NCLAT held that the withdrawal of CIRP under Section 12A constitutes a full and final settlement, rendering the deposited amount non-refundable, except where no forfeiture clause existed in the agreement.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed an appeal and held that the withdrawal of JDECL’s CIRP under Section 12A constituted a full and final settlement, rendering the deposited ₹3 Crores non-refundable. However, the Tribunal allowed the refund of ₹25 Lakhs paid for UCL’s resolution due to the absence of a forfeiture clause in the MoU and the non-approval of the Resolution Plan.
The appeal was filed against the Order dated 26.07.2022 passed by the Adjudicating Authority (NCLT, Mumbai Bench Court – III) in I.A. 1370/2021 in C.P. (IB) No. 3622(MB)/2018, whereby the application filed by the Appellant seeking a refund of deposits made under a settlement arrangement was dismissed. The insolvency proceedings against the Corporate Debtor, M/s. Unimetal Castings Limited (UCL) were initiated by TJSB Sahakari Bank Ltd. under Section 7 of the Insolvency and Bankruptcy Code, 2016, and admitted on 25.01.2019. The Interim Resolution Professional (IRP) constituted the Committee of Creditors (CoC), which later voted unanimously for the liquidation of the Corporate Debtor. Subsequently, the Promoter & Executive Director of UCL and its sister concern, Joshi Deodhar Engineering Company Limited (JDECL), proposed a settlement and a resolution plan, leading to the formation of the Appellant, M/s. Globmet Engineering Private Limited, as an investment vehicle.
On 16.03.2020, an MoU was executed between the Appellant and the CoC, which was later revised on 07.08.2020. The revised MoU provided that JDECL’s CIRP would be withdrawn under Section 12A and UCL’s CIRP would be concluded through a Resolution Plan by 30.09.2020. The MoU specified ₹3 Crores for the settlement of JDECL’s CIRP and ₹9.75 Crores for UCL’s resolution. The Appellant paid ₹25 Lakhs upon signing the MoU, and the Section 12A application for JDECL was subsequently approved, leading to the closure of JDECL’s CIRP on 02.11.2020. However, with respect to UCL, the Resolution Plan submitted on 12.09.2020 lacked the Performance Security Deposit. The CoC approved the Resolution Plan on 22.12.2020, conditional upon depositing ₹25 Lakhs as Performance Security, but the Appellant later withdrew from the settlement, resulting in liquidation proceedings.
The Adjudicating Authority, by its Order dated 26.07.2022, dismissed the Appellant’s application for a refund of ₹3,25,00,000/-, imposed costs of ₹1 Lakh, and held that the withdrawal of JDECL’s CIRP under Section 12A could not be legally reversed. The Appellant contended that the MoU required CIRP closure and resolution plan approval by 30.09.2020, and as these conditions were not met, it was entitled to a refund. The Tribunal examined the matter and found that the ₹3 Crores paid for JDECL was part of a full and final settlement and could not be reclaimed. However, as the MoU contained no forfeiture clause for the ₹25 Lakhs paid towards UCL’s resolution, and since the Resolution Plan was not approved due to the nondeposit of performance security, the Tribunal held that this amount was refundable.
The Tribunal also noted that the Appellant had knowledge of and did not object to the Section 12A withdrawal process, thereby undermining its claim for a refund. The Adjudicating Authority's findings of collusion between the Appellant and the promoters/directors of UCL were upheld. Consequently, while the Tribunal rejected the claim for a refund of ₹3 Crores, it allowed the refund of ₹25 Lakhs, considering the absence of an express forfeiture clause in the MoU.
Mr. Shlok Chandra and Mr. Sankalp Sharma, Advocates, represented the Appellat.
Mr. Abhishek Anand, Karan Kohli, Ms. Palak Kalra, Mr. Harsh N. Gokhale, Mr. Rohit Pandit, and Mr. Lakshaya Raj, Advocates, appeared for the CoC.
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