Supreme Court Orders Implementation of Resolution Plan in Amtek Auto Insolvency Case (01 December 2021)

Introduction

Date of the Judgment: 01 December 2021

Citation: Not available in the source document.

Judges: M.R. Shah, J., Sanjiv Khanna, J.

What happens when a company’s resolution plan is approved, but the successful applicant doesn’t follow through? The Supreme Court of India addressed this critical issue in the case of Amtek Auto Limited. This judgment highlights the importance of timely implementation of resolution plans under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court’s decision underscores the need for all parties to fulfill their obligations to ensure the successful revival of distressed companies.

The bench comprised Justices M.R. Shah and Sanjiv Khanna. The judgment was authored by Justice M.R. Shah.

Case Background

The corporate insolvency resolution process (CIRP) against Amtek Auto Limited was initiated on 24 July 2017, following an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). A resolution professional was appointed, and prospective resolution applicants were invited to submit plans by 31 August 2017.

The Committee of Creditors (COC) considered resolution plans from Deccan Value Investor LP (DVI) and Liberty House Group Private Limited (Liberty). DVI later withdrew its plan, and the COC approved Liberty’s revised plan on 2 April 2018. The National Company Law Tribunal (NCLT), Chandigarh, approved Liberty’s plan on 25 July 2018. However, Liberty failed to act as per the approved resolution plan, leading to further legal proceedings.

The COC filed an application before the Adjudicating Authority under Section 60(5) read with Section 74(3) of the IBC, highlighting Liberty’s failure to adhere to the approved resolution plan. The COC requested the reinstatement of the COC and the resolution professional, along with a 90-day extension for a fresh resolution process. The Adjudicating Authority allowed the reconstitution of the COC for reconsideration of DVI’s plan but rejected the request for a fresh process.

The COC appealed to the National Company Law Appellate Tribunal (NCLAT), which initially directed the consideration of all resolution plans, including DVI’s. However, the NCLAT later rejected the COC’s appeal, effectively ordering the liquidation of Amtek Auto. The COC then appealed to the Supreme Court, arguing for an opportunity to attempt a resolution given the availability of interested applicants.

Timeline

Course of Proceedings

The Adjudicating Authority, while acknowledging Liberty’s default, directed the reconstitution of the COC to reconsider DVI’s resolution plan instead of initiating a fresh process. The COC appealed this decision to the NCLAT.

The NCLAT initially directed that all resolution plans be considered, but later rejected the COC’s appeal, leading to a virtual order for liquidation. The COC then appealed to the Supreme Court.

Legal Framework

The judgment primarily revolves around the implementation of the resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). Key provisions include:

• Section 7 of the IBC: This section deals with the initiation of the corporate insolvency resolution process by a financial creditor.
• Section 12 of the IBC: This section specifies the time limit for completing the corporate insolvency resolution process. It states that the process must be completed within 180 days, extendable by another 180 days. The proviso to Section 12, inserted by Act 26 of 2019, mandates completion within 330 days, including extensions and time taken in legal proceedings. A third proviso, also inserted by Act 26 of 2019, specifies that pending processes must be completed within 90 days from the commencement of the amendment act, i.e., 16.08.2019.
  
  “As per Section 12 of the IBC, subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of 180 days from the date of admission of the application to initiate such process, which can be extended by a further period of 180 days.”
  
  “As per proviso to Section 12 of the IBC, which has been inserted by Act 26 of 2019, the insolvency resolution process shall mandatorily be completed within a period of 330 days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under Section 12 of the IBC and the time taken in legal proceedings in relation to such resolution process of the Corporate Debtor.”
  
  “As per the third proviso to Section 12 of the IBC, which is also inserted by Act 26 of 2019, where the insolvency resolution process of a Corporate Debtor is pending and has not been completed within a period stated hereinabove, i.e., within a period of 330 days, such resolution process shall be completed within a period of 90 days from the date of commencement of the IBC amendment Act, 2019, i.e., 16.08.2019.”
• Section 60(5) of the IBC: This section pertains to the powers of the Adjudicating Authority.
• Section 74(3) of the IBC: This section deals with penalties for contravention of the resolution plan.

Arguments

The Committee of Creditors (COC) argued that:

• The Corporate Debtor is financially viable, and there is market interest in submitting a resolution plan.
• The primary aim of the IBC is to resolve the financial affairs of distressed companies, and the failure of one resolution applicant should not undermine this goal.
• Maximizing the value of the Corporate Debtor’s assets is a key objective of the IBC.
• Liberty’s deliberate failure to implement the approved resolution plan constituted a fraud against the Adjudicating Authority, the COC, and all stakeholders.
  
  “Liberty, by its deliberate failure in implementing the Approved Resolution Plan, has defrauded the Adjudicating Authority, the Committee of Creditors and all the stakeholders of the Corporate Debtor, hence, the period extended in proceeding with the CIR Process with Liberty as a Resolution Applicant ought to be excluded to uphold the principles underlining the Code.”
• The time spent dealing with Liberty should be excluded from the overall CIRP timeline.

Deccan Value Investor LP (DVI) initially attempted to withdraw from the resolution plan, but the Supreme Court rejected this attempt. DVI later argued that the conditions precedent to the enforcement of the resolution plan had not been fulfilled.

The innovativeness of the COC’s argument lies in emphasizing the need to prioritize the resolution of the Corporate Debtor over the actions of a defaulting resolution applicant, highlighting the core objectives of the IBC.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the primary issue before the court was the implementation of the resolution plan, particularly given the delays and the conduct of the successful resolution applicants.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not explicitly cite any cases or books in the provided judgment. The judgment primarily focused on the interpretation and application of the provisions of the Insolvency and Bankruptcy Code, 2016.

The legal provisions considered by the court are:

• Section 7 of the IBC: Initiation of corporate insolvency resolution process.
• Section 12 of the IBC: Time limit for completing the corporate insolvency resolution process.
• Section 60(5) of the IBC: Powers of the Adjudicating Authority.
• Section 74(3) of the IBC: Penalties for contravention of the resolution plan.

Judgment

The Court directed the implementation of the approved resolution plan within four weeks, emphasizing that any lapse would be viewed seriously. The Court also directed that the Rs. 500 crores deposited by DVI be transferred to the lenders as per the plan.

The Court observed that:

• The approved resolution plan has to be implemented at the earliest, as mandated under the IBC.
• The timelines under Section 12 of the IBC are crucial, and delays defeat the purpose of the law.
• The time limit has been condoned due to various litigations and the peculiar facts of the case.

The Court’s reasoning was primarily driven by the need to adhere to the timelines specified in the IBC and to ensure that the resolution process is not unduly delayed. It emphasized that the resolution plan, once approved, must be implemented promptly.

The Court did not explicitly consider alternative interpretations but focused on ensuring the implementation of the already approved plan.

The decision was reached by directing the implementation of the resolution plan within a specific timeframe, warning against any further delays.

The reasons for the decision include:

• The need to adhere to the timelines under Section 12 of the IBC.
• The importance of implementing the approved resolution plan.
• The need to avoid further delays in the resolution process.

The judgment did not include any dissenting opinions.

The potential implications for future cases are that the Supreme Court has emphasized the importance of timely implementation of resolution plans and that any delays will be viewed seriously.

No new doctrines or legal principles were introduced in this judgment.

“Therefore, we direct all the concerned parties to the approved resolution plan and/or connected with implementation of the approved resolution plan including IMC to complete the implementation of the approved resolution plan, within a period of four weeks from today, without fail.”

“It is further directed and it goes without saying that on implementation of the approved resolution plan and even as per the approved resolution plan, an amount of Rs. 500 crores now deposited by DVI-successful resolution applicant be transferred to the respective lenders/financial creditors as per the approved resolution plan and/or as mutually agreed.”

“Any lapse on the part of any of the parties in implementing the approved resolution plan with the time stipulated hereinabove shall be viewed very seriously.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure the timely implementation of the resolution plan and to uphold the objectives of the Insolvency and Bankruptcy Code, 2016 (IBC). The Court’s reasoning emphasized the importance of adhering to the timelines stipulated under Section 12 of the IBC and preventing further delays in the resolution process.

The Court’s sentiment can be characterized as a strong emphasis on the rule of law and the need for all parties to fulfill their obligations under the approved resolution plan. The Court’s observations and directions reflect a sense of urgency and a commitment to ensuring that the resolution process is completed efficiently and effectively.

The ratio of fact to law is as follows:

The Court’s logical reasoning can be summarized as follows:

Key Takeaways

• The Supreme Court has emphasized the importance of adhering to the timelines specified under the Insolvency and Bankruptcy Code, 2016 (IBC).
• Resolution plans, once approved, must be implemented promptly, and any delays will be viewed seriously.
• All parties involved in the resolution process, including resolution applicants and the Implementation and Monitoring Committee (IMC), must fulfill their obligations in a timely manner.
• The Court’s decision underscores the need for efficient and effective implementation of resolution plans to achieve the objectives of the IBC.

Directions

The Supreme Court directed the following:

• All concerned parties must complete the implementation of the approved resolution plan within four weeks.
• The amount of Rs. 500 crores deposited by DVI must be transferred to the respective lenders/financial creditors as per the approved resolution plan.
• Any lapse in implementing the resolution plan within the stipulated time will be viewed very seriously.

Specific Amendments Analysis

This section is intentionally skipped as the judgment does not discuss any specific amendments.

Development of Law

The ratio decidendi of this case is that once a resolution plan is approved under the Insolvency and Bankruptcy Code, 2016 (IBC), its implementation must be carried out promptly and within the timelines specified under Section 12 of the IBC. Any delays or non-compliance will be viewed seriously by the courts.

While this judgment does not introduce a new legal principle, it reinforces the existing legal framework and emphasizes the importance of adhering to the timelines and the spirit of the IBC.

Conclusion

The Supreme Court’s judgment in the Amtek Auto case underscores the critical need for timely and effective implementation of resolution plans under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court’s directive to complete the implementation within four weeks highlights the importance of adhering to the timelines specified in the IBC and ensuring that all parties fulfill their obligations. This judgment serves as a reminder that the resolution process is not complete until the approved plan is fully implemented, and any delays or non-compliance will be viewed seriously.