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Synopsis

The National Company Law Tribunal (NCLT) has recently held that a Corporate Insolvency Resolution Process (CIRP) cannot be initiated against a Successful Resolution Applicant for default in terms of payment to the stakeholders/creditors as per the terms of the approved resolution plan.

“..we are of the considered view that such a promise or undertaking made by a Resolution Applicant, if not fulfilled, cannot be treated as a default of a financial debt nor the so called obligation to pay such sums to the Financial Creditors of the Corporate Debtor in CIRP by such an Applicant can be treated as a financial debt covered under the four corners of the definition provided u/s 5(8) of the Code, 2016. In our considered view, in such an eventuality when the SRA is not able to implement the plan, some consequences are bound to follow,” the order reads.

A division bench of the National Company Law Tribunal (NCLT) Mumbai, comprising Judicial Member Kuldeep Kumar Kareer and Technical Member Anil Raj Chellan, was hearing an application filed by a financial creditor for the failure of the corporate debtor to discharge a sum of Rs. 5 crore as per the resolution plan.

ICICI Prudential Real Estate AIF I had disbursed Rs. 40 crores to Sunshine Housing and Infrastructure Private Limited (SHIPL) by subscribing to 4,000 unlisted, unrated, secured, redeemable non-convertible debentures.

On default, ICICI filed an insolvency application against Sunshine Housing and Infrastructure Private Limited (SHIPL). By way of its order dated 8 May 2019, the National Company Law Tribunal (NCLT) admitted the insolvency application.

 On 26 September 2020, the Corporate Debtor submitted its resolution plan for SHIPL (Resolution Plan). The Resolution Plan was approved by the Committee of Creditors of SHIPL on 3 October 2020, and the Resolution Professional (RP) filed an application for approval of the Resolution Plan before this tribunal on 23 October 2020.

The Resolution Plan was approved by this tribunal by way of an order dated 11 February 2022.

As per the plan, the corporate debtor was required to pay AIF I a sum of INR 5 Crores in partial discharge of the financial debt owed to AIF I within six months from the Plan approval date.

However, the Corporate Debtor failed to abide by the payment obligation under the Resolution Plan.

The National Company Law Tribunal refused to initiate a Corporate Insolvency Resolution Process (CIRP) against the resolution applicant, observing that the resolution applicant can only be prosecuted under Section 74, and his guarantee could be forfeited.

“The performance guarantee furnished by such SRA can be forfeited and the SRA can also be prosecuted u/s 74 of the Code, 2016 but since the liability of the SRA either to pay the creditor or to infuse money in the Corporate Debtor in CIRP for its revival cannot be equated with a financial debt, proceedings u/s 7 of the Code, 2016 cannot be initiated,” the order states.

For the Financial Creditor : Adv. Rohan Rajadhyakhsha a/w Pushkar Deo

For the Corporate Debtor : Adv. Rohit Gupta a/w Prashansa Agarwal