Timely Implementation Of Resolution Plan Is Crucial To Achieve IBC's Objective Of Protecting Assets Dissipation: Supreme Court

1. Importance Of Timely Implementation Of The Resolution Plan

The IBC was enacted to consolidate and amend the existing laws pertaining to insolvency in India. The primary objective of the IBC is to resolve the insolvency of a corporate entity in a time bound manner. Timely resolution of the distressed assets is important to maximize the value of the assets. The Bankruptcy Law Committee which was constituted in 2015 based on which the IBC was enacted also recommended that it is crucial that the insolvency of the corporate entity is resolved in a timely manner so that it could be sold as a going concern or its assets could be preserved from being depreciated.

The court, while referring to the Insolvency Committee Report, emphasised that time and speed are of the essence for the working of the Code. The report highlighted a major concern that if the ownership and control of the corporate debtor are not established, substantial decisions pertaining to the corporate debtor cannot be effectively taken. The court relying upon the findings of the committee observed that delays in establishing effective management lead to swift dissipation in the value of the assets of the corporate debtor.

The importance of the speedy resolution has also been highlighted by the Supreme Court in Innoventive Industries Ltd. v. ICICI Bank (2019) wherein it was observed that one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process.

The court further observed that if the insolvency of the corporate debtor is not resolved in a time bound manner, it would lead to the depreciation in the value of assets of the corporate debtor. The court observed that a primary and predominant consideration behind minimizing delay is to ensure that the assets of the Corporate Debtor do not get frittered away or depreciated due to the time lag caused either during the CIRP or during the liquidation process overseen by the Liquidator.

The court further observed that such a time bound action is also equally important and imperative while the Resolution Plan is being implemented by the successful resolution applicant. Unnecessary delay caused in implementation of the Resolution Plan would also lead to similar consequences of the assets of the corporate debtor diminishing in value. Therefore, there is no doubt that the timely implementation of the Resolution Plan is also one of the underlying objectives of the IBC, 2016.

1. Limited Power Of Adjudicating Authorities To Grant Extension

The court further noticed the rules of the NCLT and NCLAT Rules, 2016 which empower the Adjudicating Authority to extend the time limit for implementing the resolution plan. The court observed that Rule 15 of the NCLT and NCLAT Rules, 2016 grants power to the NCLT and NCLAT respectively, to extend the time limits for doing any act which have been fixed, either by the rules or by an order, as the justice of the case may require.

The court further observed that such power must not be exercised mechanically without any application of mind. While one of the reasons supporting the grant of extension would be to ensure the successful revival of the corporate debtor, multiple extensions may seriously hamper the economic feasibility of the Resolution Plan and also lead to an increase in the debts of the corporate debtor.

2. Whether Liquidation Can Be Ordered By Supreme Court Under Article 142

The court further referred to its own judgment in Ebix Singapore Private Limited v. Committee Of Creditors of Educomp Solutions Limited and Another (2022) to ascertain whether the present is a case where plenary powers under Article 142 of the Indian Constitution can be exercised.

The court in the above case observed that any claim seeking an exercise of the adjudicating authority's residuary powers under Section 60(5)(c) IBC, NCLT's inherent powers under Rule 11 of the NCLT Rules, 2016 or even the powers of this Court under Article 142 of the Constitution must be closely scrutinised 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 IBC.

The court further referred to its own judgment delivered recently in Glas Trust Company LLC v. Byju Raveendran and Others 2024 LiveLaw (SC) 826 wherein it was held that the Court must be circumspect in deviating from the prescribed procedure, especially in the context of the IBC, 2016. However, if such a deviation is made, then the Court must justify as to why the deviation was necessary to prevent the abuse of the process of the Court.

However, the court distinguished the present case with the Glass Trust case and observed that Glas Trust (supra) only went to the extent of saying that in the absence of any exceptional circumstances or extraordinary reasons necessitating a deviation from the procedure laid down, the court should refrain from invoking its inherent jurisdiction to do something which otherwise could have been validly done in accordance with the procedure.

The court further observed that where there exists extraordinary circumstances warranting the exercise of such powers in order to ensure that the very salutary purpose of the Code, 2016 is not frustrated, then the Court would be well-within its prerogative to exercise them to secure the object of the IBC, 2016.

The court further adverted to the facts of the present case and observed that on account of the inordinate delay in due implementation of the Resolution Plan, several dues including the CIRP costs of the Corporate Debtor have continuously multiplied.

The court further noted that the Appellants are incurring huge expenditure and costs each month towards maintenance of the Corporate Debtor. The fundamental concern of this Court must not only be of doing substantial and complete justice but also to ensure expeditious resolution of the issues in the interests of the underlying objective of the IBC, 2016 and all the stakeholders involved.

The court further noted that since the Resolution Plan is no longer capable of being implemented, it must be ensured that at least liquidation remains as a “viable” last resort for the Corporate Debtor and its creditors. Being mindful of the underlying objective that “Time and Speed are of the essence under the Code” and to prevent the frustration of this objective, the court thought fit and necessary to exercise our plenary powers under Article 142 and direct the Corporate Debtor into liquidation in the manner as laid down in the IBC, 2016.

3. Duties And Responsibilities Of The SRAs And Lenders In Implementation Of Resolution Plan- Suggestions

The court further sounded a note of caution for the SRAs and observed that once the plan is approved, it is the bounden duty of the SRA to implement the plan in an effective manner. The SRA cannot shied away from its responsibility merely on the ground that implementation of the plan became commercially infeasible after its approval.

The court observed that Courts and tribunals have consistently underscored that the Successful Resolution Applicant's role transcends commercial interest and embodies a commitment to the larger purpose of corporate revival. Consequently, it must make thoughtful and sustained efforts, demonstrating adaptability and resilience even when faced with obstacles or operational impediments. Simply put, the Successful Resolution Applicant cannot step back or dismiss its obligations by attributing delays or setbacks to the conduct of other stakeholders, as this would undermine the very purpose of insolvency resolution.

The court further exhorted the lenders that they must also cooperate with the SRA. It is their responsibility that the implementation of the plan is not unnecessarily obstructed by their illegitimate demands.

The court observed that the lenders must balance their financial interests with the broader objective of rehabilitation. They should not take an obstructive approach or seek to leverage the resolution process solely for individual benefit, as such actions would risk destabilizing the corporate debtor's recovery trajectory.

The court further observed that instead, they must be prepared to collaborate fully, sharing the responsibility to make the resolution process work in practice. Through a spirit of cooperation and shared purpose, the Successful Resolution Applicant and lenders together can ensure that the corporate debtor is given the best chance for revival and sustained growth, reflecting the Code's intent to rescue viable companies and protect broader economic interests.

The court cautioned that the Adjudicating Authority must not accede to the unwarranted demands of the SRA which create hurdles in the timely resolution of the corporate debtor. Although, the code is silent about the phase of implementation of the plan, this loophole must not be exploited by the SRAs by repeatedly approaching the Adjudicating Authorities for claiming reliefs and concessions.

The court observed that the SRAs repeatedly approach the Adjudicating Authority or the NCLAT for the grant of reliefs in relation to relaxation of the strict compliance to the terms of the Plan, including the timelines imposed therein. The NCLT and NCLAT more often than not, accede to such requests in exercise of their inherent powers under Rule 11 or their power to extend time under Rule 15 of the NCLT and NCLAT Rules, 2016 respectively.

The court further reiterated that the NCLT and NCLAT must not entertain such repeated attempts at violating the integrity of a CoC approved Resolution Plan by accommodating the incessant requests of the Successful Resolution Applicants. The exercise of discretion as regards altering the binding terms of the Resolution Plan, including the timelines imposed, must be kept at a minimum, at best.

The court further referred to section 74 of the IBC which provides for the punishment for those who contravenes the plan. The court observed that the Code comes down heavily on any knowing and willful contravention of the terms of the resolution plan, committed by any person, on whom the approved resolution plan has been made binding under Section 31 of the IBC, 2016. A punishment of minimum one year which may extend up to five years or minimum fine of one Lakh which may be up to one Crore rupees, or both, has been prescribed for such a contravention.

The court further observed that in light of such strict consequence provided for the contravention of the resolution plan envisaged under the scheme of the Code itself, there is good reason for us to ensure that the successful resolution applicants abide by their commitments made under the resolution plan. Therefore, it is suggested that the authorities including the NCLT and NCLAT must not aid the successful resolution applicants in circumventing the strict mandates of the law by acceding to their requests to relax the terms of the plan itself.

The court further suggested that a provision for the establishment of a monitoring committee by the CoC to oversee the implementation of the plan must be made to ensure that parties involved do not approach the Adjudicating Authority when any obstacles come in the way of the implementation of the plan.

The court observed that the CoC must be empowered to constitute the Monitoring Committee which may, by default, include the Resolution Professional and also include other nominees from the CoC and the resolution applicant respectively. Such a Monitoring Committee would be entrusted with the powers of monitoring and supervising the resolution plan till the expiry of the term of the resolution plan. The Committee shall also be required to ensure all statutory compliances during the implementation of the plan along with updating the Adjudicating Authorities, Financial and other Creditors about the status of implementation of the resolution plan, on a quarterly basis.

Case Details : State Bank of India and Ors. V/s Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch and Anr.| C.A. No. 5023-5024/2024 and Connected

Citation : 2024 LiveLaw (SC) 866

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