Introduction
The modification or withdrawal of Resolution Plans under the Insolvency and Bankruptcy Code, 2016 (“Code / IBC”) had always been a contentious subject, with the National Company Law Tribunal (“Adjudicating Authority / NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) taking conflicting views in the past.
The issue was put to rest by the Hon’ble Supreme Court’s decision in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited[1] (“Ebix”). The principle set out in the Ebix judgement has recently been reiterated by the Hon’ble Supreme Court in the case of SREI Multiple Asset Investment Trust Vision India Fund v. Deccan Chronicle Marketeers & Others[2] (“Deccan”).The Hon’ble Supreme Court while relying on this principle, held that once the Resolution Plan stands approved by the Committee of Creditors (“CoC”), no modifications are permissible. It is either to be approved or disapproved, but any modification after approval of the Resolution Plan by the CoC, based on its commercial wisdom, is not open for review by the Adjudicating Authority unless it is found to be contrary to the mandate of the IBC. Moreover, in a recent case of M.K Rajagopalan v. Dr. Periasamy Palani Gounder[3] (“M.K Rajagopalan”), the Supreme Court has held that even a procedural/technical change to a Resolution Plan would require prior approval of the CoC.
While the aforementioned judgements serve to ensure timely completion of the insolvency process, thereby fulfilling an important objective of the Code, the prohibition on modification/withdrawal of the Resolution Plan turns a blind eye on certain scenarios that might necessitate a successful Resolution Applicant to seek modification or withdrawal of a Resolution Plan after the CoC has approved it. Such a scenario may not be favourable/feasible for a Resolution Applicant, wherein there is no recourse to modify or withdraw the Resolution Plan even in justified circumstances.
Therefore, it is important to analyse the recent judgements and the present statutory framework in order to understand the issue holistically.
Relevant Statutory Framework
As per Regulation 39(4) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“IBBI Regulations”), it is the duty of the Resolution Professional (“RP”) to get approval from the Adjudicating Authority under Section 31 of the IBC for the Resolution Plan which has been approved by the CoC. Further, the same must be done, at least fifteen days before the maximum period for completion of the Corporate Insolvency Resolution Process (“CIRP”). Subsequently, the Adjudicating Authority, if satisfied that the requirements prescribed under Section 30(2) of the IBC are being met, shall under Section 31(1) of the IBC approve the Resolution Plan. Therefore, it is the duty of the Adjudicating Authority to oversee that the RP carries out its obligations of ensuring that the Resolution Plan does not contravene any set requirements under Section 30(2) of the IBC, and that the Resolution Plan can be carried out efficiently and satisfactorily as per the proviso to Section 31(1) of the IBC. As per the current interpretation of law laid down by the Ebix and Deccan judgements, once the Resolution Plan is approved by the Adjudicating Authority, it becomes binding on the Corporate Debtor, creditors, guarantors and other stakeholders involved in the Resolution Plan.
Reasoning of courts
The reasoning given by the courts in furtherance of the prohibition of modification or withdrawal of the Resolution Plan once approved by the CoC can be better understood with the following principles.
- Commercial wisdom of CoC: The courts while relying on the decision of CoC of Essar Steel India ltd. V. Satish Kumar Gupta & Ors[4] reiterated the principle that the commercial wisdom of the CoC reigns supreme, thereby, prohibiting the Adjudicating Authority from questioning the commercial wisdom of the CoC or directing a unilateral modification of the Resolution Plan. The Courts have further held that in the absence of a clear provision of law, the courts cannot, by a process of interpretation, confer upon the Adjudicating Authority a power to direct an unwilling CoC to re-negotiate a submitted Resolution Plan or agree to its withdrawal.[5]
- No Explicit Provision Under IBC: Courts also stress on the fact that there is no section in the IBC which provides for modification / withdrawal of a Resolution Plan and that the IBC is silent on the same. The courts placed reliance on the rule of casus omissus which is a well-established rule of interpretation, which provides that a gap left by an omission in a statute cannot be bridged by judicial construction. The courts further explained that the parliament has not introduced any express provision under the IBC permitting any amendment or modification of the Resolution Plan by the Adjudicating Authority once the approval of CoC is granted, let alone a power to withdraw the Resolution Plan at that stage. Moreover, the courts have ascertained that if the withdrawal or modification of the Resolution Plan after it has been submitted to the Adjudicating Authority is to be permitted, then the parliament must do so via an inclusion of a specific provision under the IBC or other relevant regulations.
- Exercise of residuary powers by the Adjudicating Authority would be against the spirit of the IBC: Courts have elaborated on the fact that the residuary or inherent powers vested with the Adjudicating Authority cannot be used for modification or withdrawal of the Resolution Plan. The residual powers vested with the Adjudicating Authority cannot be used to create any such remedies which will have a significant impact on the overall insolvency process. It has been further highlighted that 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 or even the inherent powers of the Supreme Court must not violate or be in contravention of the IBC framework. The Court opined that the adjudicating mechanisms created by the statutes have a defined role in the insolvency process and therefore, no such reliefs should be granted that may be counterproductive to the timelines or objectives enshrined under the IBC.
Recent Developments
Recently, in the case of Deccan, the issue before the Hon’ble Supreme Court was whether the Adjudicating Authority’s approval for the grant of ownership rights over the trademarks “Deccan Chronicle” and “Andhra Bhoomi” following the CoC’s approval of the Resolution Plan wherein ownership rights were not a part of the Resolution Plan submitted amounted to a modification or alteration of the approved Resolution Plan. The Supreme Courtheld that the CoC only approved exclusive use over the trademarks and not their ownership and, therefore, any right or ownership claimed over the trademarks post approval by the CoC stands extinguished. The Court held that the order passed by the NCLT granting ownership rights over the trademarks would amount to modification of the Resolution Plan, thereby rendering it impermissible.
Further, in the case of M.K Rajagopalan[6],the Hon’ble Supreme Court dealt with the issue of submission of revised plan by the RP to the Adjudicating Authority without getting it approved by the CoC. The Court held that any revision is subject to final approval of CoC and the RP cannot submit a revised plan to the Adjudicating Authority without first getting it approved by the CoC. Even post-facto approval by CoC of such changes to the Resolution Plan will not make the same valid. This case serves as a very important precedent as it clearly establishes that under any circumstance the Resolution Plan must get approved by the CoC at its final stage before it is sent to the Adjudication Authority for approval. The Court opined that there is no concept present in the IBC, permitting, any post facto approval of a Resolution Plan by the CoC which has not been placed before the Adjudicating Authority. The Court further stressed upon the fact that even certain aspects of the Resolution Plan, which may seem procedural or technical in nature, cannot be overlooked. Each aspect of the Resolution Plan must be approved by the CoC and no modification can be made by the Adjudicating Authority once such plan is approved by the CoC.
Conclusion
Having analysed the relevant judgements, the consequences that flow for the stakeholders of the IBC regime must be considered.
The courts have concluded that no modification or withdrawal of Resolution Plan is permissible. The courts have arrived at this conclusion primarily by placing reliance on the principle that the commercial wisdom of the CoC reigns supreme, this coupled with the lack of an express provision within the IBC, does not permit for any such modification.
The court in its judgements has categorically emphasised on the sobering reality of long delays caused by the Adjudicating Authorities in its implementation of the Resolution Plan. The inordinate delays caused by the Adjudicating Authorities coupled with any unpredictable exigencies that may arise, which would further delay the implementation process, leaves an air of grave uncertainty for the Resolution Applicant. Such delays have a direct, significant and in certain cases, irreparable impact on the commercial viability of the CIRP. In denying the possibility of withdrawal/ modification of the Resolution Plan, the court leaves no room for the application of any remedy not even one that is contractual in nature for events such as force majeure or frustration of Contract. This in turn leaves the Resolution Applicant with no recourse but to bear the brunt of the same.
While the current position set by the courts fills certain uncertainties and gaps in the CIRP process, it inadvertently makes the CIRP process riskier for the Resolution Applicant. This may deter certain Resolution Applicants in taking part in the CIRP, which in turn would hamper the objectives of the IBC code. It may not be wrong to say that if a Resolution Applicant is not interested to pursue its own Resolution Plan, naturally it cannot be implemented effectively.
Thus, in view of the above, it becomes increasingly important that both the Resolution Applicant and the CoC exercise caution while drafting and negotiating the Resolution Plan by accounting for any potential future issues that may arise, before its submission of the Resolution Plan to the Adjudicating Authority.
For further information, please contact:
Sumit Attri, Partner, Cyril Amarchand Mangaldas
sumit.attri@cyrilshroff.com
[1] (2022) 2 SCC 401.
[2] 2023 SCC OnLine SC 298.
[3] 2023 SCC OnLine SC 574.
[4] (2020) 8 SCC 531.
[5] (2022) 2 SCC 401.
[6] Supra note 4.
