Mr. S. Hari Karthik vs Mr. Jayaram Chowdhary & Ors.

[Per: Shreesha Merla, Member (Technical)]

Aggrieved by the Impugned Order dated 04/10/2021 passed in IA/275/CHE/2021 and in IA/829/CHE/2021 in the common order passed in CP/1307/IB/2018 by the National Company Law Tribunal, Chennai Bench – II, Mr. Venkata Sivakumar, the Liquidator has preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘the Code’).

The Learned Counsel for the Appellant / Current Liquidator submitted that the Promoters had made every effort to derail the Resolution Process, on account of which the Corporate Debtor was pushed into liquidation. A false Certificate regarding 29A eligibility was given by the Promoters and it was because of the fraudulent action of the Promoters that the CIRP was delayed and the Company went into Liquidation. It is contended that though the Appellant had requested several times to make the Claim for refund of the ‘Earnest Money Deposit’ (EMD), it was the Respondent who had ignored the same and instead had chosen to file several Petitions before the Tribunal only to derail the CIRP Process. It was only on 24/08/2020, after a period of 8 months that the Respondent had made a Claim and filed an Application IA 845/2020, making defamatory allegations against the Appellant. Therefore, the Appellant found it a fit case to forfeit the Earnest Money Deposit (EMD of Rs. 2,00,00,000/-) for wilful misuse of the Judicial Process. In support of his contention that the EMD ought to be forfeited because the Respondent had allegedly behaved in a disruptive manner, the Appellant relied on the Judgment of the Hon’ble Supreme Court in the matter of ‘National Highways Authority of India Vs. Ganga Enterprises’ reported in [(2003) 7 SCC 410] in which the Hon’ble Apex Court has held that forfeiture of Earnest Money in no way effects any statutory right under the ‘Indian Contract Act, 1872’ and that it would be an anomalous situation that a person who, by his own conduct, precludes the coming into existence of the Contract is then given benefit of his own wrong doing by not allowing forfeiture.

The Learned Counsel for the Appellant sought for expunging Paras 20 & 21 of the Impugned Order which are reproduced as hereunder:

The Learned Senior Counsel appearing for the 1^st Respondent submitted that Mr. S. Hari Karthik has replaced the earlier Liquidator Mr. V. Venkata Sivakumar. This Tribunal, vide Order dated 06/07/2023 allowed IA No. 39/2023, whereby and whereunder Mr. S. Hari Karthik sought to get himself substituted as the Appellant, in place of the erstwhile Liquidator, Mr. V. Venkata Sivakumar.

It is strenuously argued by the Learned Senior Counsel that the allegation that the Respondent had interfered with the CIRP Process and made attempts to derail it, is unjustified and that the Respondent, as per the direction of the Appellant vide letter dated 16/01/2020 had deposited a sum of Rs. 2,00,00,000/-towards EMD through separate Bank Accounts. Subsequent to which, on 27/02/2020, the Appellant had informed the Respondent that he was disqualified under Section 29A of the Code and hence was not eligible for filing a Resolution Plan. Thereafter, the ‘Adjudicating Authority’ vide Order dated 29/05/2020, had ordered for Liquidation of the Corporate Debtor Company. After having been disqualified under Section 29A of the Code, the Respondent requested the Appellant to refund the EMD of Rs. 2,00,00,000/-, vide letter dated 24/08/2020. Despite several requests, the amount was not refunded and the Appellant vide letter dated 25/08/2020 had also alleged that the EMD was received from two different accounts, that Former Chairperson/ Promoter of the Corporate Debtor Company requested him not to refund the EMD as the same was paid by them. It is submitted by the Learned Senior Counsel for the Respondent that the Resolution Professional had wrongly decided to include this amount in the ‘Liquidation Estate’, though he was duty bound, as per the terms of the ‘Request for Resolution Plan’ (RFRP) and the Information Memorandum (IM) to refund the EMD within 7 days. Thereafter, the 1^st Respondent had filed an Application under Section 60 (5) of the Code, seeking direction to the Appellant to refund the EMD paid and the ‘Adjudicating Authority’ has rightly held that the Liquidator had no right to hold back the EMD amount and directed the Liquidator to refund the amount of Rs. 2,00,00,000/- within 7 days from the date of the Order. However, the Appellant had failed to comply even with these directions of the ‘Adjudicating Authority’ and had preferred this Appeal.

The main point which arises for consideration in this Appeal is whether the Respondent is entitled to refund of the EMD Amount of Rs. 2,00,00,000/-, as he was considered to be ‘disqualified’ under Section 29A of the Code for ‘Submission of the ‘Plan’.

It is an admitted fact that the First Respondent had deposited an amount of Rs. 2,00,00,000/- on 23/01/2020 towards EMD/ Binding Submission Bank Guarantee (BSBG), and was subsequently informed by the Appellant vide email dated 27/02/2020 that he was disqualified under Section 29A of the Code and hence was not eligible to submit a Resolution Plan. While so, the ‘Adjudicating Authority’ vide Order dated 29/05/2020 had ordered for Liquidation of the Corporate Debtor Company.

A brief perusal of the terms and conditions as laid down in the RFRP regarding the refund of the EMD is detailed as hereunder:

As regarding the forfeiture of BSBG, it is clearly stated in the terms that only when the Resolution Applicant is found to have made ‘false or misleading representation’, it can be forfeited. In the instant case, there is absolutely no material evidence on record to substantiate the contention of the Appellant that the 1^st Respondent had deliberately or maliciously sought to derail the CIRP Process or given any misleading representation. It is not the case of the Appellant that the 1^st Respondent had challenged his ineligibility under Section 29A of the I & B Code, 2016 by way of an Appeal. It is his case that the 1^st Respondent had made every effort to derail the CIRP Process. At the cost of repetition, there is no shred of evidence to establish this contention. The Citation relied upon by the Learned Counsel for the Appellant in the matter of ‘National Highway Authority of India Vs. Ganga Enterprises’ (Supra) cannot be made applicable to the facts of this case as it deals with the ‘Law of Contract’ and ‘Forfeiture of Bid Security’.

It is significant to mention that in the letter dated 25/08/2020, the erstwhile Liquidator had stated that between February to May 2020, he himself had requested the Advocate for the 1^st Respondent to give a letter so that he could process the same. The Learned Counsel for the 1^st Respondent submitted that the erstwhile Liquidator had written to the Current Liquidator / Mr. S. Hari Karthik that the amount was lying in a Fixed Deposit (FD). It is pertinent to mention that under Regulation 36B of the IBBI (CIRP) Regulations, 2016, there is no requirement to obtain a non-refundable deposit for submission of the Resolution Plan. The Record shows that the Company had gone into Liquidation on 29/05/2020 and the IA/829/2020 filed by the 1^st Respondent was allowed, vide the Impugned Order on 04/10/2021 and the EMD amount of Rs. 2,00,00,000/-has still not been refunded. The ‘Adjudicating Authority’ in the Impugned Order has observed that the Resolution Plan given by the 1^st Respondent was not even placed before the CoC for its consideration and therefore the question of delay in procedure does not arise and that the Liquidator was not right in holding back the EMD amount.

As regarding IA No. 275/2021 filed by the Liquidator, seeking expunge of the averments made in Para 2 of the Application in IA 829/2020, the ‘Adjudicating Authority’ has held that the averments in Para 2 of the Application were not so grave as to defame the reputation of the Liquidator. Paras 20 & 21 of the Impugned Order pertain to the Application preferred by the First Respondent seeking refund of the EMD amount. The ‘Adjudicating Authority’ has only observed that the averments ‘were not so grave so as to defame the reputation of the Liquidator’. Keeping in view, the facts and circumstances of the case on hand, we do not find any illegality or infirmity in the reasoning given by the ‘Adjudicating Authority’ in the Order impugned, dated 04/10/2021 in IA/275/IB/2021. Needless to add, the amount lying in the Fixed Deposit, be refunded to the First Respondent with the accrued interest, within a week from the date of this Order.

For all the aforegoing reasons, this Company Appeal (AT) (CH) (Ins) No. 326/2021 fails and is accordingly ‘dismissed’. No Costs. Connected pending Interlocutory Applications, if any, are ‘closed’.