Sale of Resolution Plan and Forfeiture of Performance Security: A NCLAT Judgment Analysis
Examining the Implications of Transferring Shareholding of Successful Resolution Applicant
In a recent judgment, the National Company Law Appellate Tribunal (NCLAT) examined the implications of the sale of a Resolution Plan approved by the Committee of Creditors (CoC) to a third party, and the subsequent change in the shareholding of the Successful Resolution Applicant.
The judgment was delivered by a coram consisting of Mr. Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member). The case in question was “Jubilee Metal Pvt Ltd vs Mr. Surendra Raj Gang RP of Metenere Ltd”1.
Withdrawal of the Resolution Plan
The NCLAT upheld the decision of the NCLT Principal Bench, stating that even though the CoC cannot pray for withdrawal of the Resolution Plan as it is binding on the CoC, this may not apply in a case where the Resolution Applicant himself has breached the terms and conditions and undertaking given by him2.
Sale of Resolution Plan to Third Party
The present case is essentially a case of sale of Resolution Plan approved by the CoC to a third party. The CoC approves the Resolution Plan looking at the credentials of the Resolution Applicant and its credibility and finances. When the very basis of the Resolution Applicant is knocked out and it changes its constitution substantially, the CoC cannot be faulted in view of the breach of the conditions by the Resolution Applicant2.
Forfeiture of Performance Security
CIRP Regulation 36B(4A) only contemplates one contingency where performance security shall stand forfeited. However, this provision does not exclude forfeiture of performance security in other conditions as contemplated in the Request for Resolution Plan (RFRP)2.
This judgment provides significant insights into the implications of the sale of a Resolution Plan approved by the CoC to a third party, and the subsequent change in the shareholding of the Successful Resolution Applicant. It clarifies the conditions under which the CoC can withdraw the Resolution Plan and forfeit the performance security.