SRA Bound by CoC-Approved Plan: SC

The Hon’ble Supreme Court, in Sanjay Dave v. Andhra Bank Ltd. & Ors. (Civil Appeal Nos. 12264–12266 of 2024), held that a successful resolution applicant (SRA) is bound by a resolution plan approved by the Committee of Creditors (CoC) and cannot subsequently challenge stipulations accepted during the Corporate Insolvency Resolution Process (CIRP). Upholding the decisions of the NCLT and NCLAT, the Court dismissed the appeals, sustained the forfeiture of the earnest money deposit (EMD), and declined to interfere with the liquidation of the corporate debtor.

The CIRP against Oracle Home Textiles Limited (Corporate Debtor) was admitted on August 9, 2018. After which on February 6, 2019, a Request for Resolution Plan (RFRP) was issued by the Resolution Professional (RP). The appellant, a (promoter/director) of the CD, submitted a resolution plan after obtaining permission from the NCLT. On May 10, 2021, he was informed that the Committee of Creditors (CoC) had approved his plan with a voting share of 99.90%.

At the time when appellant’s plan was submitted, applications filed by certain prospective resolution applicants (PRAs) seeking permission to submit resolution plans were pending before the NCLT. Following approval of the resolution plan, the RP issued a Letter of Intent (LoI) stating that the approval would remain subject to the outcome of those proceedings.

The appellant objected to the stipulation and filed IA No. 1205 of 2021 seeking re-issuance of an unconditional LoI. He also questioned a clause recording that risks arising from proceedings initiated by staff, employees and workers shall be borne by the successful resolution applicant.

The appellant did not accept the LoI or furnish the performance guarantee contemplated under the RFRP. As a result, the RP informed him on August 2, 2021 that the EMD of ₹1 crore stood forfeited. The appellant then filed IA No. 2029 of 2021 seeking restoration of the amount.

The CIRP period eventually expired without an approved resolution plan being implemented. Thereafter, on June 5, 2023, the CoC resolved, with a voting share of 99.61%, to liquidate the corporate debtor. The RP thereafter filed IA No. 3914 of 2023 seeking approval for liquidation. By separate orders dated April 30, 2024, the NCLT dismissed the applications filed by the appellant and allowed the liquidation application. Later on October 29, 2024 the appellant’s appeals were dismissed by National Company Law Appellate Tribunal (NCLAT).

The appellant contended before the Supreme Court that the LoIs were conditional and contrary to the Code as they made approval of the resolution plan subject to the outcome of the proceedings initiated by the PRAs. It further contended that reducing the time for furnishing the performance guarantee from forty-five days to seven days was contrary to the resolution passed by the CoC.

Addressing the appellant’s contention that the LoIs were conditional because they were made subject to the outcome of the PRA proceedings, the Court found that the appellant was fully aware of the proceedings and pending litigations as he had participated in CoC meetings where they were discussed. The Court accordingly held that the stipulation did not render the LoI conditional.

Further the Court noted that the CoC records showed that the issue had been discussed during the resolution process and that the appellant had agreed that such risks would be borne by the successful resolution applicant. Having accepted the stipulation during the CIRP, he could not later rely on it to challenge the LoI.

The Court remarked that the extension of time to forty-five days had been granted by the CoC owing to the COVID-19 situation and that the extended period had also expired on July 23, 2021. According to the minutes of the CoC meeting held on the same date, the appellant had agreed to furnish the performance guarantee within seven days in accordance with the RFRP.

Referring to Chairman, State Bank of India v. M.J. James[(2022) 2 SCC 301] , Nagubai Ammal v. B. Shama Rao [ (1956) 1 SCC 698] and Rajasthan State Industrial Development & Investment Corporation Ltd. v. Diamond & Gem Development Corporation Ltd.,[ (2013) 5 SCC 740] the Court held that the appellant could not approbate and reprobate by accepting the stipulations during the resolution process and subsequently challenging them.

Further referring to Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited [(2022) 2 SCC 401], the Court reiterated that once a resolution plan is approved by the CoC, the successful resolution applicant is prohibited from negotiating further and is expected to implement the plan in a time-bound manner.

The Court also upheld the forfeiture of the EMD. It noted that Clause 1.9.4 of the RFRP expressly permitted forfeiture where the successful applicant failed to furnish the performance guarantee or otherwise failed to comply with the resolution process.

With respect to liquidation, the Court found no reason to interfere with the CoC’s decision to liquidate the corporate debtor. Accordingly, the appeals were dismissed, and the liquidator was directed to proceed with the liquidation process in accordance with law.