SRA Cannot Seek Interest On Performance Bank Guarantee If Letter Of Intent Does Not Provide For It: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Chennai has ruled that a successful resolution applicant (SRA) whose resolution plan was scrapped after the Committee of Creditors opted for liquidation, cannot claim interest on his performance bank guarantee if the Letter of Intent and the Request for Resolution Plan issued by the Resolution Professional does not provide for it.

A coram of Judicial Member Justice Sharad Kumar Sharma and Technical Member Indevar Pandey held that the Letter of Intent operates as a binding contract governing both parties and dismissed an appeal filed by the SRA of Maan Sarovar Properties Development Pvt Ltd against an order of the NCLT Chennai. 

It observed, "We are of the view that, as far as the payment of interest on the Performance Bank Guarantee (PBG) is concerned, it would be subject to the condition that the aforesaid clause as enshrined in the terms of the Letter of Intent itself, or RFRP document, which is the basis of furnishing claim or refund of the Performance Bank Guarantee (PBG)"

It added, "Interest cannot be a selfcreated fiction, which could be claimed by the Appellant as a right by filing of an application, for withdrawal of PBG. The Appellant would be under the contracting laws, bound by the terms of the Letter of interest as well as the RFRP document, which has been the basis for laying down the governing terms and conditions leading to the issuance of the Letter of Intent, which has been accepted by the Appellant and is bounded by it and Appellant now cannot resile from it."

Kences Constructions Pvt Ltd and its consortium members were declared the successful resolution applicant for Maan Sarovar Properties Development Pvt Ltd after their Rs 26.5 crore plan received 95 percent approval from the CoC. The Resolution Professional then issued the Letter of Intent on March 13, 2024, requiring the SRA under the RFRP to furnish a performance bank guarantee equivalent to 15 percent of the plan value.

The consortium deposited Rs 3.97 crore on March 16, 2024. However, at the 30th CoC meeting, lenders voted with 98.37 percent to withdraw the approved plan and pursue liquidation instead, following which the SRA sought a refund of the PBG along with interest.

The consortium argued that the NCLT had not considered its interest claim while ordering refund of the guarantee amount. The Resolution Professional opposed the plea. He submitted that the performance bank guarantee was not an interest-bearing deposit but a mechanism to secure performance under the LoI.

Dismissing the appeal, the tribunal upheld the NCLT's finding and held that the SRA could not go beyond the terms of the governing documents.

It held, "under any contractual obligations or when an inter se relationship is governed by the two contracting parties, their rights and liabilities are exclusively and strictly governed by the terms and conditions contained in it, and they cannot claim much or anything beyond what has been agreed and settled between the parties under the terms of the contract"