A scheme proponent in a liquidation process is not liable to forfeit or pay the Earnest Money Deposit (EMD) if their submitted scheme was not accepted and they subsequently chose to withdraw from the process based on commercial considerations.

JUDGMENT

(Hybrid Mode)

Per: Justice N. Seshasayee, Member (Judicial)

This appeal is preferred by the appellant, a scheme proponent, during the liquidation of the corporate debtor, challenging the impugned order of the learned Adjudicating Authority directing the appellant to deposit the bank guarantee amount of ₹.2.0 crores to the liquidation estate of the corporate debtor, which, according to the appellant, it is not liable to pay as it had withdrawn from the race.

2. The material facts relevant for the current purpose are:

a) The corporate debtor was ordered to be liquidated, and during the liquidation process, schemes were invited for the sale of the corporate debtor as a going concern in terms of Regulation 2B of the IBBI (Liquidation Process) Regulation. In response to the same, the appellant herein and M/s Seshasayee Paper and Boards Limited submitted their respective schemes. Both these schemes were eventually placed before the Adjudicating Authority, who directed the liquidator to place them before the CoC for evaluation of the viability of the schemes submitted. CoC evaluated both the schemes and approved the scheme of the appellant. It appears that the liquidator appeared to have expressed his opinion in favour of the scheme of M/s. Seshasayee Papers. He would now move C.A 1266 of 2019, seeking to approve either of the two schemes submitted by the proponents.

b) The Adjudicating Authority would approve neither, and vide its Order dated 13.03.2020, it remanded the matter back to the CoC for a de novo consideration. This Order of the Adjudicating Authority came to be challenged by the appellant in C.A No 451 of 2020.

c) While things stood thus, Covid wave swept the country which according to the appellant, delayed things for the appellant as hearing of C.A.451 of 2020 was getting delayed due to it. On 28.08.2020, the appellant withdrew the appeal.

d) Be that as it may, even the scheme of M/s. Seshasayee Papers could not go through, but the reasons thereof are not very germane for the present. What is relevant is that the corporate debtor was eventually liquidated, and Seshasayee Papers eventually purchased the same in liquidation.

3. It may be now stated that when both the appellant and Seshasayee Papers submitted their respective schemes as referred to in paragraph 2(a) above, both of them had given a guarantee for EMD to the tune of ₹.2.0 crores. Upon the appellant withdrawing his appeal in C.A.451 of 2020, the liquidator moved the Adjudicating Authority with I.A. 846 of 2020 and I.A.844 of 2020 respectively against the appellant and Seshasayee Papers, for realising the said EMD amount. These applications came to be listed together. According to the appellant, it could not appear in I.A.846 of 2020 as the matter came to be listed during covid days whereas Seshasayee Papers contested the application that was filed against it through its counsel. Ultimately, on 12.05.2023, I.A 846 of 2020 came to be allowed, and the appellant was directed to pay a sum of ₹.2.0 crores to the liquidation estate of the corporate debtor. This order is now under challenge.

4. The learned Counsel for the appellant now makes two-fold submissions:

(a) That the counsel whose name is noted in the order as representing the respondents before the Adjudicating Authority, was never engaged by the appellant but was appearing only for the respondent in I.A No.84