The Supreme Court on Monday (October 26) has ruled that a Committee of Creditors (CoC) cannot withdraw its approval of a resolution plan after it has been submitted to the National Company Law Tribunal (NCLT) for approval, merely because the corporate debtor's financial position has improved during the intervening period.

“We would not interfere with the impugned order which though found the CoC to have no jurisdiction to withdraw from its approval…The improved profitability alone cannot be a reason to refuse approval if the Resolution Plan meets the requirements under sub-section (2) of Section 30.”, observed a bench of Justice JB Pardiwala and Justice K Vinod Chandran, while affirming the National Company Law Appellate Tribunal's decision which had declined to accept the CoC withdrawal from the resolution plan.

The Court was hearing an appeal filed by Bank of India and other financial creditors challenging the National Company Law Appellate Tribunal's (NCLAT) decision rejecting their request to withdraw an approved resolution plan.

Initially, the CoC had approved a resolution plan submitted by a consortium of successful resolution applicants for ₹172.55 crore. At the time, the corporate debtor's financial position was weak, partly due to the impact of the COVID-19 pandemic on its toll-collection business.

However, due to delays in implementing the plan, the corporate debtor's opening balance reportedly rose from ₹30 crore to ₹165 crore while the resolution plan awaited approval.

The CoC argued that the improved financial position would give the SRA a windfall gain, as it would have to infuse considerably less fresh money than originally envisaged. It sought withdrawal of the approved plan and issuance of a fresh Form G inviting expressions of interest.

The corporate debtor's holding company separately sought termination of the CIRP, claiming that it was willing to offer a one-time settlement to creditors.

The NCLT allowed the withdrawal application after the CoC unanimously supported it. However, the NCLAT set aside that decision, holding that the CoC could not withdraw its approval of the resolution plan. It directed the NCLT to consider the pending applications concerning approval of the plan and the holding company's OTS proposal.

Against the NCLAT's decision, an appeal was preferred before the Supreme Court by the financial creditor and corporate debtor.

Refusing to interfere with the impugned ruling, the judgment authored by Justice Chandran observed that since the IBC does not provide a framework for withdrawing or modifying a CoC-approved resolution plan at the instance of either the CoC or the successful resolution applicant once it has been submitted to the adjudicating authority, , it was impermissible for the CoC to seek withdrawal from the approved resolution plan.

Referring to its decision in Ebix Singapore Pvt Ltd v. Committee of Creditors of Educomp Solutions Ltd., the Court held that the IBC does not permit the withdrawal or modification of a CoC-approved resolution plan at the instance of either the successful resolution applicant or the CoC after it has been submitted to the adjudicating authority.

The Court explained that Section 12A of the IBC, which provides for withdrawal of insolvency proceedings with the approval of 90% of the CoC's voting share, cannot be read in isolation. Read with Sections 30 and 31, the statutory scheme permits withdrawal only until the CoC approves the resolution plan and the plan is placed before the adjudicating authority, the Court said.

“Read together, we are of the opinion that the withdrawal of an application can only be till the CoC approves the plan and after it is placed before the Adjudicating Authority, there can be no withdrawal either of the application or the approved Resolution Plan.”, the Court observed.

The Court also rejected the argument that the corporate debtor's improved financial position justified withdrawing from the resolution plan, holding that once the CoC approves a plan and submits it to the NCLT for approval, the CoC cannot withdraw its approval.

While making these observations, the Court clarified that its remarks, except for its ruling on the binding nature of the resolution plan vis-à-vis the CoC and the SRA, were prima facie and should not govern the NCLT's final adjudication on the adjudication of the application seeking an approval of the resolution plan, where “the consideration has to be with a satisfaction entered of the Resolution Plan meeting the requirements of Section 30(2), as is mandated by Section 31(1) which shall be after verifying the financial position of the CD, as of now, together with the cash balance juxtaposed with the terms of the resolution plan.”, and not “the improved profitability alone cannot be a reason to refuse approval if the Resolution Plan meets the requirements under sub-section (2) of Section 30.”

The Supreme Court disposed of the appeal and requested the NCLT to take up both pending applications together and decide them as expeditiously as possible, considering the delay already caused.

For Appellant(s) : Mr. Gopal Sankarnarayan, Sr. Adv. Mr. T Ravichandran, Adv. Mr. K. V. Mohan- 970, AOR Mr. Kv Balakrishnana, Adv. Mr. Rk Raghvan, Adv. Mr. Devesh Khanduri, Adv. Mr. Tushar Shrivastava, Adv. Mr. Kanishk Garg, Adv.

For Respondent(s) :Mr. Nidhesh Gupta, Sr. Adv. Mr. Bhanu Chopra, Adv. Mr. Deepak Deshmukh, Adv. Ms. Rashmi Shetty, Adv. Mr. Mohammad Shahyan Khan, Adv. Mr. Devashish Tiwari- 4000, AOR Ms. Pooja Dhar, Adv. Mr. Anant A. Pavgi, Adv. Ms. Yajura Rv, Adv. Ms. Shagufa Salim, AOR Mr. Hariom, Adv. Mr. Nikhhil Nayyar, Sr. Adv. Mr. Ankur Kashyap, Adv. Mr. Hasan Murtaza- 2539, AOR Mr. Surendra Khot, Adv. Mr. Sameer Sharma, Adv. Mr. Aman Bajaj, Adv. Mr. Ankit Kumar Sinha, Adv. Mr. Purushartha Singh, Adv. Mr. Siddharth Dua, Adv.