In Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited & Anr.,1 the Supreme Court considered some of the aspects of the Insolvency and Bankruptcy Code ("Code/IBC"). In Ebix, the National Company Law Tribunal ("NCLT") had allowed the application filed by Ebix under Section 60(5) of the Code to withdraw the Resolution Plan submitted by it for Educomp. While reversing that order, the National Company Law Appellate Tribunal ("NCLAT") held that the application seeking to withdraw from the Resolution Plan could not have been allowed.
Supreme Court's observations
The Supreme Court considered the correctness of the aforesaid order of NCLAT. It was, inter alia, held and observed as under:
I. Re: Adjudicating mechanisms under the Code
A reading together of the UNCITRAL Guide and the BLRC Report clarifies, in no uncertain terms, that the procedure designed for the insolvency process is critical for allocating economic coordination between the parties who partake in, or are bound by the process. This procedure produces substantive rights and obligations. For instance, the composition of the Committee of Creditors ("CoC"), the method and percentage of its voting, the timelines for CIRP, the obligation on the Resolution Professional (RP) to file specific forms after every stage of the process and the obligation to explain to the Adjudicating Authority reasons for any deviations from the timeline while submitting a Resolution Plan, and other such procedural requirements create a mechanism which tightly structures the conduct of all participants in the insolvency process. This process invariably has an impact on the conduct of the Resolution Applicant who participates in the process and consents to be bound by the RFRP and the broader insolvency framework. An analysis of the framework of the statute and regulations provides an insight into the dynamic and comprehensive nature of the statute. Upholding the procedural design and sanctity of the process is critical to its functioning. The interpretative task of the Adjudicating Authority, Appellate Authority, and even the Supreme Court, must be cognizant of, and allied with that objective. Any claim seeking an exercise of the Adjudicating Authority's residuary powers under Section 60(5)(c) of the IBC, the NCLT's inherent powers under Rule 11 of the NCLT Rules 2016 or even the powers of the Supreme Court under Article 142 of the Constitution must be closely scrutinized for broader compliance with the insolvency framework and its underlying objective. The adjudicating mechanisms which have been specifically created by the statute, have a narrowly defined role in the process and must be circumspect in granting reliefs that may run counter to the timeliness and predictability that is central to the IBC. 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.
II. Whether a resolution plan can be equated to a contract
It was observed that certain stages of the CIRP resemble the stages involved in the formation of a contract. Echoes of the process involved in the formation of a contract resonate in the steps antecedent to the approval of a Resolution Plan such as: (i) the issuance of an RFRP may be equated to an invitation to offer; (ii) a Resolution Plan can be considered as a proposal or offer; and (iii) the approval by the committee of creditors may be similar to an acceptance of offer. The terms of the Resolution Plan contain a commercial bargain between the Committee of Creditors and the Resolution Applicant. There is also an intention to create legal relations with binding effect. However, it is the structure of the Code which confers legal force on the Committee of Creditors' approved Resolution Plan. The validity of the Resolution Plan is not premised upon the agreement or consent of those bound, but upon its compliance with the procedure stipulated under the Code. There is lack of international consensus on the issue of whether instruments like CoC-approved Resolution Plans are contracts, prior to the Court's sanction. In view of lack of clarity in BLRC Report and absence of any specific provision in the Code or the regulations referring to a CoC approved Resolution Plan as a contract, the Supreme Court declined to hold that CoC-approved Resolution Plans will be governed by the Contract Act and common law principles governing contracts, save and except for the specific prohibitions and deeming fictions under the Code.
III. Withdrawal of a resolution plan by a successful Resolution Applicant
The Supreme Court further observed and held while parties have the freedom to negotiate certain commercial terms of the Resolution Plan to gain wide support, their ability to negotiate is circumscribed by the governing statute. A court cannot interpret the negotiated arrangements that are represented in the Resolution Plan in a manner that hampers the objectives of the IBC which is a speedy, predictable and timely resolution. The Resolution Applicant is deemed to be aware of the IBC and its mechanisms before it steps into the fray and consents to be bound by its underlying objectives. 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. Judicial restraint must not only be exercised while adjudicating upon the constitutionality of the statute relating to economic policy but also in matters of interpretation of economic statutes, where the interpretative manoeuvres of the Court have an effect of transgressing into the law-making power of the legislature and disturbing the delicate balance of separation of powers between the legislature and the judiciary. Judicial restraint must be exercised in such cases as a matter of prudence, since 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 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. In the absence of any provision under the IBC allowing for withdrawal of the Resolution Plan by a successful Resolution Applicant, vesting the Resolution Applicant with such a relief through a process of judicial interpretation would be impermissible. Such a judicial exercise would bring in the evils which the IBC sought to obviate through the back-door. It was further held that Regulation 38(3) of the CIRP Regulations mandates that a Resolution Plan be feasible, viable and implementable with specific timelines. A Resolution Plan whose implementation can be withdrawn at the behest of the successful Resolution Applicant, is inherently unviable, since open-ended clauses on modifications/withdrawal would mean that the Plan could fail at an undefined stage, be uncertain, including after approval by the Adjudicating Authority. It is inconsistent to postulate, on the one hand, that no withdrawal or modification is permitted after the approval by the Adjudicating Authority under Section 31, irrespective of the terms of the Resolution Plan; and on the other hand, to argue that the terms of the Resolution Plan relating to withdrawal or modification must be respected, in spite of the CoC's approval, but prior to the approval by the Adjudicating Authority. 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 statutory framework under the IBC has consistently attempted to avoid situations which may introduce unpredictability in the insolvency resolution process and has sought to make the process as linear as it can be. A conditionality which allows for further negotiations, modification or withdrawal, once the Resolution Plan is approved by the CoC would only derail the time-bound process envisaged under the IBC. If the legislature intended to allow withdrawals or subsequent negotiations by successful Resolution Applicants, it would have prescribed specific timelines for the exercise of such an option. The recognition of a power of withdrawal or modification after submission of a CoC approved Resolution Plan, by judicial interpretation, will have the effect of disturbing the statutory timelines and delaying the CIRP, leading to a depletion in the value of the assets of a corporate debtor in the event of a potential liquidation.
The abovestated observations of the Supreme Court in Ebix affirm the findings of NCLAT that a resolution plan approved by the CoC cannot be allowed to be withdrawn or modified by the successful Resolution Applicant by approaching the Adjudicating Authority. It further signifies the objectives of a speedy, predictable and timely resolution of a Corporate Debtor and all stakeholders under a CIRP act to meet such ends. The Supreme Court further held that 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 observations of the Supreme Court in Ebix will certainly have their ramifications in future as the law would evolve with insolvency resolution process of different corporate entities. The judgment in Ebix takes care of reckless or negligent participation of a resolution applicant in the CIRP of a Corporate Debtor and conveys a message that CIRP proceedings should not be taken lightly by those intending to submit resolution plans for their approval. However, there may be occasions or circumstances beyond the control of a resolution applicant owing to some change in governmental policy or other developments (national or international) that may affect the economy of a particular sector or region and in such circumstances, where the successful Resolution Applicant may find it difficult to implement the resolution plan submitted by it, due to reasons beyond its control, there should be some way out or a solution to it. The legislature is, therefore, expected to come up with an answer for such situations in the absence of which, the judiciary should exercise its discretion to allow withdrawal or modification of resolution plan in very exceptional cases.
1 Civil Appeal No. 3224 of 2020 and other appeals
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