Submission of a Resolution Plan – A No Walkover Zone

Sachin Gupta, Karan Batura | March 2022

INTRODUCTION

The Apex Court of India, vide its recent judgment dated 13.09.20211, has put rest to the long-debated question of withdrawal/modification of an approved Resolution Plan, thereby asserting a No Way Out for the Resolution Applicant. The Apex Court, while hearing a batch matter vis-à-vis the question of withdrawal/modification of Resolution Plan, categorically held that a Resolution Plan cannot be withdrawn at the behest of the Resolution Applicant post its submission to the Adjudicating Authority for approval. The judgment shall have the effect of literally holding the Resolution Applicants to their commitments with no exception of return.

BRIEF BACKGROUND OF THE MATTER

In the said matter, the Hon’ble Supreme Court of India primarily dealt with three appeals concerning a common question of law “Withdrawal of the Resolution Plan by a successful Resolution Applicant under the IBC,” wherein the Resolution Applicants sought to withdraw/ modify their respective resolution plans on copious grounds, inter-alia pertaining to change in fundamental considerations due to inordinate delays, financial difficulties, material change in the circumstances premised on which the resolution plan was approved due to Coronavirus pandemic, contingent plans, altering economic scenarios, etc.

OBSERVATIONS AND CONCLUSION OF THE JUDGMENT BY THE APEX COURT

The Apex Court, post carefully considering the arguments and submissions of all the parties, observed that;

Any judicial creation of a procedural or substantive remedy that is not envisaged by the statute would not only violate the principle of separation of powers, but also run the risk of altering the delicate coordination that is designed by the IBC framework and have grave implications on the outcome of the CIRP, the economy of the country and the lives of the workers and other allied parties who are statutorily bound by the impact of a resolution or liquidation of a Corporate Debtor.
A Resolution Plan even prior to the approval of the Adjudicating Authority is binding inter se the CoC and the successful Resolution Applicant. The Resolution Plan cannot be construed purely as a ‘contract’ governed by the Contract Act, in the period intervening its acceptance by the CoC and the approval of the Adjudicating Authority. The ability of the Resolution Plan to bind those who have not consented to it, by way a statutory procedure, indicates that it is not a typical contract.
A Resolution Applicant, after obtaining the financial information of the Corporate Debtor through the informational utilities and perusing the IM, is assumed to have analyzed the risks in the business of the Corporate Debtor and submitted a considered proposal. It cannot demand vesting of certain powers and rights which have been conspicuously omitted by the Legislature under the statute, in furtherance of the policy objectives of the IBC. A court may not be able to lay down such detailed guidance on how a mechanism for withdrawal, if any, may be provided to a successful Resolution Applicant without disturbing the statutory timelines and adequately evaluating the interests of creditors and other stakeholders, which is ultimately a matter of legislative policy.
The absence of any exit routes being stipulated under the statute for a successful Resolution Applicant is indicative of the IBC’s proscription of any attempts at withdrawal at its behest. The rule of casus omissus is an established rule of interpretation, which provides that an omission in a statute cannot be supplied by judicial construction.
The IBC does not envisage a dichotomy in the binding character of the Resolution Plan in relation to a Resolution Applicant between the stage of approval by the CoC and the approval of the Adjudicating Authority. The binding nature of a Resolution Plan on a Resolution Applicant, who is the proponent of the Plan which has been accepted by the CoC cannot remain indeterminate at the discretion of the Resolution Applicant. The negotiations between the Resolution Applicant and the CoC are brought to an end after the CoC’s approval. The only conditionality that remains is the approval of the Adjudicating Authority, which has a limited jurisdiction to confirm or deny the legal validity of the Resolution Plan in terms of Section 30 (2) of the IBC.
The 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. The framework, as it stands, only enables withdrawals from the CIRP process by following the procedure detailed in Section 12A of the IBC and Regulation 30A of the CIRP Regulations and in the situations recognized in those provisions. 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 after due compliance with the procedural requirements and timelines, would create another tier of negotiations which will be wholly unregulated by the statute. Premised upon the afore-stated observations and findings, the Hon’ble Supreme Court, though agreeing that inordinate delays causes commercial uncertainty, degrades the value of the Corporate Debtor, and makes the insolvency process inefficient and expensive. It categorically held that it is impermissible for Resolution Applicants to withdraw or modify CoC-approved plans as the Code does not permit for such withdrawals. Considering the effect of such delays, the Apex Court, before concluding, went on to direct that the NCLT and NCLAT ought to be sensitive to the impact of delays on the insolvency resolution process and to be cognizant that adjournments hamper the efficacy of the judicial process. Hence, there should be an endeavor to strictly adhere to the timelines stipulated under the IBC and clear pending resolution plans forthwith.

AUTHORS’ VIEWS & ANALYSIS

In our considered opinion, the Hon’ble Supreme Court’s view concerning impermissibility to the Resolution Applicant to withdraw/modify the Resolution Plan, notwithstanding any factors whatsoever which directly affect the very premise upon which the Resolution Plan was submitted, may be strictly by the book and idealistic; but lacks pragmatism. However, one shall also note that the judgment is regressive, as it is legally accurate and shall have a positive effect of discouraging frivolous applicants from participating in the insolvency process and cautioning prospective applicants to prudently conduct due diligence of all of the factors before submitting the Resolution Plan. It shall also act as a deterrent to the prospective Resolution Applicants and consequently to the Corporate Insolvency Resolution Process.

The unprecedented Coronavirus pandemic has hit the entire world hard! The economies of countries, the financial status of people and their complete businesses have suffered a significant setback. Not to forget the loss of innumerable innocent lives. The global pandemic has not only caused a change in the economic and commercial considerations but has fundamentally altered them. Every organization/ authority in the world, including the Hon’ble Supreme Court of India itself, has taken a realistic view of protecting its citizens’ interests in such a situation. However, such consideration has not been advanced to the Resolution Applicants.

The Apex Court has put the interests of the creditors and the stakeholders at a higher footing than that of the Resolution Applicants by closing the exit doors of a Resolution Plan. Hence, resulting in a situation of a lock-up and throwing away the key post-acceptance of Resolution Plan by CoC. However, even if such an analogy is drawn literally, the Resolution Applicant can, at most be considered a mere under-trial prisoner till the time the Adjudicating Authority has not approved his Resolution Plan. And not to forget, such under-trial prisoners too were directed to be released upon the on-set of the Covid-19 pandemic. Vide the judgment in the matter of ‘Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited & Anr.’ bearing Civil Appeal No. 3224 of 2020, the Apex Court of India has although rightly abided by the Legislature but failed to impart complete justice.

CONCLUSION

When a resolution plan is submitted, it is premised solely upon the prevailing set of facts, considerations, and scenarios. Though a period of the forthcoming year is considered while submission, gauging the ambiguities for an infinite timeline is practically impossible. A Resolution Applicant cannot be assumed to view all future contingencies and factors in addition to the uncertainty of the time taken for final approval of the Resolution Plan. In such a given scenario, the Resolution Applicant may ‘suffer’ for any/all extraneous circumstances which affect him financially and commercially. Furthermore, the viability of the Resolution Plan and future business prospects can be discouraging for all prospective Resolution Applicants. This can result in the liquidation of the Corporate Debtor, defeating the very purpose of IBC, i.e., the revival of the corporate debtor and making it a going concern. All attempts should be made to revive it, with liquidation as a last resort.

The foremost reason negating the successful implementation of the Resolution Plan and its success is the precariousness of the adjudication on the Resolution Plan by the Adjudicating Authority. Though a fixed time limit has always been in place to complete the CIRP, the harsh reality is that the same is hardly adhered to. As per the quarterly report ending September 2021 released by IBBI2 , it is unequivocally evident that more than 70% of all CIRPs take more than 270 days for completion.

Time lag is the primary reason for shoving the Corporate Debtors into liquidation. The extension of time period to 330 days is also not solving the purpose. Delays not only occur owing to the Adjudicating Authorities being overwhelmed by the number of cases, but are also on account of extrinsic factors, beyond the control of humans. An ongoing example of the same is the Covid-19 pandemic being faced by the entire world, which has ensued a limited functioning of the Adjudicating Authorities and has led to a delay in adjudication of the matters. A mere direction to NCLTs and NCLAT for urging them to complete the insolvency process within the stipulated time shall not come to the aid of the Resolution Applicants.

The ball is now in the Legislature’s court. There is an imminent need for the Legislature of our country to take a step forward to make suitable amendments to the Code thereby not only protecting the interests of the Resolution Applicants from future uncertainties but also preserving the objectives of IBC.

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About Author

Sachin Gupta

Sachin Gupta heads the Litigation Practice at Dhir & Dhir Associates as a Senior Partner, with prime focus on complex civil & commercial litigation and arbitration matters. He handles matters in the Supreme Court of India, High Courts and various Tribunals, other quasi - judicial and alternate dispute resolution forums.

Karan Batura

Karan Batura is an Associate Partner with Dhir & Dhir Associates and an expert in handling complex commercial litigation matters. He is a qualified Advocate - on - Record with the Supreme Court of India specialising in handling matters relating to contractual disputes, banking and finance, insolvency, civil and arbitration disputes.