LEGAL ISSUE: Whether the Adjudicating Authority was correct in allowing both resolution applicants to modify their plans to ensure a level playing field.
CASE TYPE: Insolvency and Bankruptcy Law
Case Name: Ajay Gupta vs. Pramod Kumar Sharma
Judgment Date: 25 February 2022
Introduction
Date of the Judgment: 25 February 2022
Citation: 2022 INSC 172
Judges: Dinesh Maheshwari, J. and Vikram Nath, J.
Can an Adjudicating Authority permit modification of resolution plans by all applicants to ensure fairness in the insolvency resolution process? The Supreme Court of India addressed this question in a recent case concerning the Insolvency and Bankruptcy Code, 2016. This judgment clarifies the importance of maintaining a level playing field among resolution applicants. The bench comprised Justices Dinesh Maheshwari and Vikram Nath, with the judgment authored by Justice Dinesh Maheshwari.
Case Background
The case involves a corporate insolvency resolution process (CIRP) for B.B. Foods Pvt. Ltd. Two resolution applicants were in contention: a consortium led by Ajay Gupta (the appellant) and another resolution applicant, Sirius Foods Private Limited. The Committee of Creditors (CoC) had deliberations on the resolution plans submitted by both parties. During these deliberations, the CoC pointed out certain defects and technical difficulties in both plans. Both applicants assured the CoC that they would rectify the issues.
Following the CoC meeting, Ajay Gupta submitted an affidavit on 17 November 2021, clarifying his resolution plan. In this affidavit, he proposed to make the payment upfront within 90 days of the National Company Law Tribunal (NCLT) approving the plan. This was a change from the original payment schedule. The resolution professional rejected this modification. Subsequently, the appellant approached the NCLT seeking to amend his resolution plan.
The NCLT, on 13 December 2021, allowed Ajay Gupta to amend his plan but also permitted the other resolution applicant to modify their plan to ensure a level playing field. The appellant challenged this order before the National Company Law Appellate Tribunal (NCLAT), which upheld the NCLT’s decision. The appellant then approached the Supreme Court.
Timeline
| Date | Event |
|---|---|
| 27 September 2021 | Consortium of Prabhat Warehouse and Cold Storage Limited and Ajay Gupta submitted a resolution plan. |
| 22 October 2021 | Consortium of Prabhat Warehouse and Cold Storage Limited and Ajay Gupta submitted an amended resolution plan. |
| 02 November 2021 | CoC meeting where defects in both resolution plans were discussed. |
| 17 November 2021 | Ajay Gupta submitted an affidavit proposing changes to his resolution plan. |
| 18 November 2021 | Ajay Gupta sent a communication along with his affidavit dated 17.11.2021. |
| 13 December 2021 | NCLT allowed Ajay Gupta to amend his plan and also permitted the other resolution applicant to modify their plan. |
| 21/22 December 2021 | CoC considered the modified resolution plans and approved the plan of the other resolution applicant. |
| 13 January 2022 | NCLAT upheld the NCLT’s decision. |
| 25 February 2022 | Supreme Court dismissed the appeal. |
Course of Proceedings
The appellant, Ajay Gupta, initially sought to amend his resolution plan before the Adjudicating Authority (NCLT). The NCLT allowed the amendment but also permitted the other resolution applicant to modify their plan to maintain a level playing field. Aggrieved by this order, the appellant appealed to the NCLAT. The NCLAT upheld the NCLT’s order, stating that it was necessary to ensure fairness. The appellant then approached the Supreme Court, challenging the NCLAT’s decision.
Legal Framework
The judgment primarily revolves around the interpretation and application of the Insolvency and Bankruptcy Code, 2016. Specifically, Section 62 of the Code was invoked by the appellant, which deals with appeals to the Supreme Court. The core issue was whether the Adjudicating Authority (NCLT) had the power to allow modifications to resolution plans by all applicants to ensure fairness.
Arguments
Appellant’s Arguments:
- The appellant argued that his affidavit of 17 November 2021 was merely a clarification and not a modification of the resolution plan. He contended that the changes were to meet the requirements of the CoC as reflected in the meeting dated 02.11.2021.
- The appellant submitted that the Request for Resolution Plan (RFRP) did not permit modification of the resolution plan.
- The appellant argued that by allowing the other resolution applicant to modify their plan, the Adjudicating Authority had prejudiced his case, as the terms of his plan became known to the other applicant.
Respondent’s Arguments:
- The respondent argued that the NCLT’s order was necessary to ensure a level playing field.
- The respondent contended that the appellant’s proposal to make upfront payment and reduce the plan term from 180 days to 90 days constituted a modification of the resolution plan.
- The respondent argued that the appellant himself divulged the terms of his plan before the Adjudicating Authority.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Whether the Adjudicating Authority erred in allowing modification of resolution plans by both applicants? |
✓ Affidavit was a clarification, not a modification. ✓ RFRP did not permit modification. ✓ Prejudiced by disclosure of plan terms to other applicant. |
✓ Order necessary to ensure level playing field. ✓ Appellant’s proposal was a modification. ✓ Appellant divulged the terms of his plan. |
Innovativeness of the argument: The appellant’s argument that his affidavit was merely a clarification and not a modification was innovative, attempting to circumvent the rules against modifying resolution plans.
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues but addressed the core question of whether the NCLT was correct in allowing both resolution applicants to modify their plans to ensure a level playing field.
Treatment of the Issue by the Court
| Issue | Court’s Decision and Reasoning |
|---|---|
| Whether the Adjudicating Authority was correct in allowing both resolution applicants to modify their plans? | The Court held that the Adjudicating Authority was correct. It reasoned that the appellant’s proposal to change the payment schedule and reduce the plan term constituted a modification of the resolution plan. Therefore, to ensure fairness, it was appropriate to allow the other applicant to also modify their plan. |
Authorities
The Court did not explicitly cite any previous cases or books. The judgment primarily relied on an interpretation of the facts and circumstances of the case within the framework of the Insolvency and Bankruptcy Code, 2016.
The Court did consider the following legal provisions:
- Section 62 of the Insolvency and Bankruptcy Code, 2016: This section deals with appeals to the Supreme Court.
| Authority | How it was Considered |
|---|---|
| Section 62 of the Insolvency and Bankruptcy Code, 2016 | The Court noted that the appellant invoked this section to appeal to the Supreme Court. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Appellant’s argument that his affidavit was a clarification, not a modification. | The Court rejected this argument, stating that the changes proposed by the appellant, including the payment schedule and plan term, constituted a modification. |
| Appellant’s argument that RFRP did not permit modification. | The Court did not directly address the RFRP but focused on the fact that the appellant sought and was granted permission to amend his plan. |
| Appellant’s argument that he was prejudiced by disclosure of his plan terms. | The Court held that the appellant was responsible for disclosing his plan’s terms before the Adjudicating Authority. |
| Respondent’s argument that NCLT’s order was necessary to ensure a level playing field. | The Court accepted this argument, stating that it was reasonable for the NCLT to allow both applicants to modify their plans to ensure fairness. |
| Respondent’s argument that appellant’s proposal was a modification. | The Court agreed with this argument, noting that the change in payment schedule and plan term constituted a modification. |
| Respondent’s argument that the appellant divulged the terms of his plan. | The Court agreed with this argument, stating that the appellant was responsible for the disclosure. |
How each authority was viewed by the Court?
The Court did not explicitly cite any previous cases. However, it did consider the legal provision:
- Section 62 of the Insolvency and Bankruptcy Code, 2016: The Court acknowledged that the appeal was made under this section but did not find merit in the appeal.
What weighed in the mind of the Court?
The Court’s decision was primarily influenced by the need to maintain a level playing field between the resolution applicants. The Court emphasized that when one applicant was permitted to modify their plan, it was only fair to allow the other applicant the same opportunity. The Court also noted that the appellant was responsible for disclosing the terms of his plan.
| Sentiment | Percentage |
|---|---|
| Fairness and Level Playing Field | 60% |
| Appellant’s Responsibility for Disclosure | 25% |
| Modification of Resolution Plan | 15% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 40% |
| Law | 60% |
Logical Reasoning:
The Court did not consider any alternative interpretations or reject any specific legal points. The decision was primarily based on the factual matrix of the case and the need to ensure fairness in the insolvency resolution process.
The Court held that the Adjudicating Authority’s decision to allow both resolution applicants to modify their plans was reasonable and sound. The Court emphasized that the appellant’s proposal to change the payment schedule and reduce the plan term constituted a modification. The Court also noted that the appellant was responsible for disclosing his plan’s terms.
The Court stated, “When that was being permitted at the request of the appellant himself, we cannot find fault in the Adjudicating Authority having passed an order so as to balance the position of the respective parties and to provide level playing field by granting corresponding permission to the other resolution applicant to place its modification for consideration of CoC.”
The Court further observed, “So far as affidavit dated 17.11.2021 is concerned, though the appellant stated in paragraph 3 thereof that the payment of upfront amount under the resolution plan was in no way going to modify the plan but, that had only been an expression of the understanding of the appellant about the legal effect of the propositions put forward by him, which included the modification of the term of plan from 180 days to 90 days.”
The Court also noted, “If the appellant had chosen to divulge/disclose the terms of its resolution plan before the Adjudicating Authority, there had not been any fault on the part of the resolution professional or the CoC or the other resolution applicant.”
There were no majority or minority opinions. The bench was unanimous in its decision. The Court did not introduce any new doctrines or legal principles.
Key Takeaways
- The Adjudicating Authority can allow modifications to resolution plans by all applicants to ensure a level playing field.
- Any change in the terms of a resolution plan, such as payment schedule or plan term, constitutes a modification.
- Resolution applicants are responsible for the consequences of disclosing their plan’s terms before the Adjudicating Authority.
- The Supreme Court will not interfere with decisions aimed at maintaining fairness in the insolvency resolution process.
Directions
The Supreme Court did not give any specific directions, leaving the matter open for examination by the Adjudicating Authority in accordance with law.
Specific Amendments Analysis
There is no specific amendment discussed in the judgment.
Development of Law
The ratio decidendi of the case is that the Adjudicating Authority has the power to allow modifications to resolution plans by all applicants to ensure a level playing field. This decision reinforces the principle of fairness in insolvency proceedings, ensuring that all applicants have an equal opportunity. There is no change in the previous position of law.
Conclusion
The Supreme Court dismissed the appeal, upholding the decisions of the NCLT and NCLAT. The Court emphasized the importance of maintaining a level playing field among resolution applicants and held that the Adjudicating Authority was correct in allowing modifications to resolution plans by all applicants. The judgment underscores the principle of fairness in the insolvency resolution process.