TMI Blog2021 (5) TMI 712X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the IM or otherwise. The Resolution plan being based on the details made available to the Applicant under the Information Memorandum, any new discovery that would affect the interests of the Applicant adversely, and entitles the Applicant to decide his participation afresh, bearing in mind the changed situation and the possibility of future losses. The Resolution Applicant cannot be compelled to participate in resolution plan jeopardising its own interest. Even if the information provided by the erstwhile Promoter is incorrect, as mentioned by the RP in his objections, if a doubt is created in the mind of the Applicant with regard to the possibility of losses from the project, backed by an independent consultant's report, we are of the view that he would justifiably not be inclined to carry on as a Resolution Applicant. The Resolution Professional admits in his objections that the erstwhile Promoter had not provided accurate information, as mentioned in the IM and had refused to cooperate, and that he was interested in blocking his efforts to complete the CIRP. In fact it is seen from his objections that in all parcels of land, the information provided is at variance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, as mentioned in the Application, which are relevant to the issue in question, are as follows: (1) It is submitted that the Applicant is aggrieved by the erroneous misleading incomplete statements and omission of material facts in the Information Memorandum as well as the email dated 01.08.2020 issued by the Ld. RP on the material aspect of description of the total project lands of the Corporate Debtor and the average annual generation capacity of the project. That the information formed the edifice of the Resolution Plan and the financial projections contained therein. Pursuant to the discovery of the said information, the entire plan has been set at naught as it does not contain any provision dealing with additional land requirement discovered subsequent to the approval of the plan. The plan does not remain commercially viable on account of the resultant failure to achieve optimum power generation due to unavailability of the total land required to operate the project. (2) It is submitted that the Corporate Debtor being in the business of generation of hydropower had entered into Power Purchase Agreement (PPA) with Mangalore Electricity Supply Company in 2006 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: i) Land Parcel No. 1 admeasuring 0.63 acres owned by the Corporate Debtor. ii) Land Parcel No. 2 admeasuring 36.05 acres owned by the erstwhile directors/promoters of the Corporate Debtor and mortgaged with the Resolution Professional. iii) Land Parcel No. 3 admeasuring 21.39 acres comprising about 40 Survey Nos. and transferred by the erstwhile directors in favour of the Corporate Debtor by an unregistered agreement. (7) The Applicant vide email dated 07.08.2020 categorically requested the RP to ensure that the second land parcel was transferred by the Financial Creditors/Respondent No. 2 in favour of the Resolution Applicant/Corporate Debtor after approval of the Resolution Plan. In response, the RP vide email dated 11.08.2020 assured the Applicant as to the maintenance of status quo with respect to the possession and use of the Second land parcel for the project. (8) The Applicant vide emails dated 13.08.2020 and 24.08.2020 requested the RP to ensure that all three land parcels are available for free and uninterrupted use of the project since they have been represented as being essential for its successful operation. The RP further requested the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was a 4th land parcel in use, on the left and the right side of the river, admeasuring about 42 acres which was owned by persons belonging to Scheduled Castes/Tribes and was being used for the project under an informal arrangement between the said owners and the erstwhile directors/promoters of the Corporate Debtor. Thus, it was informed that the total land requirement for the project was 100 acres as opposed to 58 acres represented to the Applicant. A sum of ₹ 7.5 Cr was demanded by the representative of the erstwhile director of CD from the Applicant to ensure that the 4th land parcel was available for the project. (13) The Applicant was also informed that 2nd Land parcel admeasuring 36.05 acres comprising of agricultural land and therefore, the same was excluded from the purview of SARFAESI Act, 2002. The fact of any land parcel being classified as agricultural land was not stated anywhere, either in the IM or the subsequent correspondences between the Applicant and the RP. The Resolution plan becomes unviable as the contemplated transfer of said land parcel by private sale under SARFAESI as a condition precedent to the implementation of the plan. (14) On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the performance bank guarantee of ₹ 3,01,32,780/- and EMD of ₹ 50,00,000/-. The RP responded vide letter dated 30.11.2020 stating that the withdrawal letter shall be placed before this Bench. (18) It is submitted that generation of 20 million units annually is imperative to sustain the financial projections which form the substratum of resolution plan. If the project generates 4 million units annually as stated in the investigation report, the project will incur an annual generation loss of ₹ 4,48,00,000/- (1,60,00,000 units ₹ 2.80) per year. In the alternative, retaining the 4th land parcel, the Applicant would have to immediately bear an additional sum of ₹ 7.5 Cr over and above resolution amount which is way beyond the total capital expenditure of ₹ 4.95 Cr envisaged in the plan. Even after bearing huge costs there is no certainty that the 4th land parcel can be made legally available to the project. For the above stated reasons the resolution plan becomes commercially unviable and the Applicant should not be compelled to perform its obligation as the RP has misrepresented facts in IM. (19) The Applicant has placed reliance on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 020 with the below stated submissions: (1) It is submitted that the Resolution Applicant upon being declared eligible bidders were provided bid process document by way of request for resolution plan (RFRP) detailing all the requirement and conditions to be fulfilled before submitting the resolution plan along with necessary templates etc. The Successful Resolution Applicant then based on its own due diligence presented their Resolution Plan to the Resolution Professional on 14.03.2020 for a bid value of ₹ 15 Cr only. (2) During the negotiation process, based on the offered resolution plan value when the CoC sought improvement in the bid, the Applicant demanded that the land measuring about 36.05 Acres (2nd Land parcel) belonging to Erstwhile Promoters mortgaged (mortgage included 0.63 Acres held in name of Corporate Debtor) to lenders, be transferred to Successful Resolution Applicant by way of private treaty under SARFAESI. This land parcel was subsequently agreed to be transferred by the CoC members to whom the mortgages were assigned. (3) However, the CoC set a condition of minimum threshold value of Resolution Plan to be considered for approval to be above & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from various sources/available publicly, which the RP believes to be reliable. The RP has not carried out any independent verification for the accuracy of the same. All the figures mentioned in this note are based on preliminary discussions and information obtained from the Company. This Information Memorandum constitutes an opinion expressed by the RP and hence, he shall not be held liable for any misrepresentation or financial loss caused to anyone based on this information Memorandum. The Information Memorandum should not be construed as a commitment from RP for providing any assistance for the transaction except as prescribed by the Code. This Information Memorandum is for information only. The opinions expressed may not be suitable to all recipients. Recipients must make their own investigations and judgements before acting on the contents of this Information Memorandum . (8) It is recorded fact that during negotiation meetings held with Successful Resolution Applicant on 30.06.2020 (10th CoC meeting) and 17.08.2020 (12th CoC meeting), the issue of land was discussed in detail and facts as ascertained were brought to the attention of the Successful Resolution Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vey numbers in the name of Shri. D. Surendranath Reddy, and is mortgaged to banks, held as collateral security by CoC members). In the possession of the CD. It is used for storage of water for hydro-power generation. 22.65 Acres (of 35.42 Acres) Agricultural land used for water storage comprising 25 survey numbers in the name of Erstwhile Promoter, Shri N. Manohar Reddy. This land parcel has been mortgaged to banks (held as collateral security by CoC members) Land parcel No. 3 admeasuring 21.39 Acres. An agreement for vesting of land parcel in favour of CD comprising of 40 Survey Nos. As per the ledger accounts of the CD an amount of ₹ 12,40,00,000/- appears as Land Uppinangadi in the ledger maintained for this land parcel. The land is in possession of CD and is used for storage of water for hydro-power generation. Land Parcel No. 4 about 42 acres allegedly claimed by Erstwhile Promoter to be as his personal property. Identifiable to Land included in fixed asset schedule of the CD as per audited balance sheet as on 31.03.2019. Recorded in the books of accounts of the CD in 76 individual ledgers under the Group Land Compensation total amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Resolution Applicant to participate in the resolution process of the Corporate Debtor, be returned to the Resolution Applicant or forfeited due to loss caused for withdrawing from the process at this juncture? 7. At the outset it is made clear that the Resolution Applicant prepares a plan mainly based on the information provided in the information memorandum prepared by the Resolution Professional. The Resolution Professional is required to prepare the Information Memorandum very diligently ensuring that all the information necessary for the Resolution Applicant to prepare a commercially viable and feasible resolution plan suitable to the Corporate Debtor be made available in the information memorandum. Therefore, although due diligence is also conducted by the Applicant on its own and the plan prepared is on an as is where is basis, unless the information provided in the IM is accurate and up to date, a true and fair evaluation of the status of the Corporate Debtor cannot be made by the Resolution Applicant and he cannot prepare a commercially viable Resolution plan. For this reason the Applicant has kept an option to exit in the Plan itself at sl. No. 5.1.1, reservi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be compelled to participate in resolution plan jeopardising its own interest. Even if the information provided by the erstwhile Promoter is incorrect, as mentioned by the RP in his objections, if a doubt is created in the mind of the Applicant with regard to the possibility of losses from the project, backed by an independent consultant's report, we are of the view that he would justifiably not be inclined to carry on as a Resolution Applicant. In this regard, the decision of the Hon'ble NCLAT in Committee of Creditors of Metalyst Forgings Ltd., v. Deccan Value Investors LP. Ors, Company Appeal (AT)(Insolvency No. 1276/2019 is relevant as the Hon'ble NCLAT upheld the order dated 27.09.2019 of the Adjudicating Authority, Mumbai Bench stating that the Applicant cannot be forced to perform its obligations. The relevant portion of the order is extracted herein below for ready reference: 38. The Adjudicating Authority observed that the Resolution Professional's disassociation with the '2016 MM Report', in fact, constitutes an acceptance of the position that the '2016 MM Report' and the contents thereof are misleading and unreliable. Having mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant cannot be compelled to perform and execute the Resolution Plan when he apprehends huge losses, and should be permitted to withdraw the Plan submitted by him for approval of this Adjudicating Authority. The IA therefore merits to be allowed, subject to the directions mentioned below. 11. I.A. No. 499/2020 has been filed by the Resolution Professional and others against the Corporate Debtor and its erstwhile directors seeking an order declaring certain transactions as preferential transactions and to repay the monies under preferential transactions back into the Corporate Debtor. The Interlocutory application does not come in the way of the present applications, and hence shall be decided on merits separately. 12. In respect of the EMD amounting to ₹ 50 lakh in the form of Bank Guarantee, and the Performance Bank Guarantee of ₹ 3,01,32,780/- deposited by the Resolution Applicant with the RP, we are of the view that with the withdrawal of the Plan by the Applicant and the entire CIRP coming to nought, the Applicant should bear a part of the burden of expenses incurred during the CIRP. Also some amount may be lost as the liquidation value of the project may be ve ..... 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