SANJAY DAVE v. ANDHRA BANK LTD. & ORS.

What happened

The corporate insolvency resolution process of Oracle Home Textiles Limited began on 9 August 2018 and a request for resolution plan was issued on 6 February 2019. The appellant, the promoter-director, submitted a plan that the Committee of Creditors approved on 10 May 2021 with 99.90 per cent of the votes. The Resolution Professional issued letters of intent on 23 May, 23 June and 23 July 2021, each saying approval was subject to the orders reserved by the NCLT on applications by prospective resolution applicants and that claims by staff, employees and workers were the risk of the successful applicant, and the last required the performance guarantee within seven days under clause 1.10. The appellant called the letters conditional and did not accept them, and on 2 August 2021 the Resolution Professional forfeited the earnest money of Rs.1,00,00,000 under clause 1.9.4 of the request. The resolution period ended on 21 February 2023, and on 5 June 2023 the creditors voted for liquidation by 99.61 per cent. The Adjudicating Authority dismissed the appellant's applications (IA 1205 and 2029 of 2021) and allowed the Resolution Professional's IA 3914 of 2023 on 30 April 2024; the NCLAT dismissed the appeals on 29 October 2024.

Questions before the court

• Were the letters of intent conditional so as to excuse the successful applicant, and was forfeiture of earnest money and liquidation valid?

Why the court ruled this way

The stipulation that the letter was subject to the Adjudicating Authority's decision on pending applications by others only recognised that the court's order would prevail in any event and did not make it conditional (paragraph 19). The minutes of the 27th, 28th and 29th meetings show the appellant was told of the pending litigation, that he agreed to the employee-risk clause and accepted the seven-day period for the guarantee after the 45 days allowed for the pandemic had expired (paragraphs 20 to 25). He could not approbate and reprobate, as State Bank of India v. M.J. James and Nagubai Ammal hold (paragraphs 26 to 30). Under Ebix Singapore v. Committee of Creditors of Educomp a plan approved by the creditors is binding and irrevocable and there is no room for further negotiation or withdrawal (paragraphs 31 and 32). Clause 1.9.4(b) and (e) allowed forfeiture for failing to give the performance guarantee in time or otherwise not complying, and the proviso for non-receipt of the letter or additional terms did not apply (paragraphs 33 to 35). Section 33(2) and its Explanation allow the creditors to decide to liquidate at any time before confirmation, and their commercial wisdom under K. Sashidhar v. Indian Overseas Bank is not reviewable (paragraphs 36 to 42).

Controlling point

The appellant was bound by the approved plan, the earnest money was rightly forfeited and the liquidation decision could not be disturbed.

Order and next steps

The appeals were dismissed and all interim orders vacated. The Liquidator was directed to proceed with the remaining part of the liquidation in accordance with the Code, and there was no order as to costs.

Practical implications

A successful resolution applicant should accept the letter of intent and furnish the performance guarantee on time; objections to terms already known from the creditors' meetings are unlikely to excuse non-performance or save the earnest money.

Limits of this ruling

• The Court decided on the terms of these letters of intent, the minutes of the creditors' meetings and the request for resolution plan; it did not hold that every letter of intent that adds fresh conditions beyond the approved plan must be accepted.