Ahmedabad NCLT Orders Liquidation Of Shriram Cements, Holds SRA Cannot Rewrite Approved Plan

The Ahmedabad National Company Law Tribunal (NCLT) on 22 July ordered liquidation of Shriram Cements Limited after holding that the Successful Resolution Applicant (SRA) failed to implement the Resolution Plan approved under the Insolvency and Bankruptcy Code, 2016 (IBC), and could not make its obligations conditional on resolution of a pending land dispute or release of a Bank Guarantee.

A Bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma held that the SRA had submitted the Resolution Plan with knowledge of the pending land dispute and the issues concerning the Corporate Debtor's property, and therefore could not subsequently avoid its binding obligations under the approved Plan. The Members observed:

“The pendency of the land dispute or non-release of the Bank Guarantee does not absolve the SRA of its obligations under the approved Resolution Plan, particularly when such risks were within its knowledge at the time of submission of the Resolution Plan.”

The proceedings arose from applications concerning implementation of the Resolution Plan and the SRA's failure to comply with its terms.

The NCLT had initiated the Corporate Insolvency Resolution Process (CIRP), a statutory process for resolving insolvency, against the Corporate Debtor in September 2019. It approved the SRA's Resolution Plan on 20 September 2021. Under the approved Plan, the SRA was required to pay Rs. 5.50 crore towards the dues of the sole secured Financial Creditor. However, despite the passage of more than four years since approval of the Plan, the SRA had paid only Rs. 30 lakh.

The Monitoring Committee repeatedly called upon the SRA to implement the approved Plan and granted several opportunities to do so. However, the SRA failed to make meaningful progress, prompting the Monitoring Committee to seek liquidation of the Corporate Debtor.

The SRA contended that it could not implement the Resolution Plan because of a continuing dispute between the Corporate Debtor and Gujarat Mineral Development Corporation Limited concerning land at Village Hadad. The dispute arose after the Collector, by an order dated 10 December 2021, declined permission to transfer the land.

It also relied on the non-release of a Bank Guarantee of approximately Rs. 4.79 crore. It argued that the disputed land constituted the principal asset of the Corporate Debtor, which prevented financial institutions from extending financial assistance and consequently made implementation of the Resolution Plan impossible.

The Monitoring Committee contended that the approved Resolution Plan contemplated implementation through equity infusion, unsecured loans and promoter contributions. It therefore argued that the SRA's inability to arrange finances was contrary to the terms of the approved Plan, particularly since the SRA had submitted it with full knowledge of the pending litigation.

The Bench accepted this contention and noted that the Resolution Plan itself prescribed the manner in which the SRA was required to implement it. Since the SRA had submitted the Plan with knowledge of the existing disputes, the subsequent continuation of the land dispute could not be used to avoid obligations that became binding upon approval of the Plan under Section 31 of the IBC. It held:

“The Resolution Plan envisaged implementation through equity contribution, unsecured loans and promoter infusion and not upon resolution of the pending land dispute. Having submitted the Resolution Plan with full knowledge of the existing disputes and secured its approval under Section 31 of the Code, the Successful Resolution Applicant cannot subsequently seek to alter its obligations by making implementation contingent upon resolution of those disputes.”

Further, the Tribunal held that making implementation conditional upon conclusion of the land litigation and release of the Bank Guarantee amounted to an attempt to materially alter the approved Resolution Plan. It noted:

“Once a Resolution Plan has attained finality, neither the Resolution Applicant nor any stakeholder can unilaterally rewrite its commercial obligations by introducing fresh conditions not forming part of the approved Resolution Plan. Acceptance of such a request would amount to permitting modification of the approved Resolution Plan contrary to the scheme of the Code.”

The Tribunal also noted that a review application challenging the Collector's order was pending before the Special Secretary, Revenue Department under the Gujarat Land Revenue Code. It held that determining the validity of the Collector's order would require adjudication of rights under the Gujarat Land Revenue Code, which fell outside the it's limited jurisdiction.

It further held that more than four years had elapsed since approval of the Resolution Plan and that it had granted repeated opportunities, including several adjournments, to enable the parties to arrive at a workable mechanism for implementation. Despite these opportunities, the Plan remained substantially unimplemented.

Accordingly, the NCLT ordered liquidation of Shriram Cements Limited and appointed Bihari Lal as the liquidator.

For Appellants: Senior Advocate Saurabh Soparkar with Advocates Jaimin Dave, Adv. & Hirva Dave in IA/170(AHM)2024); Advocate Aishwarya Reddy in IA/1039(AHM)2023

For Respondents: Senior Advocate Saurabh Soparkar with Advocates Jaimin Dave, Adv. & Hirva Dave in IA/1039(AHM)2023; Advocates Manisha Luvkumar Shah with Advocate Hitesh Vachhani in IA/170(AHM)2024