Status as on- 20/10/2021
Background
On 13.09.2021, the Supreme held that a Resolution Applicant is not entitled to withdraw or modify its Resolution Plan once it is submitted before National Company Law Tribunal (hereinafter referred as NCLT).
The division Bench of Justice D.Y. Chandrachud and Justice M.R. Shah,has held 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.”
QUESTION OF LAW
The Supreme Court answered the question “Whether a Resolution Applicant is entitled to withdraw or modify its Resolution Plan, once it has been submitted by the Resolution Professional to NCLT and before it is approved by the latter under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as IBC)?”
The SC observed and answered the above-mentioned question in the following matters:
- In the matter, Ebix Singapore Private Ltd. Vs. Committee of Creditors of Educomp Solutions Ltd. & Anr. Ebix filed a withdrawal application on account of a delay in approval. However, the SC rejected the application and upheld the order passed by stating that:
“the terms related to the validity of the Resolution Plan for the period of negotiation with CoC and not for a period after the Resolution Plan was submitted for approval of NCLT.”
- In the matter Kundan Care Products Ltd. Vs. Mr. Amit Gupta and Ors.,Kundan Care Products Ltd. submitted a Resolution Plan which was approved by CoC. Thereafter, the Resolution Plan was filed for approval of NCLT.Thereafter, Kundan Care moved an application for withdrawal of its Resolution Plan. However, the same was dismissed by NCLT.
Later, the lenders EXIM Bank and PFCL jointly agreed to seek revision on the resolution plan before NCLT. The SC mentioning that both lenders represent 98% of financial creditors of Astonfield, allowed the request with directions, deeming it appropriate to exercise its jurisdiction under Article 142 of the Constitution for a one-time relief.
- In the matter of Seroco Lighting Industries Private Ltd. Vs. Ravi Kapoor RP for Arya Filaments Private Limited & Ors. The Serocofilled application for modification in the Resolution Plan because of economic slowdown due to COVID-19. However, NCLT rejected the application. The SC upheld the order passed by NCLAT.
OBSERVATIONS BY SUPREME COURT
The Supreme Court had made the following observations:
- Once the Resolution Applicant obtains the financial information, it is assumed that information may rise risk in the business of Corporate Debtor;
- A submitted Resolution Plan is binding and irrevocable as between the Committee of Creditors (hereinafter referred to as CoC) and the successful Resolution Applicant in terms of provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as IBC) and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred as CIRP Regulations).
- Additionally, the SC also observed that NCLT take a long period in approving the Resolution Plan, which subsequently impacts the further implementation plans. Thus, SC advised the NCLT and NCLAT to take necessary measures to avoid such delays and to overcome the effect of such delays on the insolvency resolution process.
Conclusion-
The Supreme Court held that a Resolution Plan only becomes binding when it is approved by NCLT under Section 31(1) of IBC. The Adjudicating Authority cannot allow or approve the application regarding modifications or withdrawals of CoC-approved Resolution Plans once the plan has been submitted before NCLT.
The SC dismissed the appeals in the matter of Ebix and Seroco. However, appeals against the NCLAT order is allowed by SC in the exercise of powers under Article 142 as a one-time relief.
Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinion before relying upon the article. For more information, please contact us at rera@centrik.in
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