Tribunal Upholds Appellant's Right to Withdraw from Liquidation Process Post Non-Acceptance of Scheme
In a significant judgment, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, has ruled in favor of Sun Paper Ltd., absolving it from paying a Rs.2 crore Earnest Money Deposit (EMD) in the liquidation proceedings of Servalakshmi Paper Ltd. The tribunal's decision, delivered on August 17, 2026, overturns an earlier directive by the Adjudicating Authority mandating the payment.
The case revolved around the liquidation process of the corporate debtor, Servalakshmi Paper Ltd., wherein Sun Paper Ltd. had submitted a scheme for its acquisition. The scheme, however, was not accepted, prompting Sun Paper Ltd. to withdraw from further participation. The liquidator subsequently sought to enforce the EMD payment, arguing that the withdrawal did not negate the appellant's financial obligations.
The tribunal, comprising Mr. Justice N. Seshasayee and Mr. Jatindranath Swain, emphasized the appellant's autonomy in deciding whether to continue in the process following the rejection of its scheme. "A scheme proponent only undertakes to submit a scheme of his/its design and not any scheme to the satisfaction of the CoC or the Adjudicating Authority," noted the judgment. It further highlighted that forcing participation beyond the appellant's commercial interests would be unjust.
Furthermore, the tribunal acknowledged the commercial realities and time-sensitive nature of business decisions, stating, "A man in business only attempts to optimize his advantage within a time frame, and if he becomes impatient, he cannot be sentenced to force-stay in the race."
The NCLAT's ruling underscores the need to respect the commercial decisions of scheme proponents in liquidation processes, especially when their proposals are not accepted. The tribunal found the liquidator's claim unsustainable, noting the absence of any legal obligation on Sun Paper Ltd. to pay the EMD post-withdrawal.
This decision is likely to set a precedent for similar cases, reinforcing the importance of respecting the commercial discretion of parties involved in insolvency proceedings. The appeal was thus allowed, and the order of the Adjudicating Authority was set aside, with all pending interlocutory applications closed.
Bottom Line :
Liquidation process - Scheme proponent opting to withdraw from the race after its scheme was not accepted - Appellant cannot be forced to pay the Earnest Money Deposit (EMD) amount when its scheme was rejected and it chose not to continue participation in the process.
Statutory provision(s):
- Insolvency and Bankruptcy Code, 2016
- Regulation 2B of IBBI (Liquidation Process) Regulations
