"The 'I&B Code' defines 'Resolution Plan' as a plan for insolvency resolution of the 'Corporate Debtor' as a going concern. It does not spell out the shape, colour and texture of 'Resolution Plan', which is left to imagination of stakeholders. Read with long title of the 'I&B Code', functionally, the 'Resolution Plan' must resolve insolvency (rescue a failing, but viable business); should maximise the value of assets of the 'Corporate Debtor', and should promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders - Binani Industries Limited Vs Bank of Baroda & Anr. (NCLAT) (14th November, 2018)
Since the Code has come into effect, there have been several resolution plans which have been challenged before the NCLT, NCLAT and Supreme Court on various grounds. This article is an attempt to list out the various the objections/challenges which were raised before the Tribunals and the Supreme Court and their observations on the same.
What is Resolution Plan?
As defined under Section 5(26) of the Code, Resolution plan basically is a plan which is proposed by a resolution applicant for insolvency resolution of the corporate debtor as a going concern.
What are the mandatory content of the Resolution Plan?
Mandatory content of the Resolution Plan is given under Regulation 38 of the CIRP Regulations, 2016. Prior to the amendment which came into force on October 5, 2018, Regulation 38 mandated the following requirements:
a. identification of specific sources of funds that will be used to pay the insolvency resolution process costs,
(b) liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and
(c) liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan.
However, post amendment, Regulation 38 makes the following contents of the resolution plan mandatory:
(a) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors.
(1-A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.
Other features in Resolution Plan
Vishal Ghisulal Jain v. Renoir Management Consulting (India) Private Limited: NCLT: Mumbai: 31st January 2020
a. Status of workmen (if any) and compliance with respect to labour laws.
b. the suspended Board of directors shall stand dissolved and the directors of the corporate debtor immediately prior to the completion date, shall be deemed to have resigned and shall vacate their office.
c. Persons nominated in the plan shall be appointed as the directors of the corporate debtor. Further, Resolution Applicant shall do necessary compliance with MCA and other concerned and applicable authorities as per applicable laws.
c. There could be an appointment of a monitoring agency to manage the day to day affairs of the corporate debtor under its supervision, until the full hand over of assets of the corporate debtor including business records.
d. If there are reliefs and concessions from sought from any Regulatory Authority to implement the plan, the Adjudicating Authority, however in such case, does not have the authority and the relevant authorities may be approached to consider such reliefs as per relevant applicable laws.
e. The Adjudicating Authority cannot bestow any general power to any resolution applicant absolving him of liability of the corporate debtor company without knowing about the liability against which such exemption is sought. In other words, reliefs/exemptions from only existing liabilities which are specifically identified can be sought and allowed in the Resolution Plan.
What is the duty of the Resolution Applicant while presenting the Resolution Plan?
As per Regulation 39(1) of CIRP Regulations, 2016, the Resolution Applicant ought to submit the resolution plan as per the Code and Regulations within the time given in the invitation made under Section 25(2)(h) of the Code. The ineligibility of a Resolution Applicant is dealt in Arcelor Mittal (SC) wherein it was observed that if the condition under Section 29A of the Code is fulfilled, the ineligibility can be removed and plans can be placed before the CoC.
What is the duty of the Resolution Professional?
Before the resolution plan is presented to Committee of Creditors, it is the duty of the Resolution Professional to place only those resolution plans which are Code compliant and are not in contravention of any law. As per Section 30(2) of the Code, the resolution professional is duty bound to examine each resolution plan and confirm whether the same provides for:
- the payment of insolvency resolution process costs in priority to the payment of other debts of the corporate debtor;
B. the payment of debts of operational creditors which shall not be less than the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the orders of priority in sub-section (1) of section 53 (whichever is higher)
Note: Under Regulation 36(2)(j) and (k) of CIRP Regulations, 2016, it was mandatory for the Resolution Professional to provide a liquidation value of the corporate debtor and the liquidation value due to operational creditors in the information memorandum respectively. However, the said requirement has been omitted vide notification dated 31.12.2017.
C. the payment of debts of financial creditors, who do not vote in favour of the resolution plan,
D. the management of the affairs of the corporate debtor once the plan stands approved;
E. the implementation and supervision of the resolution plan;
F. the plan does not contravene any of the provisions of the law for the time being in force;
G. the eligibility of the resolution applicant (including not being barred by Section 29A of the Code);
As per Regulation 39(2) of the CIRP Regulations, 2016, the Resolution Professional is further obligated to submit to COC all such resolution plans which comply with the requirements of the Code and regulations made thereunder along with the details of following transactions, if any, observed, found or determined by him:-
(a) Preferential transactions under section 43;
(b) undervalued transactions under section 45;
(c) Extortionate credit transactions under section 50; and
(d) Fraudulent transactions under Section 66, and the orders, if any, of the Adjudicating Authority in respect of such transactions.]
If the Resolution Professional fails in discharging the burden, a CoC approved plan may be susceptible to challenge before the Adjudicating Authority.
What is the duty of the CoC while assessing a Resolution Plan?
After the primary scrutiny by the Resolution Professional, CoC will thereafter vote on such resolution plan. Even here as well, the Code allows the same burden on the CoC to scrutinize the plan. However, there are additional factors that need to be solely decided by the COC. The COC ought to consider whether the resolution plan:
A. is feasible and viable;
B. provides for the manner of distribution proposed as laid down in Section 53 (1), including the priority and value of the security interest of a secured creditor] and
C. will maximise the assets of the corporate debtor.
The words "after considering its feasibility and viability" in Section 30(4) of the Code was introduced post Insolvency and Bankruptcy Code (Amendment) Act, 2017. The CoC further is required to vote and approve with not less than 66% of voting share of the financial creditors. During the process of approving or rejecting the resolution plans, the CoC has been empowered under Regulation 39(3) to negotiate with the Resolution Applicant wherein CoC may approve any resolution plan with such modifications as it deems fit. After a resolution plan has received the requisite percent of voting share, then as per Section 30(6) of the Code, it is imperative for the resolution professional to submit the same to the Adjudicating Authority and as per Regulation 39(4), Resolution Professional is required to submit the approved plan at least 15 days before the expiry of the maximum period allowed for the completion of the corporate insolvency resolution process. The Resolution Professional is further required to submit certification that:
(a) the contents of the resolution plan meet all the requirements of the Code and the Regulations; and
(b) the resolution plan has been approved by the committee:
Once Resolution Plan is filed for approval before the Adjudicating Authority, the test to be applied by the Adjudicating Authority is very limited.
As per Section 31 of IBC a Resolution Plan once approved by the Adjudicating Authority, it may be challenged on the following grounds:
- It should not be in contravention of the provisions of any law for the time being in force;
- There has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period;
- The debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board;
- The insolvency resolution process costs have not been provided for repayment in priority to all other debts; or
- The resolution plan does not comply with any other criteria specified by the Board.
Judgments laying down different parameters while challenging a Resolution Plans
Limited inquiry post approval of a Plan by CoC
K. Sashidhar v. Indian Overseas Bank & Ors.: CIVIL APPEAL NO.10673 OF 2018 dated February 5, 2019
The Supreme Court held that the scope of enquiry and the grounds on which the decision of "approval" of the resolution plan by the CoC can be interfered with by the adjudicating authority (NCLT), has been set out in Section 31(1) read with Section 30(2) and by the appellate tribunal (NCLAT) under Section 32 read with Section 61(3) of the I&B Code. No corresponding provision has been envisaged by the legislature to empower the resolution professional, the adjudicating authority (NCLT) or for that matter the appellate authority (NCLAT), to reverse the "commercial decision" of the CoC much less of the dissenting financial creditors for not supporting the proposed resolution plan.
No vested right exists for a Resolution Applicant to have its Plan approved
Resolution Professional ought to invite a fresh resolution plan within the time limits specified where no other resolution plan is available with him. At this stage again no application before the Adjudicating Authority could be entertained as there is no vested right or fundamental right in the resolution applicant to have its resolution plan approved, and as no adjudication has yet taken place.
ii. M/s. Next Orbit Ventures v. Print House (India) Pvt. Ltd. & Anr.: NCLAT
The NCLAT has similarly held that if one or other resolution plan is found to be more viable and feasible and will maximise the assets of the corporate debtor, balancing all the stakeholders by maximising the assets of the creditors and others, no right accrues to any individual applicant to stall such process.
Factors to be considered in a Resolution Plan
This judgment lays down the foundation of what a resolution plan should strive to achieve. The judgment refers to the preamble of the Code which lays down the priority list starting from the insolvency resolution of the corporate debtors. Secondly, the plan should take care of the beneficiary of the resolution scheme i.e., all stakeholders being the creditors and the shareholders/investors. The stakeholders are as follows:
1. Dissenting Secured Financial Creditors
2 Other Secured Financial Creditors
3 Dissenting Unsecured Financial Creditors
4 Other Unsecured Financial Creditors
5 Operational Creditors (Government, Workmen, Employees)
In order to ensure that the financial creditors do not treat the operational creditors unfairly, any resolution plan must ensure that the operational creditors receive an amount not less than the liquidation value of their debt (assuming the corporate debtor were to be liquidated). The judgment referred to Regulation 38 which as per the Court strengthens the rights of operational creditors by statutorily incorporating the principle of fair and equitable dealing of operational creditors' rights together with priority in payment over financial creditors.
The judgment furthers what has been stated in the Swiss Ribbon case and lays down the guidelines as to how a resolution plan is to be assessed under the Code by the Committee of Creditors.
The important observations of the Supreme Court are as follows:
a. Regulation 38(1) states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases would amount to nil after secured creditors have been paid - would certainly not balance the interest of all stakeholders or maximise the value of assets of a corporate debtor if it becomes impossible to continue running its business as a going concern. Therefore, between giving the operational creditors a minimum liquidation value and keeping the corporate debtor as going concern, the latter will triumph. However, post amendment, Section 30(2)(b) allows a certain minimum amount to be paid to both operational creditors and dissenting financial creditors i.e., the minimum in the case of operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b) of 30(2), and the minimum in the case of dissentient financial creditor being a minimum amount that was not payable under the pre-amendment period.
b. The ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors.
c. The Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that:
i. the corporate debtor needs to keep going as a going concern during the insolvency resolution process;
ii. Maximization of the value of its assets; and
iii. interests of all stakeholders including operational creditors has been taken care of.
d. COC is required to give reasons while approving the resolution plan.
e. Resolution Plan should state how it has dealt with the interests of these creditors. It does not mean that they must be paid the same amount of their debt proportionately. Even if the operational creditors are given priority in payment over all financial creditors, it would not mean that such payment must necessarily be the same recovery percentage as financial creditors. COC is within its full rights to accept a resolution plan, which may involve differential payment and distribution to different classes of creditors. Further, since Section 53 is not engrafted in Section 30(2)(b) as amended, it is only referred to ascertain the minimum figure be paid to different classes of operational and financial creditors. Section 53 of the Code would be applicable only during liquidation and not at the stage of resolving insolvency.
f. Negotiating the terms of resolution plan is different from approval. For negotiating, CoC can form a sub-committee and is in the nature of administrative powers. Approval of a plan would require requisite majority voting.
g. Resolution Plan may well include provisions as to payments to be made by guarantors.
h. Resolution plan may not itself provide for distribution inter se between secured financial creditors. It is enough that, the resolution plan provides for distribution of amounts payable towards debts based upon a classification of various types of creditors.
i. CoC can classify the creditors and the payments to be made to them. For example: Payment to secured creditors can be based upon the value of their security, which they would otherwise be able to realise outside the process of the Code. The inter se distribution can be done by majority voting of CoC and can be unique in each case. The said negotiation with the resolution applicant is a business decision taken by the CoC and shall not be interfered with by the Adjudicating Authority.
h. On approval successful resolution applicant starts running the business of the corporate debtor on a fresh slate as it were.
iii.Maharasthra Seamless Limited v. Padmanabhan Venkatesh & Ors. (CIVIL APPEAL NO. 4242 OF 2019) dated 22.01.2020
One of the issues dealt by the Supreme Court in was whether the scheme of the Code contemplates that the sum forming part of the resolution plan should match the liquidation value or not. The Court observed that:
a. No provision in the Code or Regulations suggest that the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Clause 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
b. the object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof.
c. the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation.
Resolution Plan to abide by the provisions of any law
BMSS Steel Industries Pvt. Ltd. V. Shrid Metal Technologies Pvt. Ltd.: NCLT Mumbai (26.07.2019)
The NCLT observed that the Resolution Appllicant has to act in accordance with the existing law of the land and no special concessions can be given by the Tribunal. The bench further made clear that the Resolution Applicant is ony liable to make payments to the creditors included in the Resolution Plan and not otherwise.
Resolution Plan to provide for specific liabilities to get concession
Ms. Jovita Reema Mathias in Religare Finvest Limited v. Nippon Investment and Finance Co. Pvt. Ltd. : NCLT Mumbai (05.12.2019)
The NCLT observed that if any relief concerning any identified liability of the Corporate Debtor is required, then that needs to be specifically mentioned and sought for in the Resolution Plan. The Tribunal cannot allow any general power to any resolution applicant absolving him of liability of the corporate debtor company without knowing about the liability against which such exemption is sought. In other words, reliefs/exemptions from only existing liabilities which are specifically identified can be sought and allowed in the Resolution Plan.
Power of IBBI vis a vis payments to be made to various creditors under a Resolution Plan
Central Bank of India v. Resolution Professional of the Sirpur Paper Mills Ltd. & Ors. (NCLAT)
The NCLAT has held that Board has not been delegated with the power under the Code including Section 240 to decide as to what amount is to be paid to the 'Financial Creditor' or 'Operational Creditor' in a Resolution Plan including the liquidation value, therefore, the Board should not pass any mandatory regulation forcing the Resolution Applicant(s) to discriminate between equals.
The NCLAT further clarified that Board by its Regulation cannot mandate that the Resolution Plan should provide liquidation value to the 'Operational Creditors' (clause (b) of regulation 38(1)) or liquidation value to the dissenting Financial Creditors (clause (c) of regulation 38(1)). Such regulation being against Section 240(1) cannot be taken into consideration and any Resolution Plan which provides liquidation value to the 'Operational Creditor(s)' or liquidation value to the dissenting 'Financial Creditor(s)' in view of clause (b) and (c) of Regulation 38(1), without any other reason to discriminate between two set of creditors similarly situated such as 'Financial Creditors' or the 'Operational Creditors' cannot be approved being illegal."
However, post this decision the IBBI amended/repealed the Regulation 38 having found the same discriminatory.
Changing of decision by CoC on rejection of Resolution Plan
Apollo Jyoti LIC and Ors. v. Jyoti Structures Ltd. Company Appeal (AT)(Ins.) No. 461/2018 dated 19.03.2019
In this case, the NCLAT observed that the 'Committee of Creditor' is empowered to change its decision on rejection of 'Resolution Plan' but within 270 days.
Reconsidering a New but better Resolution Plan after statutory period gets over
Punjab National Bank v. Anand Distileries Pvt. Ltd.: NCLT Mumbai (08.04.2019)
The NCLT refused to allow placing of a better new resolution plan before CoC after CoC had already chosen a plan and further the statutory period of 270 days was already over.
Grounds of challenge which can be raised against the Resolution Plan
Viability and feasibility
Whether seeking approval from CCI mandatory before seeking approval from the Adjudicating Authority?
Makalu Trading Ltd. & Ors. v. Rajiv Chakraborty: NCLAT
Proviso to sub-section (4) of Section 31 of the 'I&B Code' which relates to obtaining the approval from the 'Competition Commission of India' under the Competition Act, 2002 prior to the approval of such 'Resolution Plan' by the 'Committee of Creditors', is directory and not mandatory. It is always open to the 'Committee of Creditors', which looks into viability, feasibility and commercial aspect of a 'Resolution Plan' to approve the 'Resolution Plan' subject to such approval by Commission, which may be obtained prior to approval of the plan by the Adjudicating Authority under Section 31 of the 'I&B Code'. In present matter, Competition Commission of India gave its approval of the plan subsequent to the CoC's approval but before placing the same before the AA's approval.
Acceptance of Resolution Plans after the expiry of the deadline
i. Kotak Investment Advisors Limited v. Mr Krishna Chamadia: Company Appeal (AT) (Insolvency) No. 344 – 345 of 2020: NCLAT
Resolution Professional, whether with the approval of CoC or without that, or in pursuance of Process Memorandum under the guise of maximization of value, is not empowered to adopt a procedure in the conduct of CIRP which is, ab-initio illegal, arbitrary and against the Principles of Natural Justice. After the expiry of the deadline for submission of Resolution Plan, the Resolution Professional, with the approval of CoC, is fully authorized to invite fresh invitation for Expression of Interest for submission of new Resolution Plans. If the Resolution Professional, on the advice of CoC had decided to extend the timeline for submission of bids, then it is mandatory to issue a notification in Form-G, for inviting EOI and in compliance of Regulation 36A(5) of the CIRP Regulation. Only after publication of fresh invitation in Form-G and fixing a deadline, the Resolution Plan could have been accepted with the consent of CoC. It cannot be said that as per Process Memorandum, the Resolution Professional was entitled to accept any Resolution Plan from a new Resolution Applicant at any point of time, without following the due process under the guise of maximization of value. The alleged act of the Resolution Professional in accepting the Resolution Plan after the expiry of the deadline cannot be treated as an act within the commercial wisdom of the CoC.
ii. Binani Industries: NCLAT
The NCLAT observed that by means of resolution plan, one must not attempt or promote:
a. sale of the corporate debtor.
b. auction of the corporate debtor.
However, 'Resolution Applicant' may propose a 'Resolution Plan' that entails change of management, technology, product portfolio or marketing strategy; acquisition or disposal of assets, undertaking or business; modification of capital structure or leverage; infusion of additional resources in cash or kind over time; etc. Each plan has a different likelihood of turnaround depending on credibility and track record of 'Resolution Applicant' and feasibility and viability of a 'Resolution Plan' are not amenable to bidding or auction.
c. recovery from the corporate debtor
The NCLAT observed that CoC was obligated to safeguard the interest of the stakeholders of the 'Corporate Debtor' while approving the 'Resolution Plan' and ought not to have ignored the revised 'Resolution Plan' offered by 'Ultratech Cement Limited' which had taken care of maximization of the assets of the 'Corporate Debtor' and also balanced the claim of all the stakeholders of the 'Corporate Debtor'.
In this case, the process document allowed the CoC to accept or reject one or all plans (submitted post Invitation by Resolution Professional) prior to approval of the same by the Adjudicating Authority and consequently, it was concluded that there was no time limit prescribed except that the 'Resolution Process' should be completed within the stipulated period of 180 days or maximum 270 days. The Tribunal referred to Regulation 36B(6) which allowed the Resolution Professional to extend the timeline for submission of resolution plans after taking approval from CoC.
As per the NCLAT observed that the CoC was obligated to apply its mind and ought not to have discriminated amongst creditors while approving the plan.
No material to show that the RP has scrutinized the Resolution Plan
Shri Swwapnil Bhingardevay v. M/s. Khandoba Prasanna Sakharkar Khana Limited: NCLAT: Company Appeal (AT) (Ins) No.943 of 2019
No material is put up by the Resolution Professional regarding the date on which Plan was received. The RP has not put up material to show that the RP had examined the Plan as required under Section 30(2) of the IBC. The Plan was rushed through the COC meeting and in two – three hours, it was approved without duly examining the Resolution Plan by the Resolution Professional and without the COC being satisfied as required under Section 30(4) of IBC that the Plan is feasible and viable.
Apart from this the plant and machinery were not owned by the Corporate Debtor, and the Resolution Plan submitted on the hypothesis that the plant and machinery would be available for business and explanation is clearly a Plan which is not feasible and viable.
Breach of Confidentiality by RP
Shri Swapnil Bhingardevay v. M/s. Khandoba Prasanna Sakharkar Khana Limited: NCLAT: Company Appeal (AT) (INS) No.943 of 2019
Resolution Applicant exactly mentioned the liquidation value in the Resolution Plan and did not place on record any valuation report of its own. The resolution plan was dated one and the self declaration by the Resolution Applicants had another one. Thus, there was compromise of confidentiality regarding liquidation value which appears to have been known to the Resolution Applicant before submitting the Resolution Plan.
Wrong publication of notice by RP
Shri Swapnil Bhingardevay v. M/s. Khandoba Prasanna Sakharkar Khana Limited: NCLAT: Company Appeal (AT) (INS) No.943 of 2019
By issuing the Notice for outright sale, instead of inviting expression of interest for resolution plan of the Corporate Debtor, there was clearly irregularity in the conducing of the CIRP. The irregularity cannot be cured as the genuine Resolution Applicants could not apply and must be said to have been diverted and put to disadvantage of themselves and the Corporate Debtor. The Resolution Plan approved therefore suffers from feasibility and viability.
Bench which heard the arguments did not pass the judgment. Is it valid?
The Bench has passed the Order even though the other Member of the Bench, Member (Technical), didn't get an opportunity to hear the arguments on that application. Rule 150(2) NCLT Rules, 2016 provides for the Bench which hears the case to also pronounce the Order.
Can there be any rectification of approved resolution plan?
i. Rahul Jain v. Rave Scans (P) Ltd., (2019) 10 SCC 548: 2019 SCC OnLine SC 1447,
The dissenting financial creditor was paid lesser compared to similarly placed creditors as per the approved resolution plan. The Supreme Court held that the plan was approved and, except the objections of the dissenting creditor, the plan has attained finality.
ii. QVC Exports Pvt. Ltd. v. United Tradeco FZC
The NCLAT held that under inherent powers, the Adjudicating Authority could only interfere in the field where Code has authorized to do so. After approval of the Resolution Plan by the Adjudicating Authority, it can exercise his powers as given U/S 60 of the Code. Since rectification of the resolution Plan does not involve the question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code, therefore it is not permitted to modify the Resolution Plan under the guise of inherent powers of the Tribunal.
iii. Sunil Kumar Agarwal RP of DIGJAM Ltd. v. Suspended Board of Directors of DIGJAM Ltd NCLT(Ahmedabad)
the resolution applicant to modify a plan (which was already approved by the CoC) due to Covid-19 and the subsequent lockdown. However, the modification allowed is only with respect to the timeline for payments to financial and operational creditors and other stakeholders. The NCLT observed that a change in the timeline would not affect the nature and character of the resolution plan.
Resolution Plan submitted jointly but has been sought to be revised by only one of the parties
QVC Exports Pvt. Ltd. v. United Tradeco FZC
The NCLAT further held that when approved Resolution Plan has been submitted jointly, then one party had no right to move the rectification of the said Resolution Plan, without the consent of another party. Further, in the present case, the rectification application was filed beyond 13 months therefore, there was a considerable delay. Otherwise, inherent powers can be invoked to seek review to correct clerical errors or arithmetical mistakes in the judgment and not substantial changes in the Plan.
Resolution Plan when not complied after getting approved from the Adjudicating Authority
Committee of Creditors of Amtek Auto Ltd. through Corporation Bank v. Mr. Dinkar T.Venkatasubramanian & Ors: NCLAT: Company Appeal (AT) (Insolvency) No. 219 of 2019
COC in the present case filed an application under Section 60(5) of the Code read with Section 74(3) seeking punishment on the successful resolution applicant who have knowingly contravened the terms of the 'Resolution Plan' having failed to implement the same. The Code is silent on the issue as to whether the Adjudicating Authority has any jurisdiction to pass any order referring the matter to the Central Government or the Insolvency and Bankruptcy Board of India for action under Section 74(3) of the Code or under any of the provisions 'for punishment' as prescribed under Chapter VII of Part II. From sub-section (2) of Section 236, it is clear that no Special Court can take cognizance of any offence punishable under the Code, including punishment prescribed under Section 74(3) of Chapter VII of Part II, save on a complaint made by the Insolvency and Bankruptcy Board of India or the Central Government or any person authorised by the Central Government in this behalf. It is the Adjudicating Authority who is required to refer such matter to the Insolvency and Bankruptcy Board of India or the Central Government to take up the matter to the Special Court if on investigation, if any case of offence under Chapter VII, including Section 74(3) is made out. In this case, the NCLAT granted liberty to the 'Resolution Professional' or the 'Committee of Creditors' or any creditor to move an application under Section 213 of the Companies Act, 2013 read with Section 74(3) of the 'I&B Code' before the Adjudicating Authority/ National Company Law Tribunal to decide as to whether the matter is required to be referred to the Insolvency and Bankruptcy Board of India or the Central Government for taking any action under Section 74(3) and Section 213 read with Section 447 of the Companies Act, 2013.
Mr. Abhijit Guhathakurta, Monitoring Agency of the Corporate Debtor v. Royale Partners Investment Fund Ltd.: Company Appeal (AT) (Insolvency) No. 287 of 2020
In this case there was some delay which had occurred due to economic fall-out caused due to COVID-19 and therefore, the Resolution Plan was yet to be implemented. The NCLAT held that the 'Adjudicating Authority' had rightly directed the Appellant / 'Resolution Applicant' to make appropriate payments which was already due consequent to the completion of the given 'Business Days' from the date of approval of the 'Resolution Plan' by it.
Withdrawal of Resolution Plan by Resolution Applicant
Maharasthra Seamless Limited v. Padmanabhan Venkatesh & Ors. (CIVIL APPEAL NO. 4242 OF 2019) dated 22.01.2020
The exit route prescribed in Section 12-A is not applicable to a Resolution Applicant. The procedure envisaged in the said provision only applies to applicants invoking Sections 7, 9 and 10 of the code.
Committee of Creditors of Educomp Solutions Ltd. Vs. Ebix Singapore Pte. Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 203 of 2020] Dated 29th July, 2020 [NCLAT]
The NCLAT held that the NCLT has wrongly allowed the application for withdrawal of the Resolution Plan since the same was beyond its jurisdiction once orders are reserved for approval.
Kundan Care Products Ltd.v. Mr. Amit Gupta Company Appeal (AT) (Insolvency) No. 653 of 2020: NCLAT
The NCLAT observed that "…the sanctity of resolution process has to be maintained and the Resolution Applicant whose Resolution Plan has been approved by Committee of Creditors cannot be permitted to withdraw its Resolution Plan." The NCLAT further observed that "…the approved Resolution Plan admittedly does not have a provision which could be treated as a contract of personal service rendering the same unenforceable or of a nature in respect of which specific performance cannot be an appropriate remedy. This feature of the plan also distinguishes it from the one which was the subject matter in the aforestated Appeal decided by this Appellate Tribunal."
Specific Performance by Adjudicating Authority
Committee of Creditors of Metalyst Forging Ltd v. Deccan Value Investors LP: NCLAT
The NCLAT observed that the Code does not confer any power and jurisdiction on the Adjudicating Authority to compel specific performance of a plan by an unwilling resolution applicant. In this case, the Resolution Applicant sought withdrawal since the plan was neither viable nor feasible on the grounds of wrong information provided in the Information Memorandum.
Force Majeure and Resolution Plan
Committee of Creditors of Amtek Auto Limited Through Corporation Bank S. S. Shroff Versus Dinkar T. Venkatsubramanian And Ors : SC
In the rarest instance, the successful Resolution Applicant in the present case triggered the force majeure clause in the plan. The case is at present pending before the Supreme Court wherein the lenders in contesting such invocation of force majeure clause under the ground of contempt.
Subsequent to the approval of 'Resolution Plan'
An application may be filed before the Adjudicating Authority by a person in-charge of the management or control of the Business and operations of the 'Corporate Debtor' for an order seeking the assistance of the local district administration in implementing the terms of a 'Resolution Plan'.
Finally, on approval by the relevant Tribunal/Supreme Court, the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the IBBI to be recorded on its database.
(Amrita Sarkar is a Delhi-based advocate. She may be reached at [email protected])