IBC – Non-Acceptance of LoI & Forfeiture of EMD

Judgment dated 27.5.2026 of the Supreme Court in Civil Appeal Nos.12264-12265 of 2024 of Sanjay Dave   Vs   Andhra Bank and others

IBC – Non-Acceptance of Letter of Intent & Forfeiture of Earnest Money

IBC – Commercial Wisdom of CoC to Cancel Approved RP & Opt Liquidation

The appellant submitted Resolution Plan for the Corporate Debtor.   He was promoter / Director of CD.

CoC approved the Resolution Plan of the appellant.

In the meanwhile, third parties submitted prospective resolution plans to the Adjudicating Authority.  During such pendency, the RP issued the Letter of Intent dated 23.5.2021 to the appellant, second LoI on 23.6.201 and third LoI on 23.7.2021.

Since there was no acceptance of LoI, the RP forfeited the earnest money for non-acceptance of terms and conditions of the LoI dated 23.6.2021.

The CIRP period came to an end on 21.2.2023.  CoC voted for liquidation since there was no valid Resolution Plan.  The application of RP for approval of liquidation was allowed.

The appellant, having become the SRA, failed to carry out the obligations resulting in not only time running out for invitation of fresh plans but also forced the CoC to resort to liquidation under Section 33 of the Code.

A plain reading of clause 2 of Section 33 and specifically the explanation to the said clause 2, which came into force from 16.08.2019, makes it clear that where an SRA after lulling the CoC to believe that it will comply with the plan, reneges from the plan and where the CoC resolves to liquidate the company so as to realize the money and disburse the claims of the different claimants, no fault can be found with the process.

once the CoC has, in its commercial wisdom, come to the decision to reject the appellant’s plan and liquidate the CD on account of the appellant’s own default, there can be no case for interference.