Failure to Implement Resolution Plan Within Stipulated Timeline Leads to PBG Encashment and CIRP Revival: NCLAT
- REEDLAW
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REEDLAW Legal News Network reports:Â In a crucial ruling, the National Company Law Appellate Tribunal (NCLAT) held that non-implementation of an approved resolution plan within the prescribed timeline warrants invocation of the Performance Bank Guarantee (PBG) and revival of the Corporate Insolvency Resolution Process (CIRP). The decision underscores that the timely execution of a resolution plan is fundamental to achieving the objectives of the Insolvency and Bankruptcy Code (IBC).
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a batch of two Company Appeals along with a connected Interlocutory Application, categorically ruled that failure to implement an approved resolution plan within the stipulated timeframe justified encashment of the Performance Bank Guarantee and restoration of the CIRP. The Tribunal reaffirmed that strict adherence to plan timelines is essential to preserve the sanctity and objectives of the IBC framework.
The National Company Law Appellate Tribunal (NCLAT), presided by Justice Ashok Bhushan (Chairperson), dismissed the appeals filed by the Successful Resolution Applicant (SRA) challenging the order of the National Company Law Tribunal (NCLT), Mumbai Bench, dated 06.09.2024. The impugned order had rejected the SRA’s application (I.A. No. 1956/2024) challenging the invocation of the Performance Bank Guarantee (PBG) by Union Bank of India (UBI) and allowed I.A. No. 2520/2024 filed by UBI seeking restoration of the Corporate Insolvency Resolution Process (CIRP) of Lavasa Corporation Limited.
The dispute arose after the resolution plan submitted by the appellant was approved by the Committee of Creditors (CoC) on 13.12.2021 with 96.41% voting share and later by the Adjudicating Authority on 21.07.2023. The effective date of the plan was treated as 25.07.2023, and a Monitoring Committee was constituted thereafter. The approved resolution plan required the SRA to infuse ₹100 crore upfront within 90 days of the effective date and furnish a PBG of ₹25 crore, which the appellant provided on 31.12.2021. Despite the passage of more than 409 days from the effective date, no payment was made towards plan implementation. The lenders, in a Joint Lenders’ Meeting (JLM) on 06.04.2024, unanimously concluded that the SRA had failed to implement the plan and decided to invoke the PBG, which UBI did on 08.04.2024.
The appellant contended that it was prevented from implementing the plan due to litigation initiated by lenders, including appeals and recall applications challenging the approval of the resolution plan, and argued that the invocation of the PBG was unjustified. The CoC opposed this argument, emphasising that there was no interim order restraining the SRA from making payments, and highlighted that the timely implementation of the resolution plan is a fundamental objective of the IBC.
The Appellate Tribunal observed that the SRA failed to deposit even the first tranche of the upfront payment despite clear timelines under the plan. It held that the invocation of the PBG by UBI was in accordance with law and in terms of Regulation 36B(4A) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. NCLAT noted that the appellant’s plea for more time lacked bona fides as no specific timeline for payment was proposed. Referring to the Supreme Court’s ruling in State Bank of India and Others v. The Consortium of Mr. Murari Lal Jalan and Mr. Floran Fritsch and Another, REEDLAW 2024 SC 11515, the Tribunal reiterated that the timely implementation of a resolution plan is a core objective of the IBC to prevent depreciation of the corporate debtor’s assets.
Holding that the Adjudicating Authority rightly rejected the appellant’s plea and restored CIRP, NCLAT concluded that there was no ground to interfere with the impugned order. Consequently, both appeals were dismissed, and the order invoking the PBG and reviving CIRP was upheld.
Mr. Nagesh P., Sr. Advocate and Mr. Lovkesh Sawhney, Sr. Advocate, with Mr. Rohit Jain and Mr. Gaurav Jain, Advocates, represented the Appellant.
Mr. Krishnendu Datta, Sr. Advocate, with Mr. Abhishek Swaroop, Mr. Anupm Prakash, Ms. Kirti Talreja and Ms. Alina Merin, Advocates, appeared for Respondent No. 1 to Respondent No. 16.
Mr. Vaijayant Paliwal, Ms. Kirti Gupta and Mr. Devansh Rathi, Advocates with Mr. Udayraj Patwardhan, RP in Person, appeared for the Resolution Professional.
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