NCLAT Sets Aside Manjeera Resolution Plan, Holds Delayed EMD Credit Makes Bid Non-Responsive

NCLAT Sets Aside Manjeera Resolution Plan, Holds Delayed EMD Credit Makes Bid Non-Responsive

Introduction

The National Company Law Appellate Tribunal has set aside the approval of the resolution plan in the CIRP of Manjeera Constructions Limited after holding that the successful resolution applicant failed to ensure timely credit of the earnest money deposit (EMD). The Tribunal ruled that mere debit of the bidder’s bank account on the last date is insufficient and that the EMD must be actually credited to the corporate debtor’s account within the stipulated deadline.

Factual Background

The CIRP concerned Manjeera Constructions Limited, which was acting as a corporate guarantor for another borrower already undergoing insolvency proceedings. A Request for Resolution Plan was issued on 10 January 2024, fixing 9 February 2024 as the last date for submission of bids along with the mandatory EMD under Clause 12 of the process document.

Four bidders submitted resolution plans. Among them, Valentis Laboratories emerged as the successful resolution applicant. However, the EMD accompanying Valentis’ bid was credited only on 12 February 2024, i.e., three days after the deadline.

Despite this delay, the Committee of Creditors approved Valentis’ plan on 10 June 2024 with nearly 94% voting share, even though competing applicants had offered significantly higher values.

Procedural Background

The challenge was brought by S2 Tech.com India Private Limited, a financial creditor, which questioned the legality of approval of Valentis’ plan and sought setting aside of the order approving the same.

Issues

1. Whether the earnest money deposit requirement is satisfied by mere debit from the bidder’s account before the deadline.

2. Whether delayed credit of EMD beyond the deadline renders the bid non-responsive.

3. Whether approval of a lower-value, procedurally defective bid violated the objective of value maximisation.

Contentions of the Parties

The appellant-financial creditor argued that Clause 12 of the Request for Resolution Plan expressly required the EMD to accompany the bid within the prescribed deadline. Since the amount was actually credited only on 12 February 2024, the bid was non-responsive and ought to have been rejected at the threshold. It was further argued that acceptance of such a defective bid defeated the IBC objective of value maximisation, particularly when rival bidders had submitted higher offers.

The Resolution Professional and the successful resolution applicant defended the process by contending that the transfer had been initiated on time and that the delay was caused only due to banking formalities beyond the bidder’s control. They further argued that the commercial wisdom of the CoC in approving the plan ought not to be disturbed.

Reasoning and Analysis

The Appellate Tribunal placed strong reliance on Clause 12 of the Request for Resolution Plan, which clearly required the EMD to be submitted “along with” the resolution plan within the stipulated time. The Bench held that this necessarily meant actual receipt of the EMD by the corporate debtor’s account before the deadline.

The Tribunal categorically rejected the argument that mere debit from the bidder’s bank account on the last date was sufficient compliance. It held that unless the amount is actually credited within the due date and time, the bidder does not become eligible to participate.

The Resolution Professional was found to have “grossly erred” in treating the bid as compliant despite the admitted delay. The Tribunal described the conduct as “reprehensible” and emphasized that process sanctity cannot be diluted by post facto justifications based on banking delay.

The Bench also expressed serious concern that the CoC approved a lower-value plan without adequate consideration of competing higher offers. It observed that no meaningful value maximisation had been achieved when the approved plan itself was non-responsive from the outset.

Decision

The NCLAT set aside the approval of Valentis Laboratories’ resolution plan and declared it invalid. The matter was remitted for reconsideration of the remaining resolution plans. The Tribunal also directed the Resolution Professional to re-examine whether continuation of CIRP itself was necessary in view of recoveries already secured in the insolvency of the principal borrower.

In this case the appellant was represented by Advocate Sam Jayaraj Houston.