Decided on 13 September 2021 | Supreme Court of India

The division bench of the Hon’ble Supreme Court (“SC“) comprising of Justice D.Y. Chandrachud and Justice M.R. Shah in Ebix Singapore Private Limited and Ors. v. Committee of Creditors of Educomp Solutions Limited and Ors. 2021 SCC Online SC 707 has settled the issue with respect to seeking modification and withdrawal of the Resolution Plan (“Plan“) submitted to the Hon’ble National Company Law Tribunal (“NCLT”) after approval by the Committee of Creditors (“CoC“) in a Corporate Insolvency Resolution Process (“CIRP“).

The Supreme Court in the present matter was dealing with multiple appeals where broadly the Resolution Applicants were seeking the withdrawal or modification of the Resolution Plan after approval by CoC and before the same was approved by the Hon’ble NCLT. In the present update, the facts of only the lead appeal concerning the Educomp Solutions Ltd will be discussed although the ratio decidendi applied by the Hon’ble Supreme Court is the same across all appeals.

In the appeal involving Educomp Solutions Ltd, the Hon’ble Supreme Court reaffirming the decision of the National Company Law Appellate Tribunal (“NCLAT“), has held that a resolution plan cannot be withdrawn or modified by by the Resolution Applicant while it is pending for approval by the NCLT.

In the instant case on May 5, 2017, Educomp filed an application for initiation of CIRP under Section 10 of the Insolvency and Bankruptcy Code, 2016 (“the Code“) which was admitted by the NCLT on May 30, 2017. The CoC solicited resolution plans, and the Plan of the Successful Resolution Application i.e. Ebix Singapore Private Limited (“Ebix/RA“) was approved by the CoC. The Resolution Professional had also filed an application seeking approval of the Resolution Plan with the Hon’ble NCLT.

Later, Ebix filed multiple applications before NCLT seeking withdrawal of their Plan basis the following reasons, (a) The plan application is pending for 17 months, (b) CIRP is pending for 26 months beyond statutory period, (c) Tenure of the government contracts awarded to Educomp, which is crucial to its functioning might have ended and (d) Media reports on misgivings about the management and affairs of Educomp.

NCLT while rejecting the earlier applications on technical grounds, have thereafter approved the application for withdrawal whilst observing that NCLT has power to analyse a resolution plan’s ‘effective enforceability,’ and that the resolution applicant’s unwillingness to carry out the resolution would obstruct the plan’s effective execution.

The NCLAT overturned the NCLT’s decision for allowing withdrawal of the Resolution Plan with the following reasons,  (a) Once Plan approved by CoC, NCLT has no jurisdiction to permit its withdrawal, (b) NCLT cannot enter upon wisdom of CoC to approved Plan, (c) SRA accepted the conditions of the plan and no change could be permitted, (d) Order already reserved in approval application, (e) No Special Investigation Audit has been conducted and (f) SRA has participated in the process from Aug 2018 to Jan 2019 when orders had been reserved on the Approval Application, hence it could not claim any right based on delay.

The SRA assailed the order passed by the NCLAT before SC in an appeal under Section 62 of the Code.

Judgment of the Court

The SC while examining various provisions and scheme of the code held that the Code had no provision or law allowing for the withdrawal of a resolution plan except for specific procedure provided under Section 12A of the Code. Hence, a withdrawal outside the purview of Section 12A of the Code could not be permitted by judicial interpretation. The Hon’ble Supreme Court relying on the principle of interpretation casus omissus (‘a circumstance omitted from or not provided for by legislation or regulation and hence regulated by the common law’) to hold that judicial construction could not fill a statutory omission.

It was also held that the CoC had previously rejected the withdrawal of the Plan, and that this decision was made in the exercise of its commercial wisdom, which is not subject to legal review. It was impossible for the NCLT to interfere with it by authorizing an activity that was not lawful. Allowing the withdrawal would be considered “transgressing into the domain of the legislature.”

The SC also rejected the argument that a resolution plan is only binding when it is approved by the NCLT, stating that it is not a simple draft contract between the parties. Rather, it is a product of the Code that, if accepted by the CoC and awaiting NCLT approval, has a binding impact on the CoC and the RA.

The SC also considered how Form H, which is a compliance certificate under the CIRP Regulations, provides for certain contingencies, and whether a RA should be allowed to include a stipulation in the resolution plan regarding the circumstances in which it would withdraw it, such as a “Material Adverse Event.” The claim was dismissed because the Form H contingencies could not affect the Code’s core provisions. Further, the Hon’ble Supreme Court observed permitting introduction of conditionalities regarding the approval of the resolution plan by the NCLT would introduce an additional tier of negotiations, which is not permitted under the scheme of the Code.

The SC stated that the withdrawal of a filed resolution plan would result in a downgrading of both the amounts of following resolution plans and the liquidation value. The SC also requested the NCLT tribunals to be time-conscious and stick to deadlines.

Comment

The unprecedented conditions due the COVID-19 epidemic had a significant impact on the businesses operating globally and firms of Corporate Debtors and successful Resolution Applicants whose Plans may not have been sanctioned by the NCLT in a timely manner for numerous reasons.

Even the CIRP’s 330-days cap, which includes judicial proceedings, can only be stretched in extraordinary cases, this open-ended procedure for further negotiations or a withdrawal would be detrimental to the Corporate Debtor and objective needs to be achieved by the Code, its creditors, and the economy as whole, as the liquidation value depletes with time.

The SC also took note of the Ministry of Corporate Affairs’ Standing Committee on Finance’s (2020-2021) thirty-second report on the ‘Implementation of Insolvency and Bankruptcy Code – Pitfalls and Solutions,’ in which the said Committee concluded that more than 71% of cases are pending for more than 180 days, and that the delays are due to, (a) The NCLT taking a long time to accept CIRPs and (b) Resolution Applicants submitting late and unsolicited bids after the initial bidder becomes known after the deadline for submission of the Plan has passed; and (c) Litigation and the appeals procedure to the NCLAT and the Supreme Court being complicated.

Such lengthy delays create business uncertainty, lower the value of the Corporate Debtor, and may make the bankruptcy process inefficient and costly to the stakeholders.