NCLT Cannot Permit Modification Or Withdrawal Of Submitted Resolution Plan At The Behest Of Successful Resolution Applicant : Supreme Court

The Supreme Court held that adjudicating authority cannot permit modifications or withdrawals of CoC-approved Resolution Plans, at the behest of the successful Resolution Applicant, once the plan has been submitted to it.The bench of Justices DY Chandrachud and MR Shah observed that Resolution Plans cannot be considered as cannot be considered as a simple contractual negotiation between two parties. and the process is comprehensively regulated by the insolvency framework. A submitted Resolution Plan is binding and irrevocable as between the CoC and the successful Resolution Applicant, the court said.In this case, the NCLT allowed the Withdrawal Application filed by Ebix under Section 60(5) of the IBC to withdraw its Resolution Plan submitted for Educomp. While reversing that order, the NCLAT held that the application to withdraw from the Resolution Plan could not have been allowed since: (i) it was barred by res judicata; and (ii) the NCLT does not have jurisdiction to permit such a withdrawal. Appeals were filed in the Supreme Court against the NCLAT decision.In its judgment disposing the appeals, the court explained the nature of a Resolution Plan as envisaged under the Code. The court noted that there are broadly three stages: (i) the first stage is prior to and ends with the approval of the Resolution Plan by the CoC; (ii) the second stage is the interim period between the Resolution Plan's approval by the CoC and before its confirmation by the Adjudicating Authority; and (iii) the third stage is after the approval of the Resolution Plan by the Adjudicating Authority. The contention raised in this case was that Resolution Plans are in the nature of an offer, which becomes binding as a concluded contract only once the Adjudicating Authority has approved the Resolution Plan. The court noted that the text of the IBC does not specify whether Resolution Plans at the second stage of the process, i.e., in the intervening period of submission to and approval by the Adjudicating Authority, are pure contracts. The validity of the Resolution Plan, the court said, is not premised upon the agreement or consent of those bound (although as a procedural step the IBC requires sixty-six percent votes of creditors), but upon its compliance with the procedure stipulated under the IBC. However, it also noticed how they are characterized in foreign jurisdictions.125 The absence of any specific provision in the IBC or the regulations referring to a CoC-approved Resolution Plan as a contract and the lack of clarity in the BLRC report regarding the nature of such a Resolution Plan, constrains us from arriving at the conclusion that CoC-approved Resolution Plans will be governed by the Contract Act and common law principles governing contracts, save and except for the specific prohibitions and deeming fictions under the IBC. Regulation 39(3) of CIRP regulations, as it stood before the IBBI (CIRP) (Fourth Amendment) Regulations 2020 and applicable to the three appellants before us, enabled a framework where a draft Resolution Plan would involve several rounds of negotiations and revisions between the Resolution Applicant and the CoC, before it is approved by the latter and submitted to the Adjudicating Authority88. However, this statutorily-enabled room for commercial negotiation is not enough to over-power the other elements of regulation that detract from the view that CoC-approved Resolution Plans are contracts. CoC-approved Resolution Plans, before the approval of the Adjudicating Authority under Section 31, are a function and product of the IBC's mechanisms. Their validity, nature, legal force and content is regulated by the procedure laid down under the IBC, and not the Contract Act. The voting by the CoC also occurs only after the RP has verified the contents of the Resolution Plan and confirmed that it meets the conditions of the IBC and the regulations therein. The amended Regulation 39(3)89 further regulates the conduct of the CoC on voting on Resolution Plans and has introduced the requirement of simultaneous voting. The IBBI's Discussion Paper issued on 27 August 2021 has invited comments on regulating the process on revisions that can be made to resolution plans submitted to the CoC90. These developments bolster the conclusion that the mechanism prior to submission of a CoC-approved resolution plan is subject to continuous procedural scrutiny by the IBC and cannot be considered as a simple contractual negotiation between two parties. In Section J of the judgment, the court explained how common law remedies of withdrawal or modification on account of frustration or force majeure are not applicable to CoCapproved Resolution Plans owing to the nature of the IBC. The court further noticed that the Parliament has not introduced an explicit provision under the IBC for allowing any amendment of the Resolution Plan after approval of creditors, let alone a power to withdraw the plan."At the same time, the Corporate Debtor and ...

NCLT Cannot Permit Modification Or Withdrawal Of Submitted Resolution Plan At The Behest Of Successful Resolution Applicant : Supreme Court

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