Authority: National Company Law Appellate Tribunal (NCLAT), Chennai Bench (Justice N. Seshasayee, Member (Judicial) and Jatindranath Swain, Member (Technical))

Order Date: 17 August 2026

Case Overview

This appeal arose from an order dated 12.05.2023 passed by the Adjudicating Authority (National Company Law Tribunal, Chennai Bench) in IA/846(CHE)/2020 in CP/514(IB)/CB/2017. The appellant, Sun Paper Ltd., challenged the order directing it to deposit a bank guarantee amount of ₹2.0 crores to the liquidation estate of the corporate debtor, Servalakshmi Paper Ltd. (under liquidation).

The corporate debtor, Servalakshmi Paper Ltd., was ordered to be liquidated. During the liquidation process, schemes were invited for its sale as a going concern under Regulation 2B of the IBBI (Liquidation Process) Regulations. Sun Paper Ltd. and M/s. Seshasayee Paper and Boards Limited submitted schemes. The CoC evaluated both and approved Sun Paper's scheme, though the liquidator expressed a preference for Seshasayee's. The Adjudicating Authority (NCLT) approved neither and remanded the matter back to the CoC for de novo consideration via its order dated 13.03.2020.

Sun Paper Ltd. challenged this remand order in Company Appeal No. 451 of 2020 but withdrew it on 28.08.2020. Subsequently, the corporate debtor was liquidated and eventually sold to Seshasayee Paper. Both scheme proponents had provided an Earnest Money Deposit (EMD) guarantee of ₹2.0 crores. After Sun Paper withdrew its appeal, the liquidator filed IA No. 846 of 2020 against it to realize this EMD amount. The NCLT allowed this application ex-parte, leading to the present appeal.

Sun Paper's counsel argued that their representation was incorrectly noted in the NCLT order and that they could not effectively participate due to COVID-19 restrictions. Their primary legal contention was that no liability for the EMD existed once their scheme was not accepted by the authorities, and their subsequent withdrawal from the process was a valid commercial decision.

The NCLAT analyzed the fundamental legal liability of a scheme proponent. It held that submitting a scheme does not constitute an obligation to see the process through to the satisfaction of the CoC or Adjudicating Authority. Once a scheme is not accepted, the proponent has the right to withdraw from the process. The Tribunal emphasized the commercial reality that participants are driven by business advantage and time sensitivity, which must be respected and cannot be forced indefinitely.

The judgment found the liquidator's claim for the EMD amount to be wholly unsustainable in law, as liability ceases when a scheme is not accepted.

Final Outcome

The NCLAT allowed the appeal (Company Appeal (AT) (Ins) No.205/2023). The impugned order of the Adjudicating Authority (NCLT Chennai) dated 12.05.2023 was set aside. Sun Paper Ltd. is not required to pay the ₹2.0 crores to the liquidation estate. All pending interlocutory applications were closed with no order as to costs.

Topics: Insolvency Litigation, Earnest Money Deposit, Liquidation Process