CoC Commercial Wisdom Prevails Over LoI Objections

The Supreme Court, in appeals under Section 62 of the Insolvency and Bankruptcy Code, 2016, examined a dispute arising from the CIRP of M/s Oracle Home Textiles Limited. The appellant, a promoter-director of the corporate debtor, challenged the treatment of the Letter of Intent issued to him, the forfeiture of his earnest money deposit, and the eventual move to liquidation.

The factual sequence mattered. The appellant’s resolution plan had been approved by the Committee of Creditors with 99.90% voting majority. A Letter of Intent was issued on 23 May 2021. The appellant argued that it was conditional because it referred to the outcome of pending applications before the NCLT and also contained a clause stating that litigation by employees and workers would be at the risk of the successful resolution applicant.

When the appellant did not return the accepted copy within time, a second LoI was issued on 23 June 2021. A third LoI followed on 23 July 2021, this time requiring submission of an unconditional performance guarantee within seven days. Even then, acceptance did not come. On 2 August 2021, the Resolution Professional informed the appellant that the earnest money deposit of Rs.1 crore stood forfeited under the RFRP for non-acceptance of the LoI dated 23 June 2021.

The appellant sought restoration of the EMD and also questioned the LoIs as being conditional and inconsistent with the Code and the resolution process. The Court, however, accepted the findings of the fora below that the appellant was aware of the pending litigations and the surrounding circumstances when the process was underway. The Court also noted that the CoC had already taken a considered decision in the matter.

On the legal position, the Court reiterated the settled principle that the commercial wisdom of the CoC has paramount status and is not open to judicial interference when exercised after due deliberation. Applying that principle, the Court held that the fora below were right in refusing to interfere with the CoC’s decision to reject the appellant’s plan and approve liquidation, which had been supported by 99.61% voting.

The appeals were dismissed, and the Liquidator was directed to proceed with the remaining liquidation in accordance with the Code.

Practical takeaway: In IBC proceedings, failure to comply with LoI timelines can justify EMD forfeiture, and courts will not disturb a well-informed CoC decision on plan rejection and liquidation.