Resolution plan submitted
before NCLT can't be modified or withdrawn: SC
Supreme Court on Monday held that CoC approved resolution plan submitted to the
National Company Law Tribunal (NCLT) cannot be modified or withdrawn as it
would create another tier of negotiations, which will be wholly unregulated by
court said that a submitted Resolution Plan is binding and irrevocable as
between the Committee of Creditors (CoC) and the successful Resolution
applicant in terms of the provisions of the IBC and the CIRP Regulations.
quoted a report of the Parliamentary standing committee on finance which stated
that 71 per cent cases are pending for more than 180 days before NCLT and added
this is in deviation from the original objective and timeline of Corporate
Insolvency Resolution Proceedings (CIRP) envisaged by IBC.
the NCLT and NCLAT to be sensitive to the effect of such delays on the
insolvency resolution process, the top court said, Judicial delay was one of
the major reasons for the failure of the insolvency regime that was in effect
prior to the Insolvency and Bankruptcy Code (IBC). We cannot let the present
insolvency regime meet the same fate.
of Justices DY Chandrachud and M R Shah said that the legislative intent of the
statute cannot be overridden by the Court to render outcomes that can have
grave economic implications which will impact the viability of the IBC.
context, we hold that the existing insolvency framework in India provides no
scope for effecting further modifications or withdrawals of CoC-approved
Resolution Plans, at the behest of the successful Resolution Applicant, once
the plan has been submitted to the Adjudicating Authority, the bench said.
added that enabling withdrawals or modifications of the Resolution Plan at the
behest of the successful Resolution Applicant, once it has been submitted to
the Adjudicating Authority (NCLT) after due compliance with the procedural
requirements and timelines, would create another tier of negotiations which
will be wholly unregulated by the statute.
that this Court is cognizant that the extraordinary circumstance of the COVID-9
pandemic would have had a significant impact on the businesses of corporate
debtors and upon successful resolution applicants, whose Plans may not have
been sanctioned by the Adjudicating Authority in time, for myriad reasons.
residual powers of the Adjudicating Authority under the IBC cannot be exercised
to create procedural remedies which have substantive outcomes on the process of
insolvency, it said, adding that the framework, as it stands, only enables
withdrawals from the CIRP by following the procedure of the IBC.
court said that since the 330 days outer limit of the CIRP under provisions of
the IBC, including judicial proceedings, can be extended only in exceptional
circumstances, this open-ended process for further negotiations or a
withdrawal, would have a deleterious impact on the Corporate Debtor, its
creditors, and the economy at large as the liquidation value depletes with the
passage of time.
added that a failed negotiation for modification after submission, or a
withdrawal after approval by the Committee of Creditors and submission to the
NCLT, irrespective of the content of the terms envisaged by the Resolution
Plan, when unregulated by statutory timelines could occur after a lapse of
time, as is the case in the present three appeals before us.
190-page verdict, the top court dismissed the appeal of Ebix Singapore Private
Limited challenging the decision of NCLAT passed on the plea of committee of
creditors of Educomp, setting aside the order of NCLT allowing Ebix to withdraw
the resolution plan.
court's verdict also came on the plea of two other companies on the same
question of law of power to withdraw or modify the resolution plan under the
bench said, permitting such a course of action would either result in a
down-graded resolution amount of the Corporate Debtor and/or a delayed
liquidation with depreciated assets which frustrates the core aim of the IBC.
that if the legislature in its wisdom were to recognize the concept of
withdrawals or modifications to a Resolution Plan after it has been submitted
to the NCLT, it must specifically provide for a tether under the IBC and/or the
must be coupled with directions on narrowly defined grounds on which such
actions are permissible and procedural directions, which may include the
timelines in which they can be proposed, voting requirements and threshold for
approval by the CoC (as the case may be), it said.
are matters for legislative policy, the bench said, adding that the legislature
must also contemplate at which stage the corporate debtor may be sent into
liquidation by the adjudicating authority or otherwise, in the event of a
failed negotiation for modification and/or withdrawal.
present framework, even if an impermissible understanding of equity is imported
through the route of residual powers or the terms of the resolution plan are
interpreted in a manner that enables the appellants' desired course of action,
it is wholly unclear on whether a withdrawal of a CoC-approved Resolution Plan
at a later stage of the process would result in the Adjudicating Authority
directing mandatory liquidation of the Corporate Debtor, it added.