Case Note & Summary
The appeal was filed by Sun Paper Ltd. against the order of the Adjudicating Authority directing it to deposit ₹2.0 crores as Earnest Money Deposit (EMD) to the liquidation estate of the corporate debtor. The corporate debtor was undergoing liquidation, and both the appellant and another company submitted schemes for its sale. The Adjudicating Authority did not approve either scheme and remanded the matter back to the Committee of Creditors (CoC) for reconsideration. The appellant later withdrew its appeal against the remand order, which it argued left it without an accepted scheme and thus without any legal obligation to pay the EMD. The liquidator contended that the withdrawal of the appeal did not equate to withdrawing from the scheme submission process. The court analyzed the arguments and concluded that the appellant's withdrawal from the race was a legitimate commercial decision, and it could not be forced to pay the EMD after its scheme was not accepted. The court found the liquidator's claim for the EMD unsustainable in law and allowed the appeal, setting aside the Adjudicating Authority's order.
Headnote
A) Company Law - Liquidation Process - Liability for EMD Payment - Insolvency and Bankruptcy Code, 2016 - The appellant withdrew from the scheme submission process after its scheme was not accepted, leading to a challenge against the liquidator's order to pay the EMD. The court held that once the scheme was not accepted, the appellant had the right to withdraw and was not liable to pay the EMD amount (Paras 6-10).
Issue of Consideration
Whether the appellant is liable to pay the Earnest Money Deposit (EMD) after withdrawing from the scheme submission process.
Final Decision
The appeal was allowed, and the order of the Adjudicating Authority dated 12.05.2023 was set aside. All pending interlocutory applications were closed without costs.
Law Points
- Liquidation process
- EMD guarantee
- scheme submission
- commercial decision
- legal liability
