IBC: Resolution Plan Submitted To NCLT Cannot Be Withdrawn, Says Supreme Court

The Insolvency and Bankruptcy Code, 2016, doesn't provide for the withdrawal of or modifications to a resolution plan which has been submitted to the National Company Law Tribunal for approval, the Supreme Court has ruled.

The top court, on Monday, delivered the judgment on three petitions that involved questions of withdrawal or modifications after the resolution plan was approved by the committee of creditors and submitted to the tribunal.

The case landed at the top court after the National Company Law Appellate Tribunal reversed a NCLT ruling which had allowed for the withdrawal of the resolution plan submitted for Educomp Solutions Ltd.

The withdrawal was sought by winning resolution applicant Ebix Singapore Pvt. on grounds that the approval application was pending before the NCLT for 17 months, during which fresh investigations has been initiated into the financial affairs of Educomp.

The second petition was by Kundan Care Products Ltd. which had sought to withdraw its resolution plan submitted for Astonfield Renewables Pvt. Kundan argued that the plan submitted by them was no longer feasible and viable commercially.

The last appeal was in the case of Seroco Lighting Industries Pvt., which had sought to modify its resolution plan for Arya Filaments Pvt., citing the changed economic conditions due to the Covid-19 pandemic.

‘Absence of Legislative Hook To Enable Withdrawal‘

The top court in the judgment analysed the nature of a resolution plan from the perspective of a contract.

The appeals argued that a resolution plan is in the nature of an offer which becomes binding only after it is approved by the NCLT.

The approval of the plan by the creditors' committee is conditional upon its confirmation by the tribunal and until that's granted, the plan cannot be said to have got absolute acceptance, the appeals said.

The top court didn't agree.

The court noted that the law allows for an exit from the insolvency process when there is a settlement between the committee of creditors and the corporate debtor.

Section 12A gives the power to the committee to withdraw the insolvency proceedings or put the question of withdrawal for a vote when requested by the corporate debtor.

Significantly, no such exit routes have been contemplated for the resolution applicant, the bench noted.

It said that a resolution plan is a creature of the insolvency code and cannot be construed as a pure contract between two consenting parties.

The bench highlighted that a successful applicant is assumed to have analysed the risks in the business of the corporate debtor and then submitted a considered proposal.

It further said allowing for withdrawal or modification would create another tier of negotiations wholly unregulated by the statute.

If the legislature decides to provide an option for withdrawal of the plan then it must include narrowly defined grounds on which such actions are permissible, the apex court said.

Judicial Restraint Must Be Exercised While Interpreting Economic Statues: Court

The bench of the top court, presided by Justice DY Chandrachud, noted that courts must exercise judicial restraint when it comes to interpretation of economic statues.

The court neither has the necessary expertise nor the power to hold consultations with stakeholders or experts to decide the direction of economic policy, the bench said.

The bench also considered the impact of the Covid-19 pandemic on the insolvency process.

The bench said it was aware of the impact of the pandemic on the businesses of the corporate debtors and resolution applicants whose plans may not have been cleared by the tribunal on time.

The top court also gave a specific ruling in all three petitions after analysing the factual position of the cases.

• The court rejected Ebix Singapore's plea for withdrawal of the resolution plan for Educomp.

• In the Kundan Care case, the court exercised its special powers and granted a one-time relief. The bench allowed for a revised plan to be submitted by Kundan Care and asked the NCLT to take a call on the plan within two weeks.

• In the Arya Filaments case, the court rejected the request for modification to the plan.

In conclusion, the top court also had a word for the adjudicating authorities.

The bench highlighted the inordinate delays in the insolvency timelines and the commercial impact of such delays.

The Supreme Court urged the tribunals and the appellate tribunal to make best efforts to ensure that timelines under the IBC are strictly adhered to.

As on May 31, around 70% of insolvency resolution processes are facing a delay of more than 180 days, it pointed out.