In an important decision passed recently1, the National Company Law Appellate Tribunal (“NCLAT”) while endorsing the decision of National Company Law Tribunal, New Delhi Bench (“NCLT”) held that in order to preserve the sanctity of the corporate insolvency resolution process (“CIRP”), the successful resolution applicant cannot be permitted to withdraw its resolution plan once the same has been approved by the committee of creditors (“CoC”) of the corporate debtor.
M/s. Astonfield Solar (Gujarat) Private Limited (“Corporate Debtor”), the Corporate Debtor in the instant case was admitted into CIRP vide an order dated November 20, 2018 (“Admission Order”) passed by the NCLT in a Section 10 petition filed under the Insolvency and Bankruptcy Code, 2016 (“IBC”).
Through the Admission Order, Mr. Gurpreet Singh was came to be appointed as the interim resolution professional of the Corporate Debtor and a moratorium was imposed in accordance with Section 14 of the IBC. However, the CoC in its meeting dated December 29, 2018 suggested Mr. Amit Gupta as the resolution professional and vide order dated February 1, 2019, the NCLT confirmed the appointment of Mr. Amit Gupta as the resolution professional (“RP”) of the Corporate Debtor.
Over the course of the CIRP of the Corporate Debtor, the resolution plan submitted by Kundan Care Products Ltd./ successful resolution applicant, (“Appellant”) came to be approved by the CoC of the Corporate Debtor and accordingly an application under Section 30(6) of the IBC read with 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) was filed by the RP before the NCLT, seeking approval of Appellant's resolution plan.
In the interim, due to pending proceedings before the Supreme Court of India, there was delay in the NCLT hearing the resolution plan approval application filed by the RP. As a result, the Appellant filed an application before the NCLT seeking withdrawal of its resolution plan on the basis that the resolution plan has become commercially unviable and unfit for implementation on account of the delays in concluding the CIRP of the Corporate Debtor.
NCLT's order in the withdrawal application
The NCLT in its order dated July 3, 2020 rejected the request of the Appellant to withdraw its resolution plan on the premise that it lacks the jurisdiction to permit withdrawal of the resolution plan that has been approved by the CoC of the Corporate Debtor. The NCLT further observed that since a matter on similar ground is pending before the Supreme Court, it shall not be appropriate for the NCLT to deal with the said issue.
Arguments on behalf of the Appellant
The Appellant argued that the views of the NCLT that it lacked the power or jurisdiction to permit the withdrawal of the resolution plan post approval by the CoC has no basis or justification. The Appellant relied upon the judgment of the NCLAT in the matter of Committee of Creditors of Metalyst Forging Ltd. v. Deccan Value Investors LP & Ors.2 to argue that since the IBC does not compel specific performance of a resolution plan by an unwilling resolution applicant, a request for withdrawal of a resolution plan by the successful resolution applicant will have to be accepted/ permitted.
It was further argued that when a resolution plan has become unfit and unviable for implementation, as in the present case or is based on incorrect assumptions, the adjudicating authority/ NCLT has the right to reject the resolution plan and remit it back to the CoC for reconsideration. In regard to the present case, the Appellant contended that it is seeking withdrawal of the resolution plan on the basis that the plan has become commercial unviable on account of the delays in concluding the CIRP of the Corporate Debtor.
The NCLAT while upholding the decision of NCLT, relied upon the judgment of Committee of Creditors of Educomp Solutions Ltd. v. EBIX Singapore Pte Ltd.3 and held that in order to maintain the sanctity of the resolution process, it becomes essential that the resolution plan of the Appellant which has been approved by the CoC of the Corporate Debtor, is not permitted to be withdraw. It was further held by the NCLAT that the Appellant cannot at an advanced stage into the CIRP of the Corporate Debtor seek withdrawal of its resolution plan and wriggle out of its obligations imposed under the resolution plan which has already been approved by the CoC.
The NCLAT also referred to the decision of the Supreme Court of India in K. Shashidhar v. Indian Overseas Bank & Ors.4 and held that an adjudicating authority does not have the requisite jurisdiction to permit a withdrawal of a resolution plan and that the intervention of an adjudicating authority to the decision of the CoC in approving the Appellant's resolution plan is only limited to ensuring compliance of the resolution plan to that of Section 30(2) of the IBC.
The argument taken by the Appellant in regard to the IBC not having a provision compelling specific performance of the resolution plan by the Appellant was rejected by the NCLAT. It was observed by the NCLAT that firstly, IBC does not have a provision permitting the Appellant to seek withdrawal of its resolution plan; secondly, the terms of the resolution plan binds the Appellant; thirdly, the Appellant is prevented from wriggling out of its liabilities basis the principle of estoppel by conduct; and fourthly, the Appellant being permitted to withdraw the resolution plan freely at such a belated stage will amount to the stakeholders of the Corporate Debtor in a devasted state.
The NCLAT further negated the reliance placed by the Appellant on the judgment passed in the matter Committee of Creditors of Metalyst Forging Ltd. v. Deccan Value Investors LP & Ors.5, and observed that in the said case, the unwilling resolution applicant was not compelled to specific performance of the resolution plan, as the resolution plan approved by the CoC was held to be violative of Section 30(2)(e) of the IBC. However, in the present case, since the Appellant's resolution plan is pending approval of the adjudicating authority, the reliance placed by the Appellant on the Deccan Value judgment was held by the NCLAT to hold no value in the circumstances of the present case.
Accordingly, the NCLAT dismissed the appeal filed by the Appellant and held that NCLT's order does not suffer from any legal infirmity. Thereby, rendering the matter back to the NCLT to decide upon the approval or rejection of Appellant's resolution plan.
The decision is in line with the judgment passed by the NCLAT in the matter of Educomp Solutions, and reaffirms the stand of the judiciary i6n upholding the sanctity of the IBC and its evolution. The judgment has thrown open a fresh challenge to the prospective resolution applicants to undertake sufficient due diligence and consider various complex ‘material adverse effects' in their resolution plan before submitting it for the consideration of the resolution professional and/or the CoC. The judgment also provides a clear indication that the adjudicating authority and the NCLAT will not entertain such applications which shall render the purpose and scope of IBC to be infructuous.
1 Kundan Care Products Ltd. v. Mr. Amit Gupta & Ors. [Company Appeal (AT) (Insolvency) No. 653 of 2020 decided on September 30, 2020]
2 Company Appeal (AT) (Insolvency) 1276 of 2019
3 Company Appeal (AT) (Insolvency) No. 203 of 2020
4 (2019) SccOnline SC 257
5 Supra 2
6 Supra 3
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