Sanjay Dave Vs Andhra Bank Ltd. & Ors. (Supreme Court of India)
Conclusion: A Successful Resolution Applicant (SRA) could not avoid a CoC-approved resolution plan by claiming that the Letter of Intent (LoI) was conditional. The court observed that merely stating in the LoI that the resolution plan would be subject to the outcome of pending proceedings before the NCLT did not make the LoI conditional.
Held: Appellant, being a promoter/director of the corporate debtor and eligible to submit a resolution plan owing to the corporate debtor’s MSME status, submitted a resolution plan which was approved by the Committee of Creditors (CoC) with 99.90% voting share. Thereafter, the Resolution Professional (RP) issued Letters of Intent (LoIs) requiring acceptance and furnishing of performance guarantee. LoIs stated that approval of the resolution plan was subject to the outcome of pending applications filed by prospective resolution applicants (PRAs) before Adjudicating Authority and further provided that risks arising from employee or worker litigations would be borne by the successful resolution applicant (SRA). Appellant refused to accept the LoIs on the ground that they were conditional and also objected to the reduction of the time period for furnishing performance guarantee. Due to non-acceptance of the LoIs and failure to furnish the performance guarantee, the RP forfeited the Earnest Money Deposit (EMD) of ₹1 crore in terms of the Request for Resolution Plan (RFRP). Subsequently, CoC, by 99.61% voting share, resolved to liquidate the corporate debtor under section 33, and the liquidation application was allowed by the NCLT. NCLAT affirmed the orders. Appellant challenged the forfeiture of EMD and liquidation before the Supreme Court. Appellant contended that LoIs were conditional because they were made subject to the outcome of pending proceedings initiated by third-party prospective resolution applicants. Reduction of the period for furnishing performance guarantee from 45 days to 7 days was contrary to the CoC-approved process. Consequently, refusal to accept the LoIs was justified and forfeiture of EMD was illegal. Respondents contended that appellant was fully aware of the pending PRA applications as the issue had been repeatedly discussed in CoC meetings attended by him, appellant, after becoming the successful resolution applicant, could not renegotiate or refuse compliance with the approved resolution plan. CoC was statutorily empowered under section 33(2) to resolve for liquidation before approval of a resolution plan by the Adjudicating Authority. It was held that the stipulation making the LoI subject to the outcome of pending proceedings before the Adjudicating Authority did not render the LoI conditional. Appellant was aware of the pending PRA applications and had participated in CoC meetings where such proceedings were discussed. Therefore, the objection that the LoIs imposed unforeseen conditions was untenable. The Court observed that once the CoC, in exercise of its commercial wisdom, approved the resolution plan, the successful resolution applicant could not seek to renegotiate the terms or delay implementation by raising objections to conditions already known to him. Appellant’s conduct demonstrated an attempt to avoid compliance and delay the CIRP, contrary to the time-bound framework of the IBC. The Court further held that clause 1.9.4 of the RFRP expressly authorised forfeiture of EMD where the successful applicant failed to submit the performance guarantee or otherwise failed to comply with the resolution process. Since the appellant neither accepted the LoI nor furnished the required performance guarantee despite repeated opportunities, forfeiture of EMD was valid and in accordance with the agreed terms. On liquidation, the Court held that section 33(2), particularly its Explanation, empowers the CoC to decide to liquidate the corporate debtor at any time before confirmation of a resolution plan. The CoC’s decision to liquidate after the appellant failed to implement the approved plan constituted a commercial decision falling within its exclusive domain and was not amenable to judicial review. Reliance was placed on settled law recognising the paramountcy of CoC’s commercial wisdom.
