NCLT Mumbai Says ₹5 Crore EMD Cannot Be Forfeited Over Applicant's Eligibility Dispute In Morarjee CIRP

The National Company Law Tribunal (NCLT), Mumbai Bench-I has directed the return of a ₹5 crore Earnest Money Deposit (EMD) Bank Guarantee furnished by Nirmal Ujjwal Credit Co-operative Society Limited during the Corporate Insolvency Resolution Process (CIRP) of Morarjee Textiles Limited.

The court held that the guarantee could not be forfeited under the Request for Resolution Plan (RFRP) without any misrepresentation or misleading statement about the society's eligibility.

“Accordingly, we are of considered view, it can not be said that the applicant had misrepresented or made a misleading statement in its Resolution Plan in relation to its eligibility, which was always subject matter of detailed scrutiny at the end of RP,” the court observed.

The order was passed by Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar in a plea by nirmal seeking the return of the Bank Guarantee.

The CIRP commenced on February 9, 2024. Nirmal Ujjwal Credit Co-operative Society was included in the provisional and final lists of prospective resolution applicants and was shortlisted to submit a resolution plan. It furnished the ₹5 crore Bank Guarantee as EMD under the RFRP.

The society was later disqualified and challenged the decision before the NCLT. The NCLT sustained the disqualification on April 9, 2025, and the NCLAT upheld it. The society subsequently withdrew its Civil Appeal before the Supreme Court on April 9, 2026. The Supreme Court did not return a finding on the merits of the appeal.

On March 7, 2026, the society sought a refund of the EMD, stating that considerable time had passed. On June 3, 2026, Union Bank of India informed it that the Bank Guarantee had been presented for invocation and encashment.

Indian Bank opposed the refund, alleging that the society had misrepresented its eligibility. It relied on Section 64(d) of the Multi-State Co-operative Societies Act, 2002, and RFRP clauses permitting forfeiture in specified circumstances.

The court noted that Regulation 36B(4) of the CIRP Regulations bars a request for resolution plans from requiring a non-refundable deposit. It also noted that the RFRP provided for return of the EMD of an unsuccessful resolution applicant.

The eligibility dispute turned on the meaning of “same line of business” under Section 64(d). The court found that the issue required scrutiny by the Resolution Professional, Committee of Creditors and legal experts. It therefore could not be treated as an ex facie false or misleading representation.

The court also rejected the argument that the society should bear the consequences of the time spent challenging its disqualification. It observed that exercising a statutory right cannot make the resulting CIRP delay attributable to the applicant.

The court held that the Bank Guarantee could not be forfeited unde RFRP. It directed its return, or refund of the proceeds within one week if it had already been encashed.