Supreme Court clarifies withdrawal of resolution plan under IBC: Ebix vs. Committee of Creditors (2021)

Case Background

The Supreme Court consolidated three civil appeals to address the issue of withdrawal of resolution plans under the IBC. The first appeal, Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited & Anr., arose from a dispute where Ebix sought to withdraw its resolution plan for Educomp Solutions Limited after it was approved by the CoC but before final approval by the NCLT. The second appeal, Kundan Care Products Limited v. Mr. Amit Gupta and Ors., involved a similar issue where Kundan Care sought to withdraw its resolution plan for Astonfield Renewables Private Limited. The third appeal, Seroco Lighting Industries Private Limited v. Ravi Kapoor RP for Arya Filaments Private Limited & Ors., concerned Seroco’s attempt to modify its resolution plan for Arya Filaments Private Limited.

The core issue in all three appeals was whether a successful resolution applicant can withdraw or modify its resolution plan after it has been approved by the CoC but before final approval by the Adjudicating Authority (NCLT). The Supreme Court analyzed the legal framework of the IBC and the nature of a resolution plan to determine the rights and obligations of the parties involved.

Timeline

Legal Framework

The judgment extensively discusses several key provisions of the IBC, 2016, including:

• ✓ Section 5(26): Defines “resolution plan” as a plan proposed by a resolution applicant for the insolvency resolution of the corporate debtor as a going concern.
• ✓ Section 5(25): Defines “resolution applicant” as a person who submits a resolution plan to the resolution professional.
• ✓ Section 12: Stipulates the timeline for completion of the Corporate Insolvency Resolution Process (CIRP).
• ✓ Section 25(2)(h): Empowers the RP to invite Expression of Interest (EOI) from prospective resolution applicants.
• ✓ Section 29: Requires the RP to provide all relevant information to the Resolution Applicant.
• ✓ Section 30: Outlines the process for submission and approval of resolution plans.
• ✓ Section 30(2): Specifies the mandatory requirements for a resolution plan.
• ✓ Section 30(4): Allows the CoC to approve a resolution plan with a vote of not less than 66% of voting share of the financial creditors.
• ✓ Section 31: Provides that the resolution plan approved by the CoC becomes binding on all stakeholders after the approval of the Adjudicating Authority.
• ✓ Section 60(5): Grants the NCLT jurisdiction to entertain and dispose of questions of law or facts arising out of or in relation to the insolvency resolution.
• ✓ Section 74(3): Provides for penalties for contravention of the resolution plan after its approval.
• ✓ Section 32A: Grants immunity to a Resolution Applicant from any offences committed by the Corporate Debtor before the commencement of the CIRP.

The court also referred to the CIRP Regulations, 2016, particularly Regulation 36 (Information Memorandum), Regulation 37 (Contents of a resolution plan), Regulation 38 (Mandatory contents of the resolution plan), Regulation 39 (Approval of resolution plan by committee) and Regulation 40A (Model time-line for corporate insolvency resolution process). The court emphasized that the IBC is a complete code and its provisions must be interpreted within its framework.

Arguments

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

1. Whether a successful resolution applicant can withdraw its resolution plan after it has been approved by the CoC, but before final approval by the Adjudicating Authority?
2. Whether the NCLT has the power to allow such a withdrawal?
3. Whether the doctrine of res judicata applied to the facts of the case?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court emphasized that the IBC is a complete code and its provisions must be interpreted within its framework. The court also highlighted the importance of adhering to the timelines prescribed under the IBC to ensure a timely and efficient resolution process. The court observed that the Adjudicating Authority cannot use its residuary powers under Section 60(5)(c) to enable withdrawals or modifications of a Resolution Plan, as such an exercise would be contrary to the intent and purpose of the IBC.

The Court also discussed the nature of a Resolution Plan, clarifying that it is not a typical contract but a product of the IBC framework. It is binding between the CoC and the successful Resolution Applicant once it has been approved by the CoC.

The Court also analyzed the terms of the Resolution Plans and the RFRP in all three cases and held that the terms did not enable a withdrawal or modification of the Resolution Plan after its submission to the Adjudicating Authority.

The Court also observed that the RP had not failed in its duty to provide information under Section 29 of the IBC.

The Court also analyzed the principle of res judicata and held that the Third Withdrawal Application was not barred by res judicata.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

• ✓ Timeliness and Efficiency: The court emphasized the importance of adhering to the timelines prescribed under the IBC to ensure a timely and efficient resolution process.
• ✓ Statutory Framework: The court stressed that the IBC is a complete code and its provisions must be interpreted within its framework.
• ✓ Binding Nature of Resolution Plan: The court made it clear that a Resolution Plan is binding on the Resolution Applicant once it is approved by the CoC.
• ✓ Limited Jurisdiction: The court reiterated that the Adjudicating Authority has limited jurisdiction and cannot contravene the commercial wisdom of the CoC.
• ✓ Purpose of IBC: The court emphasized that the purpose of the IBC is to maximize the value of assets and resolve insolvency in a timely manner.

Logical Reasoning

The Court’s reasoning can be illustrated as follows:

Issue 1: Can a successful resolution applicant withdraw their resolution plan after CoC approval but before NCLT approval?

Issue 2: Does the NCLT have the power to allow such a withdrawal?

Key Takeaways

• ✓ A successful resolution applicant cannot withdraw or modify its resolution plan after it has been approved by the CoC and submitted to the Adjudicating Authority.
• ✓ The NCLT does not have the power to allow a withdrawal or modification of a resolution plan, as the IBC does not empower it to do so.
• ✓ The IBC is a complete code, and its provisions must be interpreted within its framework.
• ✓ The timelines prescribed under the IBC must be adhered to ensure a timely and efficient resolution process.
• ✓ Resolution Plans are not purely contractual in nature, rather they are a product of the IBC framework.

Directions

In the case of Kundan Care, the Supreme Court exercised its jurisdiction under Article 142 of the Constitution and directed the NCLT to consider the resolution plan submitted by the appellant. The court also directed that if the resolution plan is approved by the NCLT, the appellant will not be liable for any offences committed by the corporate debtor before the commencement of the CIRP.

Final Order

The Supreme Court allowed the appeals filed by the Committee of Creditors and the Resolution Professional and set aside the order of the NCLAT, which had allowed the withdrawal of the resolution plan. The court held that the resolution plan submitted by Ebix was binding and that Ebix could not withdraw from it. The court directed that the resolution plan should be placed before the NCLT for final approval.

Critical Analysis

The judgment of the Supreme Court in Ebix vs. Committee of Creditors is a landmark decision that has clarified the binding nature of a resolution plan under the IBC. The court’s emphasis on the timelines prescribed under the IBC and the limited jurisdiction of the Adjudicating Authority is commendable. However, the judgment also raises some concerns:

• ✓ Rigidity: The court’s strict interpretation of the IBC may lead to rigidity in the resolution process. There may be genuine cases where withdrawal or modification of a resolution plan is necessary due to unforeseen circumstances.
• ✓ Due Diligence: The court’s emphasis on due diligence may place an undue burden on resolution applicants. It may not always be possible for them to uncover all material information about the corporate debtor before submitting a resolution plan.
• ✓ Commercial Wisdom: While the court has emphasized the commercial wisdom of the CoC, there may be cases where the CoC acts unfairly or irrationally. The Adjudicating Authority should have some power to intervene in such cases.

Despite these concerns, the judgment is a significant step towards ensuring a more efficient and predictable resolution process under the IBC. It will likely reduce the number of frivolous withdrawal applications and encourage resolution applicants to be more thorough in their due diligence.

Impact on Stakeholders

The judgment has significant implications for all stakeholders involved in the insolvency resolution process:

• ✓ Resolution Applicants: Resolution applicants must be more cautious and thorough in their due diligence before submitting a resolution plan. They must also be aware that they cannot withdraw or modify their plan after it has been approved by the CoC.
• ✓ Committee of Creditors: The CoC must act responsibly and fairly in evaluating resolution plans. They must also be aware that their decision is final and binding on the resolution applicant.
• ✓ Resolution Professionals: Resolution professionals must ensure that all relevant information is provided to resolution applicants. They must also ensure that the resolution process is conducted in a fair and transparent manner.
• ✓ Adjudicating Authority: The Adjudicating Authority must act within its limited jurisdiction and ensure that resolution plans comply with the provisions of the IBC.

Overall, the judgment is likely to lead to a more disciplined and efficient resolution process. It will also encourage all stakeholders to act more responsibly and diligently.

Future Implications

The judgment in Ebix vs. Committee of Creditors is likely to have a significant impact on the future of insolvency law in India. Some of the potential implications include:

• ✓ Reduced Withdrawal Applications: The judgment will likely reduce the number of withdrawal applications filed by resolution applicants after the approval of the CoC.
• ✓ Increased Due Diligence: Resolution applicants will be more careful and thorough in their due diligence before submitting a resolution plan.
• ✓ Greater Certainty: The judgment will provide greater certainty to all stakeholders involved in the insolvency process.
• ✓ More Efficient Resolution Process: The judgment will contribute to a more efficient and timely resolution process.
• ✓ Possible Amendments to the Code: The judgment may lead to amendments in the IBC to address the concerns raised by the court.
• ✓ Further Jurisprudence: This judgment will serve as a precedent for future cases dealing with the withdrawal of resolution plans.

In conclusion, the judgment in Ebix vs. Committee of Creditors is a landmark decision that has clarified the binding nature of a resolution plan under the IBC. While the judgment may have some limitations, it is a significant step towards ensuring a more efficient and predictable resolution process.