Condition To Submit Refundable BG, Not Violative 36-B Of CIRP Regulations: NCLAT Delhi

Regulation 36-B of CIRP Regulations states that in a RFPR there can be no requirement for a non-refundable deposit alongwith resolution plan. The Bench has upheld the decision of Committee of Creditors to reject a resolution plan which did not comply with the requirement of submitting a refundable Bank Guarantee alongwith plan.

Background Facts

Greatweld Engineering Pvt. Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT.

The Resolution Professional of the Corporate Debtor issued a Request for Resolution Plan (“RFPR”) to invite prospective resolution applicants and inserted following conditions:

“Bank Guarantee to be submitted along with the Resolution plan; Rs. 50 Lakhs

Performance Bank Guarantee to be submitted by the successful resolution applicant (whose plan has been approved by the CoC): 10% of total amount proposed under resolution plan.”

Rakesh Ranjan (“Appellant”) and Y Axis Structural Steels Pvt. Ltd. (“Successful Resolution Applicant/SRA”) submitted resolution plans for the Corporate Debtor. The Committee of Creditors (“CoC”) rejected the Appellant's plan since no Bank Guarantee was submitted.

The SRA's resolution plan was approved by the CoC with majority votes and the Resolution Professional filed an application under Section 30(6) of IBC before NCLT seeking approval of the plan.

On 18.07.2023, the NCLT approved the SRA's resolution plan and the same was implemented.

The Appellant challenged the order dated 18.07.2023 before NCLAT. It was argued that the requirement of submitting Bank Guarantee of Rs. 50 Lakhs was not in accordance with Regulation 36B(4) and Regulation 36B(4A) of CIRP Regulations.

Relevant Law

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

“36-B. Request for resolution plans.

(4) The request for resolution plans shall not require any nonrefundable deposit for submission of or along with resolution plan.

[(4A) The request for resolution plans shall require the resolution applicant, in case its resolution plan is approved under subsection (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 I].

Explanation I. – For the purposes of this sub-regulation, “performance security” shall mean security of such nature, value, duration and source, as may be specified in the request for resolution plans with the approval of the committee, having regard to the nature of resolution plan and business of the corporate debtor.

Explanation II. – A performance security may be specified in absolute terms such as guarantee from a bank for Rs. X for Y years or in relation to one or more variables such as the term of the resolution plan, amount payable to creditors under the resolution plan, etc.”

NCLAT Verdict

The Bench noted that the Appellant's plan was considered by the CoC in its 9^th meeting alongwith the request to waive off the requirement of furnishing Bank Guarantee. The CoC did not accede to the Appellant's request and rejected its resolution plan for being incompliant with the RFPR conditions. Further, the Appellant did not challenge the RFPR at any stage of proceedings.

It was observed that Regulation 36B(4) of CIRP Regulations states that in RFPR there can be no requirement for a non-refundable deposit alongwith resolution plan. The Bench accepted the Resolution Professional's argument that requirement for Bank Guarantee submission was to assess the seriousness of the resolution applicant. The Appellant cannot be permitted to contend that the condition was incorrect since it has neither submitted Bank Guarantee nor challenged the RFPR at any stage.

“When we look into the Regulation 36-B (4) it only provides for request of resolution plan shall not require any non-refundable deposit. In RFRP there is no such clause which requires that Resolution Applicant has to submit any non-refundable deposit. With regard to Regulation 36B (4A), RFRP itself contains a condition as extracted above. Therefore, the RFRP was fully in compliance with Regulation 36B (4A). Learned Counsel for the Resolution Professional has rightly submitted that requirement of Bank Guarantee was only for the purpose to consider seriousness of the Resolution Applicants who are able to submit the Bank Guarantee of Rs. 50 Lakhs. Appellant has never complied the said and has not challenged the RFRP at any stage, cannot be allowed to contend that the said condition is not correct.”

The Bench dismissed the appeal and upheld the approval of plan submitted by SRA, while observing as under:

“We have further noticed in 09th COC Meeting that Appellant has made a request to CoC to waive the requirement of Bank Guarantee which was not accepted by the CoC and Appellant having not complied with the terms of the RFRP in submitting the plan, we do not find any illegality in the decision of the CoC in not considering the Resolution Plan of the Appellant. Learned Counsel for the SRA submits that plan has already been implemented and distribution have been made.”

Case Title: Rakesh Ranjan v Fanendra Harakchand Munot & Anr.

Case No.: Company Appeal (AT) (Insolvency) No. 1352 of 2023

Counsel For Appellant: Mr. Akshay Sapre, Mr. Tabrez Malawat, Rupali Jain, Syed Hamza, Advocates.

Counsel For Respondents: Mr. Rajat Sinha, Madhur Jhawar, Advocates for R-1 Mr. Nakul Mohta and Riya Dhingra, Advocates for R-2

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