Resolution Applicant’s Non-disclosure of Links with Ex-management Leads to Forfeiture of EMD and PMD
In a significant ruling, the National Company Law Tribunal (NCLT) Mumbai Bench upheld the decision of the Committee of Creditors (CoC) to forfeit the Participation Money Deposit (PMD) and Earnest Money Deposit (EMD) of M/s. Hinganghat Infrastructure Private Limited. The decision came in light of the applicant's failure to disclose its relationship with the ex-management of Deegee Orchards Private Limited, the corporate debtor in the insolvency process.
The NCLT bench, consisting of Shri Anil Raj Chellan and Shri K. R. Saji Kumar, ruled that the non-disclosure amounted to fraudulent practice under Clause 18 of the Request for Resolution Plan (RFRP). The tribunal emphasized that such practices empowered the CoC to exercise its commercial wisdom in forfeiting the deposits, which were initially Rs. 5 lakhs for PMD and Rs. 25 lakhs for EMD.
M/s. Hinganghat Infrastructure Private Limited had sought a refund of these deposits, arguing that as a non-successful resolution applicant, they were entitled to the refund following the rejection of their plan. They also claimed procedural unfairness in the handling of the resolution plan by the Resolution Professional, Mr. Jagdish Kumar. However, the tribunal found no evidence of unfair conduct, noting that the procedure adhered to the RFRP and CIRP regulations.
The tribunal noted that the CoC's decision was based on the applicant's deceitful conduct, including their undisclosed relationship with the ex-management and the alleged attempts to derail the Corporate Insolvency Resolution Process (CIRP). The tribunal stated that the CoC acted within its rights as outlined in Clause 18 of the RFRP, which addresses unethical and fraudulent practices.
The ruling also referenced the decision of the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court, both of which upheld the CoC's authority in the matter. The NCLT confirmed that the resolution plan had been successfully implemented and that the deposits had been distributed among CoC members.
This decision underscores the importance of transparency and adherence to ethical practices during the insolvency resolution process, reaffirming the CoC's discretion in safeguarding the process from potential manipulations.
Bottom line:-
Insolvency and Bankruptcy Code - Failure to disclose relationship with ex-management of Corporate Debtor by Resolution Applicant amounts to fraudulent practice under Clause 18 of the RFRP, empowering CoC to forfeit PMD and EMD as part of its commercial wisdom.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 60(5), Regulation 36B(4) of CIRP Regulations, Insolvency and Bankruptcy Code, 2016 Section 208(2)
