corporate Debtor is not sent into liquidation but its insolvency is resolved so that it continues to be a going concern as that would be in the interest of the Corporate Debtor s stakeholders and creditors. Hon ble Supreme Court has ruled in the matter of Swiss Ribbons Private Limited versus Union of India (2019 4 SCC 17) as follows:- 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the Corporate Debtor by protecting the Corporate Debtor from its own management and from a corporate death by liquidation. 31. In the present case liquidation would follow naturally once the approved Resolution Plan is adjudged as having failed. Under section 33(1) (a) and (b) the following is stipulated:- 33. Initiation of liquidation- (1) Where the Adjudicating Authority, - (a) before the expiry of the insolvency resolution process period or the maximum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor remains a going concern. It is quite possible that upon liquidation, the Corporate Debtor could be sold as a going concern. If such an event does not happen, the Corporate Debtor would most certainly face corporate death. 33. In view of the impugned order and the respective submissions by the Appellants and Respondent No.1 it is clear that the main issue in question is the submission of an enforceable bank guarantee of ₹ 10 crores by Respondent No.1. The other issues regarding compliance of already overdue provisions in the Approved Resolution Plan have also been raised by the Appellants. 34. Therefore, in light of discussion above, in partial modification of the Impugned Order, we direct that an enforceable bank guarantee of ₹ 10 crores, as is required to be submitted under the Approved Resolution Plan, should be submitted by the Successful Resolution Applicant within 30 days of this order. The payments as are already overdue in the Approved Resolution Plan should be done by the Successful Resolution Applicant within two months of this order. In case ₹ 10 crores has been deposited with the Corporate Debtor by the Successful Resolution Applicant in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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