NCLAT Sets Aside Resolution Plan For Manjeera Constructions Over Three-Day Delay In Crediting Earnest Money

The National Company Law Appellate Tribunal (NCLAT) at Delhi recently set aside the approval of a resolution plan for Manjeera Constructions Limited after finding that the successful resolution applicant's earnest money deposit was credited three days after the stipulated deadline, rendering the bid non-responsive

A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain rejected the contention that the requirement stood satisfied since the amount had been debited on the last date and held that actual receipt within the deadline was mandatory.

Referring to Clause 12 of the Request for Resolution Plan, which required the deposit to accompany the bid, observed, “The language of said Clause as above makes it crystal clear that EMD has to be submitted along with the Resolution Plan within the stipulated time. Mere debiting of the account of the bidder by the bank will not amount to submission of EMD within the time limit. The amount should have been deposited in the account of the CD before the due date and time in order to make the bidder eligible to submit the bid. This principle is universally and invariably followed unless there are stipulations to the contrary in the RFRP, which were not there in any case.”

S2 Tech.com India Private Limited, a financial creditor, had challenged the rejection of its plea to set aside the resolution plan submitted by Valentis Laboratories in the insolvency of Manjeera Constructions, a corporate guarantor to another borrower undergoing resolution. Four bidders had submitted plans pursuant to a Request for Resolution Plan issued on January 10, 2024, with February 9, 2024 as the last date for submission.

Despite higher offers from competing applicants, the committee of creditors approved Valentis' plan on June 10, 2024 with about ninety four per cent votes. The challenge turned on the fact that the earnest money deposit was credited on February 12, 2024, after the February 9 deadline.

The appellant argued that the delayed deposit made the plan ineligible under the process terms and defeated value maximisation, particularly when other bidders had offered significantly higher amounts. It also questioned the role of majority lenders who continued to vote despite being assured full recovery in the principal borrower's insolvency. The resolution professional and creditors responded that the payment had been initiated on time and delayed only due to banking processes, and maintained that the commercial wisdom of the committee could not be interfered with.

Rejecting these explanations, the tribunal held that the bid could not be treated as compliant and that acceptance of such a plan was contrary to the process terms.

It found that the resolution professional had “grossly erred” in accepting the plan despite the delay and termed the conduct “reprehensible.”

It also questioned the approval of a lower value plan and the limited consideration given to other stakeholders, observing, “It is not clear what value maximisation of the Corporate Debtor has been done by them except for approving a Resolution Plan which offered a lower payout and which was a non-responsive plan in the first place.”

Setting aside the earlier order, the tribunal declared Valentis' plan invalid and directed reconsideration of the remaining resolution plans while also asking the resolution professional to examine whether the insolvency process should continue in light of recoveries already secured in the principal borrower's resolution.